GM & OBAMA HOPES RIDE WITH VOLT

General Motors pins hopes for recharge on Volt
Lisa Lerer, June 3, 2009 (Politico)

SUMMARY
General Motors (GM), having filed for Chapter 11 bankruptcy, is looking toward the future. The brightest thing on its horizon is the Chevrolet Volt. Many in the company believe the company’s plug-in hybrid electric vehicle (PHEV) will play a central role in returning the company to profitability.

Some auto industry analysts are less optimistic, believing Volt could be a victim of the same contradiction that brought GM down. While the Obama administration, GM's new management team, seeks to reduce vehicle emissions and combat global climate change, the public’s traditional inclination has been to its spend money for big, gas-guzzling, emissions-spewing cars and to require small, fuel-efficient cars to be inexpensive.

GM announced recently that Volt will be less expensive than the $35-to-$40,000 price tag originally predicted for it but will, nevertheless, cost more – at ~$32,500 – than most cars in the same class.

The new car price of a Toyota Prius hybrid is ~$26,000.

To sell it at the $32,500 level, GM is likely to lose money on Volt until volume increases and economies of scale bring costs down. In fact, supervisors of GM’s bankruptcy proceedings may question the wisdom of moving forward on Volt.

This price factor is especially inconvenient at a time when new car sales are at a historic slowing and gas pump prices remain low.

As of June 1, Volt was still moving toward the showroom in 2010. And GM continues to believe it will change the U.S. car business.

The plug is coming. (click to enlarge)

Battery electric vehicles (BEVs) are entirely and solely powered by batteries. PHEVs like the Volt have the capacity to travel entirely on battery power for a limited range (for the Volt it will be 40 miles) and then shift to a small internal combustion engine (ICE) that is powered by liquid fuel and recharges the battery as it drives.

The ICE gives the car a range even greater than other cars on the road but, because 75-to-80% of all car trips are less than 40 miles, most Volt owners will rarely use the ICE and will rarely need to purchase liquid fuel (as long as they charge their batteries, a habit already formed by cell phone and laptop users).

The key to Volt’s 40-mile range is its 10 kilowatt-hour capacity, state-of-the-art lithium-ion battery. Such lithium-ion battery technology is also the key to cell phone and laptop practicality. But it comes at a price.

The current low production volume of the Volt batteries makes them ~$2,000 per kilowatt-hour. Boston Consulting Group says high volume production could make that cost $500-to-$700 per kilowatt-hour by 2020.

Fan or prophet? (click to enlarge)

COMMENTARY
GM developed Volt as an answer to the problem of exhaust emissions and climate change. The assumption – and it may still hold true, even in this stressed economy – is that a segment of the public will pay a premium for a cleaner car. That segment may be narrow, but it has enthusiastically funded the development of the Toyota Prius and GM believes it will provide the minimum buyer volume necessary to bring Volt costs down.

President Obama has described Volt as a domestic solution to both climate change and dependence on foreign oil. One of his campaign promises was to see a million PHEVs on U.S. roads by 2015.

The Obama administration’s stimulus bill included tax credit for Volt purchasers starting at $2,500 and increasing by $200 for every kilowatt-hour (beyond 4) of battery capacity to a maximum of $7,500. The administration’s Energy Department (DOE) also has a $2.4 billion grant program to support U.S. battery, motor and PHEV/BEV component manufacturers.

Volt will be affordable and affordable will soon be important again. (click to enlarge)

Nevertheless, industry analysts do not expect the public to quickly turn to PHEVs and BEVs. Boston Consulting Group’s market analysis sees Volt making up no more than 28% of the new car market in 2020.

The President and his administration are keenly aware of the financial challenges facing Volt but think that in the long run it is the technology that will alter the world’s driving habits. They agree with the GM argument that large-scale manufacturing will bring the retail price down. They also expect gas pump prices to rise rapidly when the economy comes back, making Volt a better buy. They are, therefore, determined to back GM and see it through the revolution.

It is entirely possible the President’s commitment to GM will someday be compared to Washington’s steadfastness at Valley Forge. If this is not a matter of life and death, the financial stakes are comparably high and, in personal political terms, the fate of the current President is equally uncertain.

By 2020, BEVs may be a small part of the market, but by 2030 things will change. (click to enlarge)

QUOTES
- Bradley Berman, editor, HybridCars.com: “If you want to understand the relationship between all these powerful interests, this is where you’ll see it…If they say, ‘Green light’ on the Volt, then they’re basically saying, ‘Damn the economics, there’s too many bigger policy issues to be solved and this is too symbolically important to pull the plug on…’”
- John Smith, head of global product planning, GM: “We’ve steadfastly retained all our core high-volume vehicle and advanced-technology programs…We foresee no impact [from the bankruptcy] on product development.”
- March 30 White House auto task force GM viability report: “GM has devoted significant resources to the Chevy Volt…While the Volt holds promise, it is currently projected to be much more expensive than its gasoline-fueled peers and will likely need substantial reductions in manufacturing cost in order to become commercially viable.”

But will it save GM? (click to enlarge)

- Tony Posawatz, vehicle line director for Volt, GM: “The Volt is really about setting up the future and how we can win and compete…We want it to be viewed as an iconic technological marvel, a remarkable machine.”
- From a Boston Consulting Group analysis: “The electric vehicle is expected to remain relatively unattractive to consumers in 2020, unless its cost is subsidized…[ICE vehicles will remain the dominant technology [in 2020]…”
- GM 5-year restructuring plan: “With a majority of Americans driving their vehicles fewer than 40 miles per day, the Chevrolet Volt — providing up to 40 miles on a single electrical charge — should be attractive to those seeking to use little if any gasoline…The development costs of high-technology vehicles like the Volt are significant, but so are the long-term benefits that come from increased energy efficiency and independence.”