Reuters Uses Fuzzy Math to Report on Chevy Volt Profitability

By · September 10, 2012

Einstein's Volt Calculation

Reuters reported today that General Motors loses “as much as $49,000” for every Chevy Volt that it builds. According to four industry experts contacted by Reuters, the range of per-unit costs falls between $76,000 to $88,000—with another analyst saying that it costs GM “at least” $75,000, if you include development expenses. Fuzzy green car math hasn’t been employed with this level of obfuscation since 2006, when CNW Marketing said that a Hummer was greener than a Toyota Prius.

Let’s rewind to 2007. Moments before GM unveiled the concept version of the Chevy Volt at the 2007 Detroit auto show, I asked GM product chief Bob Lutz how long it would take before the Volt would be profitable. “About as long as it took Toyota to make money with the Prius,” he told me. It took Toyota about a decade to make money on the Prius. Now, 15 years since the Prius’s debut in Japan in 1997, the hybrid has become its own successful line of profitable models. For at least four or five years after its introduction, the Prius was ridiculed as a costly science experiment that would never make money.

Reuters and the analysts it consulted are ready to declare the Volt a financial loser—not quite two years after the introduction of the Volt.

Adventures in Neverland

Dennis Virag, president of the Michigan-based Automotive Consulting Group, told Reuters that the Volt is “over-engineered and over-priced." Sandy Munro, president of Michigan-based Munro & Associates, said, "I don't see how General Motors will ever get its money back on that vehicle." Munro, the analyst who said the Volt’s $75,000 cost “includes development,” borrows a move from CNW’s playbook by including broad-based sunk development costs into the per-unit price. In determining the energy costs of the Prius versus the Hummer, CNW included 4,000 data points, for items such as energy used to transport Japanese workers from their homes to auto plants.

Reuters point to “weak sales” as “forcing GM” to idle Volt production this month—but fails to mention the company’s need to retool for production of the Chevrolet Impala, which shares its assembly line with the Volt. After a year of media reports indicating that low Volt sales are a sign of failure, Reuters casts August’s record high number of Volt sales—not as an indication of improved traction in the marketplace—but as a bad thing for the automaker’s bottom line.

It’s not until paragraphs 21 and 22 that readers learn two key facts:

“Spread out over the 21,500 Volts that GM has sold since the car's introduction in December 2010, the development and tooling costs average just under $56,000 per car. That figure will, of course, come down as more Volts are sold.

“The actual cost to build the Volt is estimated to be an additional $20,000 to $32,000 per vehicle, according to Munro and the other industry consultants.”

Reuters manages to quote Doug Parks, GM's vice president of global product programs and the former Volt development chief. "It's true, we're not making money yet," he said, regarding Volt. But Parks added that the car “eventually" will make money. "As the volume comes up and we get into the Gen 2 car," he said, "we're going to turn (the losses) around."

It's well understood in the auto industry that when a car company develops a new model, it needs to recoup research and development costs over a period of years.

Of course, all of this takes a careful reading and a lot of attention to sort out. For more casual readers, the message is clear: the Chevy Volt is way too expensive. The article also casts doubt on the Nissan LEAF and Mitsubishi i, as well. Based on the Reuters story about Volt costs, it seems like it will take at least a few more years before electric cars cease to be a political football, with opportunistic reporters piling on.

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