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Bob Lutz: Huge Chevy Volt Cost Estimates Are Wrong, Here's Why

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2012 Chevrolet Volt

2012 Chevrolet Volt

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Yesterday, we ran a story sourced through Reuters, asking how much money GM was losing on every Chevy Volt it builds.

The Reuters article was based on figures from several Michigan-based industry analysts, claiming that Chevy might be losing up to $49,000 on every Volt it makes.

Those figures were estimated by working out the total cost of development of the Volt project, divided by the number of cars so far--a method which we suggested ourselves was a little spurious:

"...it's worth remembering that this figure will go down with every Volt sold, and unit production cost can only truly be calculated over the course of a full production run."

Now, "father of the Volt" Bob Lutz has weighed in via Forbes to confirm just that--that the true cost of each Volt is nothing like the numbers estimated--and that the car is "doing exactly what it was designed to do."

The Reuters report explained that when dividing the $1.2 billion development costs, each of the 21,500 Volts sold so far has cost GM $56,000 per car. Throw in the actual cost of production and, depending on who you believe, the total per-car cost could be between $75,000 and $88,000. Minus the car's purchase price and--theoretically--you have your headline loss figure.

The article also suggested that due to the incredibly low lease deals being used to pull in customers, GM's losses could be even greater.

How to calculate unit cost...

Predictably, Lutz points out the same factor we did, which is that a product's true unit cost is based on to the total number produced over the product's lifetime. In other words, GM hasn't calculated its figures based on the 21,500 sold so far, but on a much greater number over the life of the vehicle.

What Lutz doesn't mention, but a commenter on our original article reminds us, is that the Volt's development costs are also shared with other variants of the Volt sold overseas--the Opel and Vauxhall Ampera in Europe, and the Holden Volt in Australia. Detail changes aside the cars are near-identical, so a true figure must include these vehicles.

'Revenge of the Electric Car' premiere: Bob Lutz arrives in a Chevy Volt

'Revenge of the Electric Car' premiere: Bob Lutz arrives in a Chevy Volt

Enlarge Photo
Lutz throws together a few figures to show how in reality, the Volt doesn't cost a great deal more than a Chevy Cruze to produce. The electronic aspects of the car make up around $10,000 of the production costs, and Lutz suggests another $1,000 in labor costs, for 20 hours assembly.

With a dealer net price of around $37,000, that leaves as much as $26,000 to produce the rest of the car--more than a Chevy Cruze sells for. If the rest of the car cost that much to build then Chevy would be losing money hand over fist on the Cruze too--which isn't the case.

Loss-making, but not by much

In reality, Lutz says that the Volt is nearer to variable break-even, or maybe even on the cusp of positive gross profit margin.

That still doesn't cover other fixed costs, depreciation and amortization, so as GM's Doug Parks pointed out yesterday, the Volt is still making a loss--but it's a much, much smaller loss than some industry analysts have predicted.

And as we pointed out yesterday, Toyota's Prius has already set a precedent for disruptive technology in the same way the Volt is doing today--and Toyota has churned out over four million hybrids in the last decade or so.

In the interests of balance, it's still unclear how well the Volt will continue selling after incentives end, with many suggesting that $199 per month lease deals are unsustainable in the long term--but those figures don't seem as precariously "in the balance" as they might have if Chevy was making a huge loss on each car.

And, just as with all the Volt-bashing that took place last year, Lutz has proven that if you want to attack the Volt, it helps to get your math right...

Hat-tip to those readers who brought Bob Lutz's article to our attention.

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Comments (12)
  1. What really got me about the Reuters article is the suggesting that selling lots of Volts would be bad for GM. I think the opposite is actually the case.
     
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  2. I'd like to chime in. Lutz started the Volt as a strategic investment in vehicle tech in response to the Tesla Type S. If Tesla can innovate so can GM. GM is also developing through Volt testing expertise that will be used in other vehicles. The time is right with advances in light weight structures, batteries and other matters to make more efficient cars. We will all know the cost only after the Volt production run has ended. They'll actually profit off the car.
     
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  3. @Tom: Actually, it was in response to the Tesla Roadster. The Model S was no more than an idea in 2006 when the Volt concept was developed, whereas the Roadster was then known.
     
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  4. The Bob Lutz article really is a fascinating source of inside info on cost numbers. We learn that battery cost is about $350/KWH in cell cost and that the total EV part of the Volt's drivetrain is about $10K. That's really interesting info and it's actually less than I expected. Compared to guestimates of Cruze building cost it would appear the Volt costs about $25k a pop to build tops. That doesn't sound too bad and explains why other carmakers are currently moving into the plug in hybrid business.
     
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  5. It's incredible to me that Reuters and the so-called experts would use such bizarre logic. If they had applied the same logic 18 months ago, just after the first Volt rolled off the production line, the conclusion would be that GM lost $1.2 billion on that car. Which implies that if GM built 100 of them, they'd lose $100 billion. By Reuters logic, Chevy should stop the bleeding now by immediately halting Volt production.

    Hard to believe these people get paid as journalists.
     
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  6. sounds like we need to investigate the cost of the Cruze
     
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  7. Does anyone know what the Zero Emission Vehicle Credits are worth on the Volt in the eleven or so states where the ZEV program is in force?

    I bet the vast majority of Volts are sold in ZEV states. Rumor was there was a spike in credit prices recently. Some pure EV sales were getting close to $10,000 per car just for selling the ZEV credit.

    The most recent figures I saw posted from CARB were almost two years old.
     
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  8. Volt does NOT qualify for ZEV.

    CARB list the Volt as PHEV and only qualify for AT-PZEV emission...

    In fact, BEV such as Leaf and I-Miev are getting $2,500 from California CARB. But it requires you to own the car for 3 years. The $7,500 Federal is a tax credit. Only qualify if you make enough money or you can take the promotion lease where the $7,500 goes to leasing company...
     
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  9. @Jim: The math works as follows: Automakers must pay a penalty of $5,000 for each ZEV short of their quota in 2012-2014. A ZEV compact sedan is awarded 3 ZEV credits, but those credits are sold at a discount to the penalty amount. So if you hear that actual ZEV makers are getting $10K per car, that means that credits are selling at about 67% of the avoided penalty.
     
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  10. Very cool details. Have you written about this before? Some how I totally missed this.
     
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  11. Well now I ain't thought if it that way. Meet the worlds newest billionaire. Course I ain't quite there but should be this lifetime or maybe the next. Why I'll bet someone ask me to join the party.
     
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  12. Really? You're completely unaware of what marginal costs are and spreading development costs across the total number of objects made (doesn't have to be cars, of course) and not artificially picking a low number early in the production cycle?

    Somebody needs to read more and comment less. Including other variants of the Volt mentioned here, GM will easily sell 300k or more of the platform. Will you still be whining when development costs are a more accurate $4k per car and not the current artificial $56k?

    We get it, you're not exactly an economics expert, to be generous, but zero familiarity with even basic product development or life cycles, either? Wow! Start by Googling marginal cost, please.
     
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