Does The Volt Price Cut Signal A Dying EV Market?

Chevrolet’s recent permanent $5,000 markdown on the 2014 Volt’s selling price was understood by advocates to be in response to reduced production costs and to keep the car competitive with Nissan’s Leaf, but some have wondered if it was a negative portent.

Perhaps not surprisingly, those less enthusiastic about electrification of the automobile and those merely less informed have wondered whether the chopped sales price for the “extended-range” EV is a desperate move in a sub-industry that may be dying in the cradle.

“To EV skeptics, the price erosion offers proof of a dim future for the technology and is an indictment of the federal subsidies propping up consumer demand,” says an analysis piece by Automotive News titled: ‘Decoding the Volt’s price cut – Are EVs doomed or going mainstream?’

To set the stage AN noted a Las Vegas Chevy dealer rudely awakened at 5:50 a.m. by a “vulgar” text message sent recently by a Volt customer who’d presumably paid more for his 2013 model Volt than the $34,995 GM readjusted to for 2014 models.

“The Volt’s price drop last week dented the enthusiasm of some owners. Fleming, the sales manager on the receiving end of the heated text message, says he tried to explain that the new sticker price simply incorporates the incentives GM was putting on the car before,” AN observed. “GM has been offering cash rebates of $4,000 on 2013 Volts since June, and $5,000 on 2012 models.

‘That’s not how he sees it,” Fleming said of his customer. “He thinks his car got devalued.’”

AN also noted the government investment to subsidize and jump start the whole industry.

“The course of EV prices, and how the changes are interpreted, will have big implications for automakers, policymakers, consumers and dealers. By 2019, the U.S. government will have spent $7.5 billion to promote the production and purchase of EVs, according to a Congressional Budget Office estimate,” says AN. “Will the market be fully weaned by then, if the money indeed flows for that long? And will that market reward companies such as GM and Nissan that spent heavily to establish an early foothold, or those that chose to wait until prices settled down — as an official at Chrysler Group indicated last week that it would?“

 

A Marathon, Not a Sprint

The fact is, the angry text-sending Volt buyer may indeed have had his car devalued, and – not to sound unsympathetic – that is one of the risks early adopters have taken among several.

Other risks, as implied, include whether the extended-range Volt and EVs like Nissan’s Leaf might die a natural death despite subsidies, eager first buyers, and those advocates who’ve pushed hard with such documentaries as “Who Killed the Electric Car.”

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But really, the Volt’s price cut came as no shock to those following this industry, and it had been hoped for as a natural next step toward further reductions to come for a vehicle type that has a way to go before becoming “mainstream.”

GM has actually been saying for a while the Volt’s production costs would be reduced by $10,000 for the next generation, and with Nissan’s price slashing exercise for the Leaf in January this year, even Volt fans have been calling for a price cut.

Precipitating the official reduction, GM had already been offering discounts by as much, and on August 6 it was made permanent.

GM says it could do so because production costs are already less, but has not disclosed what its actual costs for the Volt are, and others assert GM is really only losing money.

Many an opinion piece has come out stating GM loses as much as tens of thousands per example, but this much has been flatly denied and rebutted.

What is more certain is the price for a new kind of car is expected to drop, just like any new technology.

“People forget that this was brand-new technology,” said Jon Bereisa, CEO of consulting firm Auto Lectrification to Automotive News. He was also the systems architect for the Volt during its development. “Of course the price will fall. The price of your smartphone doesn’t go up. It goes down.”

In response to Nissan’s sharpening of its pencil, the Leaf’s sales have taken off this year, and its marketing bosses are hoping this will indeed become a mainstream automobile.

It’s been noted EV sales have accelerated faster than hybrid sales did were when they were first introduced to the U.S.

Since the December 2010 launch of the Volt and Leaf, through July, 119,874 EVs and plug-in hybrids were sold in the U.S.

This is more than double the hybrids sold during their first 30 months in the U.S. more than a 10 years ago, observes AN.

This year, EV and plug-in hybrid sales are up 138 percent through July from a year prior at 48,889 units, but this is only 1 percent of the U.S. market – a nice spurt but not quite a revolution by the reckoning of those who base such pronouncements on raw sales numbers.

Citing EV advocate Chelsea Sexton, AN observes also that automakers have been willing to take a sacrificial hit to a point to get the ball rolling.

“They know that part of the game is not making money in the first few years because they see the market growing,” she says.

What might look like an exception could be Tesla which a day before GM announced the Volt’s price cut, it actually reorganized its pricing to increase the average new Model S price.

Some have wondered whether this was to help subsidize big promises Tesla has made such as guaranteeing the resale value to equal or exceed that of a Mercedes S Class, and a network of free Supercharger stations now on an accelerated roll out schedule.

But in its second quarterly earnings report this year, Tesla said it is making around 22 percent profit per car, and is on track to be at an industry leading 25 percent per car by year’s end.

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Bear in mind the Model S sells for double or triple a Volt or Leaf’s price, and at this point, it still has a waiting list of eager buyers clamoring for its super EV sedan, as well as others waiting for the equally pricey Model X SUV.

Meanwhile the electrified cars closest to the average new car price of just over $30,000 – the Leaf and Volt among others – are finding ways to reduce costs, so maybe it is not an entirely invalid question whether EVs might be dying on the vine.

For its part, AN reports GM is indeed losing money on the Volt as it attempts to prime the pump toward critical mass – and as its CEO keeps promising the next generation Volt will be so much better, thus potentially cannibalizing present model sales.

Nissan’s CEO Carlos Ghosn says the Leaf on the other hand is profitable, even at the lower price, thanks in no small part to domestic manufacture.

AN cited Michigan analyst Alan Baum who also assists HybridCars.com month after month with our sales Dashboard, and in other ways.

Baum says the industry is still at a point where economies of scale for batteries and other costly components adding up to higher costs for plug-in cars, and it was Baum who said it is a marathon, not a sprint.

With BMW now entering this marathon, and others slowly coming on board as well, it’s largely agreed plug-in cars are not due to die on the vine, but they are taking longer to increase their foothold than was first predicted.

Meanwhile GM is the latest to slash its prices, and its new $34,995 2014 Volt is expected to come to dealerships this month.

For those who paid $39,995 and up just a few months prior, this would appear to be part of the sacrifice consumers signed on for whether fully cognizant of the fact or not. If they feel bad, the manufacturers and government are subsidizing the effort even more as the industry slowly makes progress.

But it is making progress.

Automotive News