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

This is only temporary

[BadAnalogyGuy]

This is only an issue in lower volume production runs.

Although they can never overcome the cost penalty associated with each vehicle, they can make it up in volume.

Re:This is only temporary

[PopeRatzo]

GM no longer plays by the white mans fiscal rules.

You mean the rules that the top 1 percent of white men made and the rest of us are supposed to abide by?

Tell me, AC, which transnational corporation does play by your "rich white man's rules"?

Re:This is only temporary

[mcrbids]

It's simply amazing how much stupid there is that's been moderated up!

GM isn't a government agency. In case you weren't paying attention, it's being restructured in what really amounts to a form of bankruptcy. It's close to paying back every dime it borrowed, and it's now almost certain that the taxpayers will ultimately pay very little for saving GM. So much for your implied "gubbmint sucks", huh?

Further, not only is GM losing a bit of money on each one sold, this is a good thing! GM is behaving EXACTLY like a start up, delivering an innovative product at a time when it's potentially very useful, and worrying about profits after marketshare and supply channels get streamlined. This is how Amazon became Amazon, how Tesla became Tesla, how Google became Google, how EBay became... you getting the idea yet?

For any virtually ANY truly innovative product, there is always an income gap between initial development and profitability that's usually measured in at least months, and often years. This isn't surprising, it's pretty much a requirement, and if it's not the case, then there's a strong implication that the thing being produced isn't innovative at all!

With the Volt, GM is staking its future on the clean, energy efficient, non-polluting car of the future. Go GM!

Re:This is only temporary

[The Master Control P]

This got modded +5, Insightful? Good grief, Charlie Brown.

FWIW, the US government wasn't buried in debt or routinely running massive deficits until Reagan/Bush Sr. Then Bush Jr. came along and for the first time ever the government was stupid enough to start wars (which are really quite expensive) with not only no plan to pay for them, but while cutting taxes at the same time. Today, the same people who voted for the likes of Dick "deficits don't matter" Cheney are screaming bloody murder about "Obama's deficit spending" with no apparent comprehension of how surreal this and their other behaviors are.

Meanwhile, Congress (at the behest of the party of "fiscally responsibility") is deciding whether to saddle us with $3.6T or $4.2T of further debt by extending the Bush tax cuts for the next 10 years. The same titans of responsibility absolutely refuse to consider the idea of paying off our debt with taxes, but can't seem to name anything that consumes more than .1 percent of the federal budget when pressed for programs to cut.

(I consider the modern Republican party to be nothing more than a scam that seeks power for the explicit purpose of perverting the United States into some combination of theocracy and corporate plutocracy. I hold the Democrats in marginally less contempt; At least they generally offer the people a reacharound while they're screwing us)

Re:This is only temporary

[jollyreaper]

(I consider the modern Republican party to be nothing more than a scam that seeks power for the explicit purpose of perverting the United States into some combination of theocracy and corporate plutocracy. I hold the Democrats in marginally less contempt; At least they generally offer the people a reacharound while they're screwing us)

The Democratic Party exists to occupy the space that would otherwise be taken by a real opposition party. They're like the placebo thermostat building maintenance installs in the office so the workers can think that they're adjusting the temperature and quit complaining.

Not Surprising

[pookemon]

You lose money on every product until you've sold enough to pay off the retooling process, the design process and to force the price of new materials/parts to drop. 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.

So why is this news? (Slashvertisement anyone?)

Re:Not Surprising

[PixelJaded]

Obviously you've never worked in a highly competitive mass-market industry. $1 billion R&D / tooling cost is pretty normal for a mass market GM vehicle platform. If you're selling 1+ million vehicles at $50k then $1,000,000,000 is chump change. If you spend $100 million on development / tooling you'll either lose out badly on unit costs, lose out badly on quality or both against someone like Toyota, GM, Ford, Volkswagen, etc. who are plowing the $1+ billion necessary into each platform. This is not news purely because GM went into the volt expecting to lose money the first few years. Its not the million vehicles they sell over the next few years that they care about (that's tiny compared to their pure petrol / diesel volume), its the several million hybrids or all-electric vehicles they expect to be selling every year by 2020 that they're focusing on.

