General Motors will be losing a lot of money for every Chevrolet Bolt that it starts selling before the end of this year, according to an opinion piece.
Bloomberg published today a feature claiming GM will lose up to $9,000 for each Bolt that it manufactures and sells.
“Sounds crazy, but the damage makes perfect business sense under the no pain, no gain policy driving the electric-vehicle boom in the U.S.,” according to writers David Welch and John Lippert.
Welch and Lippert blame California and its strict zero-emission and clean air rules for driving up the cost. That will extend out to nine other states that have adopted California’s ZEV policies.
“Most are destined to be loaded with red ink for their makers, but they’ll be great deals for consumers as companies unload them to meet their targets,” according to Welch and Lippert.
The hurdles to clear California’s strict rules may get higher, according to the commentary. Gov. Jerry Brown had signed a law ordering greenhouse-gas emissions be 40 percent below 1990 levels by 2030. To clear that benchmark, all-electric, plug-in hybrid, or fuel-cell cars may have to compromise 40 percent of sales, up from about three percent now, according to California Air Resources Board staff projections.
That will never happen, according to Eric Noble, president of the CarLab, a consulting company in Orange, Calif.
“The idea that automakers will sell 40 percent of their vehicles at a loss in California is ludicrous,” Noble said.
Noble thinks that most electric cars lose at least $10,000 per sale.
The commentary also cites Fiat Chrysler Automobiles CEO Sergio Marchionne, who said in 2014 that the company was losing $14,000 per sale for the Fiat 500e electric car.
That may be affected by extremely cheap lease deals, with the FCA offering a monthly lease-rate as low as $69. Nissan had advertised lease deals for the Leaf at as low as $149.
The $9,000 loss per Bolt sold stated in the commentary comes from a few assumptions. The Bolt’s per-sale loss of about $8,000 to $9,000 is an estimate based on a sticker price of $37,500, according to a person familiar with the matter. Enough of these ZEVs need to be sold so that GM “can go to town on other vehicles, including pickups and SUVS, which is where the big money is.”
Taking it further, the authors did their own math. Taking GM’s figure of 219,962 total vehicles sold in California during 2015, the automaker will need to sell 14 percent of the total as ZEVs, coming out to 30,794.
“That would mean finding buyers for 7,698 Bolts, earning four credits for each, or 10,082 Chevy Volt plug-in hybrids or a combination of the two,” according to the authors.
The only hope that GM would have is selling enough Bolts and Leafs for meet California ZEV mandates, and then building up a surplus of credits to sell to competitors, according to the commentary.
Tesla’s has been able to tap into these ZEV credits. In the third quarter, Tesla earned $139 million selling excess credits. The biggest buyer in the 11 months ending in August was Fiat Chrysler; GM purchased the smallest amount.
Tim Mahoney, Chevrolet’s chief marketing officer, said that the Bolt goes beyond compliance and represents an opportunity to reach car buyers who might be lost. Mahoney thinks the Bolt will lure younger, technologically savvy buyers car shoppers who probably wouldn’t have considered Chevrolet, he said.
“It’s a statement about what we can do for the Chevy brand,” Mahoney said.
The Bolt’s 238-mile range is expected to be a strong competitive advantage. The Nissan Leaf can go 107 miles on a single charge, and the Fiat 500e can go just 85. GM will also have an edge over Tesla’s Model 3, which won’t come out until late next year. GM also plans to sell the Bolt in China and Europe.
The $9,000 loss per Bolt sold is likely to be highly overstated, with GM planning on manufacturing the all-electric car at relatively high numbers. The Orion Assembly Plant in Michigan where the Bolt is being produced has the capacity to build up to 90,000 Bolts a year, according to Reuters.
The cost of the battery is expected to be competitive for the Bolt, and future generations of the battery technology should get even better and cheaper.
Former GM vice chair Bob Lutz said late last year that capital-strained auto industry is making unprofitable cars to satisfy regulators, and he’d be “surprised and shocked” if the 2017 Chevy Bolt is profitable.
“I no longer have access to General Motors figures, but I would be surprised and shocked if the 200-mile electric Bolt is going to make money,” said Lutz at an Automotive News roundtable discussion held in August 2015. “You look at the cost per kilowatt hour of batteries and the number of kilowatt hours they have got in there and then you look at the selling price. It’s just not going to work.”
A few months later, in October 2015, GM revealed it pays LG Chem, its collaborative partner developing the Bolt, just $145 per kilowatt-hour for battery cells. GM has said it will be profitable, and Lutz did admit that he’s not privy to those details any more.
The authors of the Bloomberg piece did acknowledge the Bolt and other electric cars can become profitable under certain conditions:
“Of course, the industry might figure out how to make ZEVs into money makers, once the charging-station infrastructure is built out and as battery costs fall. Global demand seems sure to rise, with major economies, including China, having recognized climate change as a threat and tailpipe-emissions from gas-powered autos as a chief contributor.”