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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."
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.
It won't be a problem. They can make it up in volume.
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?)
dnuof eruc rof aixelsid
This whole 'new technology is pricey and scary' has to stop. It's new, it's expensive, we get it.
Someone (GE in this case) will step up and start buying. As production increases, volume drives the cost down. Technology improvements drive the cost down even further.
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...
If gasoline were to suddenly become significantly more expensive, the asking price could be adjusted accordingly.
Electric eels.
You don't have to make a profit when you are too big to fail and your controlling shareholder is the US government.
Negative moral value of force outweighs the positive value of good intentions.
Nothing new in manufacturing really, but it might be the first time it's been seen in production cars I suspect. You make a bunch at a loss initially, tweak the technology, the manufacturing process, streamline the design and eventually you start making a profit on them.
In some situations, those early losses will be spun back into R&D costs on the budget and targeted as profit that has to be made on future units.
Hopefully they'll stick with it and start driving costs down so that the technology can be made cheaper and is more efficient, rather than pulling the plug (no pun intended) and giving up on it.
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.
Howard Roark, Architect
I believe in a Man's right to exist for his own sake.
... is there anything you can't screw up?
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.
The enemies of Democracy are
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.
The enemies of Democracy are
It's the razorblade model - you buy it, and they hold a razorblade to your b*lls
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.
Responsibility is an addiction
Virtue is a temptation
Community is a cartel
Back on planet earth, the UAW actually bought a portion of GM. Why would they intentionally screw up the profits of GM when they have their own money invested in it? After all, you can't extract money from a company that doesn't exist...
Damn_registrars has no butt-hole. Damn_registrars has no use for a butt-hole.
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.
Damn_registrars has no butt-hole. Damn_registrars has no use for a butt-hole.
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.....
...... and idiots rule the world....
Japanese manufacturers such as Toyota/Lexus and Honda. They've been selling hybrids worldwide for around ten years now, and you can bet that they, too, lost money on every sale for at least the first few years. In doing so, they bought themselves ten years to refine their processes, tooling, and supply chains, iron out bugs, and discover (and patent) non-obvious efficiencies and improvements.
Meanwhile, the American auto manufacturers chose to stick with the same old profit-heavy SUVs, elderly sedans, and rental-grade compacts they'd been selling for the past twenty years.
The history of alternate-fuel technology is yet another demonstration of US companies' skill at trading the next decade's earnings for the next quarter's. I have zero sympathy for Chevrolet and whatever learning curve they (and their customers) are about to climb with the Volt, because with any competent management in place they would already have several years' experience manufacturing these cars by now.
Good thing they're "too big to fail," I guess.
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They have 4 economical fuel efficient cars. YET they have 5 different Corvette models.
You do realize that the level of horsepower found in Corvettes is by highly efficient engine designs, right? Did you know that most Corvettes achieve 30+ MPG on the freeway? Sure, those V8s can suck gas when pushed to their limits but they are very good at taking small sips for everyday driving.
I went to eat some animal crackers and the box said, "Do not eat if seal is broken." I opened the box and sure enough..