After Four Years Of The Chevy Volt, What's The Verdict?

| About: General Motors (GM)

Summary

It is time to review the Chevrolet Volt 1.0 after almost four years and over 40,000 miles driven.

The all-new Volt 2.0 is just around the corner, with production starting next summer.

The all-new Volt 2.0 should see dramatic cost reduction, with more parts common to other GM products such as the Cruze.

GM lost money on Volt 1.0, but is only bringing the Volt 2.0 to market with profitability in mind.

For GM’s shareholders, this will spell relief from having red ink subsidize mostly wealthier people in California's richest coastal ZIP codes.

Four years ago, I decided that the industry-first of its kind, plug-in electric Chevrolet Volt from General Motors (NYSE:GM), needed a proper long-term test. In almost four years, I've put over 40,000 miles on what was the most technologically advanced car ever, when it was launched in late 2010.

How did the Volt perform? How will GM benefit from next year's Volt 2.0?

History

The Chevy Volt was born in the wake of the January 2006 Detroit Auto Show when GM's illustrious Bob Lutz saw a prototype of the Lotus-based, tiny two-seat, $100,000+ Tesla (NASDAQ:TSLA) Roadster and decided GM needed to do come up with something that plugs into a wall. In just a few months, a team at GM was commissioned to come up with a prototype for the 2007 Detroit Auto Show.

It looked wild. People liked it. Many thought oil and gasoline prices would go through the roof not just for the next five years, but much longer beyond that. Producing the Volt seemed like a good idea at the time.

Shortly thereafter, in the Spring of 2007, GM signed off on the Chevrolet Volt at the highest levels. The car was to be ready for production starting in November 2010, come hell or high water.

Consider this timeline - not just the length of it, but what happened between Spring 2007 and 2010. The market started collapsing in August 2007 and a year later some of the major carmakers - GM in particular - were on the ropes. The Volt got mired in the symbolism of GM's bailouts and subsidies. The timing could hardly have been worse.

In the end, despite mostly rave reviews, the Chevrolet Volt didn't sell very well. In the first year, fewer than 8,000 were sold in the U.S. Then 23,461 in 2012, 23,094 in 2013 and now, in 2014, it looks like approximately 20,000. Relatively few were ever sold outside the U.S.

To date, sales of the Volt barely exceed that of the Nissan (OTCPK:NSANY) LEAF in the U.S., although it has handily outsold the Tesla Model S in the U.S. in most months. That said, it has been well below expectations set by GM's management in 2010 and 2011, when they talked about moving 60,000 per year going to 100,000.

Why Didn't The Volt Sell More?

I will give you two straightforward reasons and one more complicated one:

  1. Gasoline is just too cheap.

If you're not buying the Volt because it drives better than a regular gasoline car, you are doing it for the economics. The problem is that it doesn't pencil out. No matter how efficient the Volt is, you just can't save that much on gasoline.

I will illustrate with an example. If you are into fuel savings in a comparably priced and sized car, the category killer by far is the Toyota (NYSE:TM) Prius. It yields 50 MPG. With the American average of 12,000 miles per year, that's 240 gallons per year. Multiply by $4 per gallon and you have $960 per year. More recently, it's $3 per gallon and you have $720 per year.

So that's the maximum you can save. It just isn't a lot. Then subtract the cost of electricity, which can vary anywhere from zero if you charge for free at work to over $1,000 per year if you pay $0.32 per kWh at home.

Here's the math for a more typical case, perhaps: 9,000 miles per year (the other 3,000 miles on gasoline) divided by 3 miles per kWh, and you get 3,000 kWh. Multiply by $0.12 per kWh and you have $360. Then add some charging in public parking garages where you may pay more, as well as the gasoline you pay for the other 3,000 miles. Let's call that 80 gallons, or $320.

As you can see, you may save a couple of hundred bucks per year compared to the Prius, if even that. If you buy one $4 latte per day, that's many times more. It's not even $1 per day in savings, compared to the Prius, in most scenarios. Seriously, you have better things to do with your time, than remembering to plug in and perhaps re-park your car at work or at some garage, if you're going to save less than $1 per day.

