Presidio MBA Professor Documents Chevy Volt’s R&D Saga

After a year of research including interviews with key personnel at General Motors, Presidio Graduate School Professor Dariush Rafinejad has published a full report on the Chevrolet Volt’s research, development and marketing.

His 29-page paper titled, “Chevrolet VOLT A Disruptive Innovation Bridge to Electrified Transportation,” reads essentially like a history of still-recent events.

“I’m very grateful to the GM executives who were very forthcoming and provided valuable input,” Dr. Rafinejad said. “It’s so important that we not just show business students how sustainability innovation is managed in a large company, but also how persistence through political and technical challenges is a key ingredient for success.”

Dariush_Rafinejad(color)

And speaking of “success,” last month was the Volt’s best sales month since its December 2010 launch. It also happened to be GM’s best sales month since September 2008, and other cars including Nissan’s Leaf also experienced record months.

Calling it “disruptive” may be all too correct. The Volt has simultaneously won dozens of awards for its design, technology and engineering – and been panned by critics for a variety of reasons and it represents an experiment still playing out.

For those who wish to know more or those who want a refresher, the paper is worth a read, and we’ll highlight a few details from the outline on GM’s $1 billion-plus development project among several that jumped out to us.

Leapfrog Attempt

Rafinejad, who will use the paper in his Sustainable Products & Services course, documents how the Volt was an attempt to jump ahead of Toyota’s very successful Prius.

Going further back, Rafinejad notes GM launched the first modern all-electric car, the EV-1, to which the Prius, the author says, was a reaction.

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GM also reacted against Tesla Motors founded in 2003, and frankly, the need to redeem itself from publicity damage as the company that “killed the electric car” (that it also gave birth to) was seen as needed.

The argument to avoid a pure electric powertrain was made by GM’s Jon Lauckner and GM had already made its “extended-range electric vehicle” (E-REV) technology in-house, as GM engineers had augmented early EV-1s with a gas engine to make longer trips in their development work.

Trike

“We were driving the EV-1 back and forth across the state on a regular basis,” said EV-1 engineering chief, Andrew Farrah. “Because the engineers needed more miles to do their work than the batteries alone would provide, they devised small trailers equipped with gasoline-powered generators that their EV-1 test vehicles towed along behind. Push a button and it generated electricity, and as long as you were not driving faster than sixty miles per hour, you could keep driving until the gas ran out.”

Concept iCar

The Volt prototype shown at the 2006 Los Angeles International Auto Show was the result of Lauckner’s having been given the green light by then GM Vice Chairman Bob Lutz.

Pre-production_prod_Volt

Rafinejad quotes pre-bankruptcy GM CEO Rick Wagoner who announced GM’s intent at the show.

“Going forward, it is highly unlikely that oil alone is going to supply all of the
world’s rapidly growing automotive energy requirements. For the global auto industry, this means that we must as a business necessity develop alternate sources of propulsion,” said Wagoner. “ … The key as we see it at GM, is energy diversity. We believe that the best way to power the automobile in the years to come is to do so with many different sources of energy.”
 

Bypassing GM’s Old Guard

Notable in the paper was GM’s culture was seen as practically the opposite of how, say Tesla Motors’ innovative, fast-on-its-feet, and entrepreneurial culture behaves.

The paper quotes Andrew Farah who candidly notes obstacles the Volt had to get past.

“GM’s culture creates defensive antibodies against development of radically new technologies like Volt! Antibodies attack innovations like Volt and argue that we cannot do that,” said Farah.

The paper continues, “However, the strong executive support from the beginning of the project provided the necessary shelter against the organizational antibodies.”

For the Masses

The Volt’s 40-mile all-electric range was seen as enough to meet the needs of three-quarters of Americans’ daily driving needs.

Product Manager, Cristi Landy was also quoted saying a Chevy level price point was seen as critical from the Volt’s inception.

Bridge

“Volt must be an electric car for the masses, as the Chevrolet brand is. This above all means affordability”, said Landy.

We’ll add also that given the car was introduced at just around a Cadillac-like $40,000, this has been one of the key focal points of critics who say the Volt was too pricey to leapfrog Prius sales

The paper concedes the Volt’s pricing took a back seat for the unique design project.

Affordability became a significant challenge because of the extensive new technology content that had to be built into Volt to satisfy its performance requirements. In the traditional vehicle development process at GM, a cost target is set for the vehicle based on the marketing price target and vehicle business model. The cost target drives the design specifications and vehicle manufacturing process. For the Volt, the development team felt that “beating the competition” was the number one priority and business case was second. This change in the strategic outlook in vehicle development seemed to transcend Volt and extended across GM in the 2006 time frame.

 

demographics

In the end, under the paper’s “Section 8. Pricing Strategy,” it says early adopters were figured as willing and able to dig deep enough to get the Volt even if priced well above the Prius.

“Marketing felt that early buyers were ‘technology adopters’ and were willing to pay a modest premium for the new technology. The Company executives, on the other hand, felt the market didn’t know the right price because Volt was a ‘game changer’ and a new to market invention,” says Rafinejad.

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Ultimately the Prius competition was not the primary consideration, says the paper.

“Even at $40K price tag, the executives believed GM was demonstrating willingness to commercialize Volt at an initial loss in order to establish technology leadership in the market,” writes Rafinejad. “While the relatively high initial consumer price had been a deterrent to rapid market penetration, the rising gasoline prices and anticipated changes in greenhouse gas (GHG) emission regulations favored Volt and were believed to drive the future demand.”

Comprehensive Overview

Beyond the salient points we called out above, Rafinejad goes into far greater detail, citing sources, and laying out much of the “moon shot” project.

Rafinejad very benignly summarizes things to date.

“Two years after the product launch, the Volt team felt they had done a good job. The 40 EV miles had been the right choice and it was market tested. Customer experience, and various consumer reports and EPA data were positive,” writes Rafinejad. “Volt has done many things for GM beyond being the first E-REV in the market and paving the way to electric transportation. Volt demonstrated the will and technical prowess of GM in the face of considerable risks: development of a revolutionary technology, a market that was not yet ready for Volt as a new class of electric vehicle, and the regulatory fuel economy labeling criteria. The investment in development of Volt created several building blocks of future success for GM, including: the design and manufacturing technologies for LiON batteries, high capacity traction electric motors and power electronics, and EV software and controls technology.”

Birchrunville

Undoubtedly more needs to happen on the electrification front – we’ll benignly comment in turn.

And, we’ll add, GM reduced the Volt’s price to $34,995 for 2014 models recently. With a federal tax credit of $7,500 deducted, the Volt is available for potentially under $27,500 net, and state-by-state subsidies could put it even deeper into the net price territory of the unsubsidized Prius.

The Volt story and that of related technology is still very much ongoing.

Full Paper