GM Loses Money On Every Volt Built

thecarchik writes "Doug Parks, vehicle line executive for the 2011 Chevrolet Volt, GM's range-extended electric vehicle, confirmed Tuesday that the company loses money on every Volt it sells. The expensive 16-kilowatt-hour battery pack, which likely costs GM somewhere between $8,000 and $12,000, is clearly too expensive to let the company build hundreds of thousands of Volts right away. Just 10,000 Volts will be built in 2011, though GM is working to increase that number. GM plans to chip away incrementally to lower the costs of the specialized components in the Volt, especially the power electronics. The price of consumer lithium-ion cells has fallen 6 to 8 percent annually since their 1989 launch; the large-format cells in automotive packs seem likely to follow the same curve and as costs are lowered the Volt may stop being a loss for the company."

Comments

In the Red vs Negative Margin

[Chris Burke]

If you spend $1,000,000,000 developing a product that you sell for $50k then you will make a loss to start with - no matter what.

That's not what this is about. This is not about fixed or one-time costs. This is about gross margins on each item sold. That means the delta between what you can sell a given instance of the product for, and what it cost to make that particular instance above and beyond any expenses already incurred.

If you spend $1bil to develop a product and tool the factor etc, then prior to making or selling any product you are $1bil in the red. You have lost this amount of money even if you never sell a single product. So this cost alone cannot be used to say that you lose money on every item sold.

If, in addition to those costs, building an instance of the product costs $40k in labor, materials, and energy and you sell it for $50k, then you have a gross margin of $10k, and after the sale your total balance for the project is $999,990,000. You have made $10k on the sale. Sell enough product at this margin, and you'll eventually pay off the R&D expenses and the project as a whole will be in the black.

If, on the other hand, it costs $60k to build that product and you sell it for $50k, then your gross margin is $-10k, and your balance after the sale is $1,000,010,000. You have lost $10k on the sale. Every product you sell is actually costing you more money, not making you money. Unless costs are cut or prices raised, you can never pay back the expenses, because every sale simply costs you more money.

That is what it means to say "GM loses money on every Volt built".

However, TFA itself seems to be slightly confused on this distinction, and does not provide any link to the actual alleged quote. If Doug Park actually said that they are going to lose money on every Volt sold, then the 'gross margin' sense is what he meant. If he said that they don't expect the Volt (as in the project) to be profitable for several years, then that most likely means they are selling the Volt for a profit and hope to make back their expenses in several years.

Re:Next question

[Black Gold Alchemist]

Who is building all the new power generating plants we'll need when millions of drivers have electric cars? Now is the time to start. You can't build those plants overnight.

No one is, because no one needs to. Four big EV denier myths:

More electricity needed - debunked. Here's the link to the original Oak Ridge Nation Laboratory Report (currently down).

More global warming - not true. DOE estimates average of 1.3 lbs CO2 per kWh. Coal (the worst CO2 emitter) emits 2.1 lbs CO2 per kWh. Electric cars get between 4 and 10 miles per kWh. Worst case, that means 0.5 pounds of CO2 per mile. 1 gallon = 19.4 lbs of CO2. So, that's around 38 mpg CO2 emissions equivalent in the absolute worst case scenario. In the average case, we are looking at around 59.7 MPG. Diesel emits more CO2 than gasoline, by a factor of about 1.15. So, worst case is 43.7 MPG diesel, and average is 68.7 MPG diesel. These numbers are EPA testing of Tesla roadster and Rav4EV.

Rare lithium - peak lithium is a Li.

Toxic batteries - lithium-ion is largely non-toxic. Tesla was working on recycling before the cars even hit the streets. Lead acid (which is toxic) is 97% recycled.