  1. It only fits four people.

It may sound silly, but a large percentage of people who considered the Volt eventually rejected it because it only fits four people. Yes, I know, most of the time the car is only driven with one person in it.

However, this just goes to show the flawed nature of the "99% of the time …" argument. It's not about the first 99%. 99% of the time, I didn't need to wear a seat belt anyway. 99% of the time, there was no need to have this-or-that insurance.

It's about having the option of bringing home that fifth person on the way back from the concert, dinner, game, whatever. It doesn't happen every week, or perhaps even every month. But you want the option for that occasional need.

The Volt didn't give you that option. It was a huge mistake.

  1. Cost!

No, I'm not talking about the price the consumer paid. It started at $40,000 and was lowered in the middle of 2013 to $35,000. Add $5,000 for a fully-loaded model. Once you considered tax/subsidy incentives, it was a favorable price for the consumers who could take advantage of the federal tax credit.

I'm talking about the actual cost to GM. It's not clear that GM broke even at $40,000, let alone at $35,000. I'm not even talking about the cost with all overhead amortization; the variable cost alone may not have been enough for a positive *gross* margin.

If you're not even making money on a gross margin basis, you are hardly motivated to market the car. The more you sell, the more you lose, no matter what.

This pricing problem came into even clearer light when the Cadillac ELR version of the Volt was introduced at a whopping $75,000. The price was set to make a more standardized GM margin. Considering it was double the Volt's price, it didn't matter how good-looking the ELR was. Sales bombed and ELRs are now heavily discounted for both cash and lease pricing.

Cadillac's new CEO, Johan de Nysschen said it the best in this recent interview (via Auto World News):

If we were to reprice ELR, to the point where somehow we found a point that people would buy it buy the thousands, then all we would achieve is, the more cars you sell, the more money you lose. There's no point in that.

So there you have it. GM could only sell the Volt 1.0 at a loss.

Presumably, this will change dramatically when production of the all-new Volt 2.0 starts around the middle of 2016. GM would not be bringing the Volt 2.0 to the market unless and until it had figured out a way to make its standard margin selling it for approximately $35,000.

With all of that said, what about the Volt 1.0 after what will now be four years and over 40,000 miles? The answer is that the car has mostly performed very well. I divide my comments into three parts: powertrain, the rest of the car and reliability.

  1. Powertrain.

It is what sets the car apart, and still does today. The good news is that this is the strongest part of the Volt 1.0. The battery, electric motor, internal combustion engine and transmission all worked as advertised.

Basically, the Volt will go 35 miles on a full charge, plus or minus 30% depending on usual variables such as speed and temperature. Then, the gasoline engine kicks in to prevent the battery from falling much further. You can keep going on the longest of road trips just like in any other gasoline car.

There are many complicated ways that the system works to optimize under different scenarios. Nobody explained all the different modes any better than at GM's launch event in October 2010, where GM's top electric powertrain engineer Pamela Fletcher gave this lecture.

For all practical purposes, the Volt is an electric car just like a Nissan LEAF or Tesla Model S in regular around-town driving, for the first 35 miles or so. It is as smooth and powerful as any regular driver could expect it to be. When pushed hard beyond those distances, at higher speeds (75 MPH) and going uphill, the gasoline engine becomes too buzzy, but most people will be okay with that on those rare longer trips.

Depending on your driving habits, you can do up to 99% or so of your driving on electric. Fleet-wide average is closer to 63%, but that includes fleet/corporate cars where people don't bother plugging in the car, dragging down the percentage. I imagine it's 70% - 85% among "regular" individuals who own their cars.

  1. The rest of the car.

Once you have come to love the Volt's powertrain, which remains very competitive - even class-leading four years after manufacturing started - there is less love. Or at least there is now. Let me explain.

You see, the car business has not stood still over the last four years. I don't mean the powertrain, but the "other" stuff about the car - interior, suspensions, electronic features, etc.

