Monday, September 10, 2012

Will the Chevy Volt break even?

The $39,995 price and its complex technology have kept sales low.

Lets do some simple break-even analysis. With a $1B investment and a 10% cost of capital, fixed costs are $100 million/year. Lets assume a 5% margin, which would give a $2,000 margin on each car, so the company would have to sell 50,000 cars to break even.

Year to date sales have been a measly 13,500.

The above analysis is probably way too optimistic.

Price is lower: many of these sales are made at discounted 2-year leases as low as $199/month, which translates to $5000 over the two year lease.  And development costs may be as high as $2B. 

Which gives us the unfortunate answer: 
It currently costs GM "at least" $75,000 to build the Volt, including development costs, Munro said. That's nearly twice the base price of the Volt before a $7,500 federal tax credit provided as part of President Barack Obama's green energy policy.

So why are we (does the Government still own GM?) making this investment?


  1. 1. Did you include the profit of all eAssist cars which is a derivative technology of a Volt? That is $2-3B in revenue per yeaer for large Buicks and Chevys that get 40% higher MPG that the previous versions.

    2. Did you research to find out how many Volts got $199. It was a one off promotion that a small handful of dealers implemented in August only, in order to hit sales numbers. It will likely will not be back.

    3. The Volt launched nationally on 11.01.2011. It is 10 months old. You left out the time frame for Volt technology cost recoup. I would estimate that they will reasonably use this technology for the next 25 years. $1B/ 25 years = $40M a year or $888 per car (assuming 45,000 long term sales). $888 Is less than $50K.

    By the way sales THIS YEAR have been 13K+.

    The Prius was mocked in a very similar way. It is now a money making cash cow. Nobody is laughing at the Toyota now for having a category changing car that everyone wants... not a bad template to follow.

  2. The same problem is faced by Nissan's flagship product: Leaf. Higher upfront cost is dissuading potential customers to purchase the vehicle and the yearly sales are at dismal low. Sometimes companies tend to stay with these kinds of investments and do not close the production so as to avoid the embarrassment of launching a failed product.

  3. You both bring up good points about the car company making better profit than the analysts stated, but their question, “So why are we (does the Government still own GM?) making this investment?”, brings up many different questions that they didn’t even touch on. The reason we are investing in electric cars are because the fluctuation of oil, the problems of burning gas and emissions, and the fact that we are now starting to want to take care of our environment. A few years ago, no one cared about emissions, or the price of gas, but now with the melting ice caps and the price of gas going above $2/gallon, we care. Some people care so much they will pay more just to save the planet. If people are willing to pay, someone should make the product.