Re:Not Surprising

[bigdavex]

You lose money on every product until you've sold enough to pay off the retooling process, the design process and to force the price of new materials/parts to drop.

Yes, but that's not what "loses money on every Volt it sells" means. That phrase means that they're taking a loss on each marginal unit completely ignoring the fixed costs. What you're describing is, "GM hasn't yet recouped its development costs."

Price vs gasoline.

[olsmeister]

If gasoline were to suddenly become significantly more expensive, the asking price could be adjusted accordingly.

Re:And computers used to cost millions of dollars

[tirefire]

It stinks that GM is losing money on these, but they're putting the effort into it, and I have to applaud them for it. Then again, didn't the PS3 and Xbox 360 cost more to make at launch time than they were selling for? Maybe GM is on to something...

(emphasis mine)

Oh, they're on to something, alright. GM is "too big to fail". This makes it easy for them to start risky, costly ventures, because they'll either succeed and make GM rich, or the gov't will bail GM out with more loans until GM is profitable again.

This no big deal

[Howard Roark]

It's a well known fact that all hybrids lose money at first. Toyota lost something like $5000 on each early model Prius. This will all work out.

Re:GM loses money?

[Chris Burke]

The electricity has to come from somewhere, and the same tree huggers who like to see these 'friendly' vehicles are also the same tree huggers demanding that the filthy smoke belching evil coal burning plants be closed - with no real viable alternative methods of producing electricity for their electric cars.

Um, yes, because coal plants are nasty too. The awesome thing about electric cars is that you can have them powered by coal today for a modest improvement in environmental damage, and then if the coal plant is replaced with something better, then your car automagically becomes "greener". Without having to replace the entire vehicle fleet again.

And sure some tree huggers are against them, but this tree hugger thinks fission is a very viable method of producing electricity.

But even in the meantime, electric cars are better. And the tree huggers do not have the power to shut down coal plants if there is nothing to replace them. So I'm not sure why you're worried.

GM versus Sony

[damn_registrars]

We may recall that when the PS3 first came out Sony was losing money on each unit sold. That didn't exactly bring down Sony in the process; nor did it cause people to scream out that it was the result of some great conspiracy.

Not Temporary, Microeconomics is stubborn

[Kurofuneparry]

You're misreading the difference between constant costs (overhead) and variable costs (production costs). Volume only works if you can get the variable costs (the costs of producing each item) below the profit of selling each item.

Economies of scale (making each item cheaper to produce by producing more) doesn't work for the Volt: the batteries have a constant cost and making more only makes them MORE expensive if anything. This is because the resources to make them are limited and increasing demand causes prices to increase.

Therefore they can't overcome the cost penalty by making it up in volume. This move only makes sense for GM if the practice and market establishment of selling now will later be useful for them when making the cars is profitable. There's another explanation: the owners of GM are pushing this for political reasons. Considering the rhetoric about making them make cleaner cars when the bailout occurred, it would be a conspiracy theory to NOT believe that the government had a hand in this.

Then again.... I'm an idiot.....

Re:Not Temporary, Microeconomics is stubborn

[plague911]

You are right you are in idiot. The batteries do not have a constant cost. They have a decreasing cost as even damn blurb said so "price of consumer lithium-ion cells has fallen 6 to 8 percent annually since their 1989 launchprice of consumer lithium-ion cells has fallen 6 to 8 percent annually since their 1989 launch" Seriously wtf did you put any effort in your ideas at all?

Re:And computers used to cost millions of dollars

[PopeRatzo]

Anyone who blames one party over another for this is a complete moron and a partisan stooge.

And anyone who can't identify which of the politicians are enabling this situation is deaf, dumb and blind.

Listen to yesterday's interview with Vermont's Senator Bernie Sanders. He's not part of the problem. Now go listen to the statement yesterday by Kentucky's Senator Mitch McConnell about how they're going to hold everyone hostage until they can get tax breaks for people who don't need them, don't deserve them, and in many cases don't want them. Now check their voting records. Now tell me all politicians are the same.