Four years ago, the Volt seemed like a top performer all around - not just its highly unique powertrain. I'm afraid I can't say that anymore. Time has passed and the competition has trounced the Volt on almost all levels, except for the powertrain.

I'll pick on a few areas in particular. First, the front suspension. It's noisy and harsh. Going over a speed bump feels like the whole car is falling apart. The noise is a major drawback on longer road trips.

Second, the rear suspension. I had it changed out - one side after the other. Yet, it still squeaks like there is some part that hasn't been oiled properly. It's very nasty when you run over a speed bump diagonally. Of course, the dealer says he can't hear this nasty noise. It is a black eye on an otherwise reliable car.

The seats are barely okay, but the seating position is good only in comparison to cars such as the Toyota Prius. The steering wheel doesn't telescope enough, making for a poor seating position for tall people.

The center stack controls have futuristic touch-sensitive "buttons" that are hard to use. Why not just have big round knobs that are found in GM's large pickup trucks?

I could go on and on, but apart from the superior powertrain, the Volt is substandard in almost all areas. The suspension - front and back alike - is an outright disaster and the rest of the car has simply fallen behind a rapidly improving competition.

  1. Reliability.

The verdict is mostly good. Relatively few Volt owners have had powertrain problems, despite some Volt owners having driven 100,000 - 200,000 miles already: http://www.voltstats.net/ (sort on total miles driven)

At least in my case, the only serious problem I experienced in almost four years has been the recurring rear suspension, which had to be replaced multiple times. The good news is that most owners report a solid reliability score in other areas, most notably the all-important powertrain.

What Does All Of This Mean To GM And The Competition?

After the Nissan LEAF, the Chevy Volt has sold the most plug-in cars worldwide to date. It has given GM tremendous experience and a great relationship with battery supplier LG. It ought to mean that the Volt 2.0 will be a home run in overall performance.

Eventually, if gasoline prices were to return to $4 and eventually reach $6 to $8 per gallon, GM will find huge demand for all forms of electrified cars, including plug-in hybrids and pure electrics. You'll find very few people with comparative experience who would disagree with the notion that the Volt has the most refined plug-in hybrid system on the market, significantly ahead of the competition anywhere near its price range (the BMW i8 is $137,000).

GM has not only announced that the Volt 2.0 will arrive after mid-2015, but also another kind of plug-in hybrid architecture in the form of the Cadillac CT6, which starts production in November 2015. It will have a very different architecture than the Volt and Cadillac ELR.

Furthermore, GM has announced that it will be bringing a 200-mile pure electric car (BEV) to market, presumably for volume production in 2017 if we are reading GM and LG's statements correctly. It too should benefit from the considerable experience GM gained with the Volt.

According to people I have spoken with at GM, the company will seek to leverage the overall Volt platform more closely with other GM products in that overall size class. Basically, we are talking about more synergistic platform engineering.

The Volt 1.0 had a distant cousin relationship with the Chevrolet Cruze, but it was, for all practical purposes, a very purpose-built car. Volt chief engineer Andrew Farah explains how dramatically different the Volt is from the Cruze here (starting at 6:30 into this video).

To reduce cost, GM has looked for ways to find more commonality between the Volt and other GM cars such as the Cruze. It's really a key way to reduce the build cost of the Volt 2.0. It makes a lot of sense. For example, why not share things such as the outer body panels and interior? This would translate to huge savings with volume economics. What people really want from the Volt is the unique powertrain. You don't need the doors, roof or any of the driver controls to be different. The displays can show different things - the EV-specific information - that's all.

For the GM stockholder, this should be a positive. No more financial losses on the Volt and a much more attractive car. In the meantime, we have now had almost four years with the Volt 1.0 and learned that, while the car is old and much is out of date, the powertrain performed flawlessly even if the suspension didn't.

Disclosure: The author is short TSLA.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: At the time of submitting this article for publication, the author was short TSLA. However, positions can change at any time. The author regularly attends product launches and related trips with almost all automakers, and some of those trips are paid for in whole or in part by the automakers. The author also regularly test-drives cars provided by almost all automakers, to members of the press.

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