Will the Volt Help Save General Motors?

Includes: GM, HMC, TM
by: Juan Carlos Zuleta

In a blog published in April 2009, I expressed my astonishment at the main conclusion of the Obama Audit Task Force (OATF)) regarding the Volt:

“GM (NYSE:GM) is at least one generation behind Toyota (NYSE:TM) on advanced, 'green' powertrain development. In an attempt to leapfrog Toyota, GM has devoted significant resources to the Chevy Volt.”

I was then one of the few analysts to raise his voice against such kind of remarks by arguing: “This conclusion only reflects the OATF´s failure to understand what advanced 'green' car technology really means."

I further pointed out that by relying on (obsolete but still commercially viable) nickel-metal hydride batteries for their conventional hybrids, both Toyota and Honda (hmc) had been following a similar but rather cautious and conservative approach to a lithium-based transition to electric propulsion in the global car industry. This entirely rational behavior not only came down to a different business strategy than that of their main competitor, GM, but also implied their lagging behind GM in regards to electric automobile technology.

I felt that at the time GM made its Volt announcement, it was already facing severe financial problems, while Toyota and Honda were still the second and third largest auto makers in the world. (As of today, Toyota is first and Honda remains third.)

It was then probably wise for Toyota to stick with its much proven and praised Prius technology and let other car makers undergo the painful “trial and error” process of developing their own EVs. "One must keep in mind also that to leapfrog GM," I wrote, "Toyota first would have had to kill the Prius."

Similarly, I felt that it also made sense for Honda to be inclined towards a two-step approach to electrification: First, by emulating the know-how (i.e. the Prius technology) advanced by a much more respected firm (Toyota) than GM; second, by coming up with something revolutionary, something beyond lithium -- such as the hydrogen-powered FCX Clarity model.

I then went on to conclude: “Hence the OATF, in its recent March 2009 report, did not appear to have a clue in terms of what advanced 'green' car technology really means. Perhaps some consumers in the U.S. and the U.K. government could have provided the Task Force with some valuable hints in this regard.”

In retrospect, GM did indeed have the right technology, while both Toyota and Honda were following a rational albeit short-sighted business strategy -- one that would cost them quite a bit later on.

As of today, GM is preparing to launch the Volt as well as its first initial public offering (IPO) after restructuring with the best auspices: It has recently been known that Shanghai Automotive Industry Motors (SAIC), one of China´s largest car makers, is planning to buy a 1% stake worth $500 million in GM´s IPO, and The New York Times reports that with its common shares priced at $33 each, reflecting an increase from $26 to $29 earlier this week, the motor giant is about to set a record for the largest IPO in American history.

Meanwhile, both Toyota and Honda are experiencing for the first time in many years important losses in their shares as they prepare to attend the Los Angeles Auto Show with some electric car news. In fact, Toyota will unveil an electric version of its RAV4 which was discontinued in 2003, while Honda will present its first electric car concept at an auto show ever. Needless to say, lithium-ion batteries have now become a main component in their business strategies.

Times do indeed change, don´t they?

Disclosure: No positions in any stocks.