Loser: Why the Chevy Volt Will Fizzle

This is part of IEEE Spectrum's special report: Winners & Losers VII

Sometimes a project fails even though the technology it pioneers is destined to conquer the world. Take Babbage’s steam-era computer, Pioneer Electronics’ LaserDisc home video system, or Apple’s Newton—technically brilliant, yet business failures all.

Better yet, take General Motors’ Chevrolet Volt, a car known as a plug-in hybrid because it will get most of its power from the wall socket in a garage. The Volt is bold, cool, and technically feasible. It appeals to early adopters, and it’s catnip for the automotive fan mags. To cap it off, a little creative accounting gives it the sheen of sky-high mileage, the better to offset GM’s gas-guzzlers and thus meet future fuel efficiency targets.

GM, stung by the failure of its EV1 all-electric car of yesteryear, has put its considerable corporate muscle into the Volt, building the car into a game-changing breakthrough. But to succeed on those terms, it’ll have to become a mass-market car—anything less wouldn’t make enough of a difference to a company that, even in its postbankrupt state, still remains the second-biggest automaker in the world. And at a projected price of US $40 000, cosmic success just isn’t going to happen.

EXPERT CALLS
”We need to pursue any reasonable approach to wean the United States from its addiction to oil. If the Volt is not a commercial success, maybe its successor will be.”—Kenneth R. Foster

”Lithium-ion batteries degrade substantially in just a few years. Owners will face decreasing range and, ultimately, the need to replace and recycle the car’s giant, expensive battery.”—Nick Tredennick

”The first year’s volume, by GM’s own calculations, is 10 000 units, and you can’t save a company with that. That’s chicken feed. You’d need a vehicle that sells 400 000 units,” says John Wolkonowicz, an auto industry analyst at IHS Global Insight, in Lexington, Mass.

”There are not enough idiots who will buy it,” Johan de Nysschen, the president of Audi of America, told auto blogger Lawrence Ulrich.

The idea behind the Volt is wonderful. The car doesn’t have to trade off power between motor and engine from second to second according to some exquisitely complicated mechanism or scheme. Instead, the Volt makes electricity the main course. Today’s hybrids put the motor and engine in parallel so that they juggle their power contributions to the wheels according to many different parameters, including speed, battery charge, and the load on the engine. But the Volt links the power plants in series. That way the motor powers the wheels, and the engine merely engages, when needed, to recharge the vehicle’s enormous lithium-ion battery. How enormous? If you drive no more than 65 kilometers (about 40 miles) and have an electric socket handy at both ends of your commute, you won’t burn a drop of gasoline.

Plenty of tech-minded people love the concept, hence the aftermarket for conversions of standard-issue hybrids to plug-ins (see ”Plugging Away in a Prius,” IEEE Spectrum, May 2008). But these are unusual folk: They don’t mind buying a standard hybrid for $25 000 and throwing in $30 000 to make it into something else. These are the people who tile their roofs with photovoltaic cells, harvest the energy they expend on their StairMasters, or live underground in hobbit holes to conserve heat. We love these people—they make up a significant portion of our readership—but they have little in common with the typical auto buyer, who is mainly concerned with overall costs.

In a study published recently in the journal Energy Policy, four engineers at Carnegie Mellon University, in Pittsburgh, found that the Volt won’t save enough on gas to cover the higher purchasing cost. They assumed that the plug-in would achieve 50 miles per gallon (4.7 liters per 100 kilometers) when operating on gasoline and asked how much more mileage you could eke out by adding enough batteries to enable the vehicle to get most of its power from the grid.

They assumed (from reports about the Volt) that the car would achieve 250 watt-hours per mile (155 watt-hours per kilometer) when operating on electricity, that gasoline would cost about $3 per gallon ($0.79 per liter), that electricity would cost $0.11 per kilowatt-hour, and that the car would cover 150 000 miles (roughly 241 000 kilometers) over a 12-year life. Result: a lifetime savings of $4875, ignoring charging costs. By discounting that sum at 10 percent over 12 years, to cover the cost of borrowing money, the authors arrived at a net savings of $3000 in fuel costs over the life of the vehicle. That’s what you’d save by running on wall current instead of gasoline.

”So if the extra batteries cost more than about $3000 up front, there is no way to make up the cost in future fuel-cost savings unless electricity prices drop or gasoline prices rise considerably,” says Jeremy Michalek, one of the authors of the study and a professor at CMU.

He and his colleagues assume a base price for lithium-ion batteries of about $1000/kWh, meaning that the Volt would require a battery pack costing $16 000—or $13 000 higher than economic considerations can justify. Sure, battery costs may fall, and the federal government may give as much as $7500 in tax credits, shifting some of the burden from the car owner to the taxpayer. But it’s still uneconomical.

Michalek doesn’t deprecate hybrids; it’s just that he prefers parallel designs, which can make do with smaller—and therefore cheaper—batteries. ”With a lower-cost pack, there is less investment to recover in fuel-cost saving, less weight to lug around, and less risk from uncertainty of future gasoline and electricity prices,” he says.

GM declined to respond to IEEE Spectrum’s requests for an interview. But in the company’s blog, FastLane, GM’s vice president for global program management, Jon Lauckner, attacked the CMU study as unrealistic, saying that its estimate of the cost of the batteries ”is many hundreds of dollars per kWh higher than the actual cost of the Volt pack today. Moreover, our battery team is already starting work on new concepts that will further decrease the cost of the Volt battery pack quite substantially in a second-generation Volt pack.”

So let’s assume for a minute that the pack ends up costing just $8000, about the same as the hoped-for tax break, and that the Volt and other plug-ins eventually sell by the millions. That’ll cost the government tens of billions of dollars a year in subsidies, so the bailout of Detroit will go on and on. And it won’t just be a bailout for Detroit: GM’s rivals will also be standing in line for those subsidies. Indeed, Daimler, Fiat, Mitsubishi, Nissan, and mighty Toyota, father of the Prius, are coming out with all sorts of electric-drive vehicles, just in time to take the shine off GM’s tail fins.

The Prius offers a sobering view of what the Volt is up against. It is easily the most extraordinary tech success story that the auto industry has had in decades, yet Toyota took a long time to reach the break-even point. ”I don’t think they’re making money on it even now,” says IHS Global’s Wolkonowicz.

GM can’t afford to lose money on the Volt, not even in the short run, because it doesn’t have a stable of great new products waiting in the wings to help defray the Volt’s start-up costs. Look at GM’s market share, which has been falling not just for years but for decades.

Archrival Toyota is experimenting with plug-in hybrids—although apparently not serial hybrids—and says the technology is promising but unripe. ”We are indeed committed to the technology, but we are being open about the tech progress—and the key issue is battery technology,” spokesman John Hanson told Spectrum. ”For the plug-in to become a mass-market success, we need a breakthrough in battery technology that will deliver three things: higher energy density, lower cost, and higher overall performance than lithium.”

The Volt is a fine idea, but it just can’t do what GM is asking it to do.

This article originally appeared in print as "Discharged."

For all of 2010's Winners & Losers, visit the special report.

This story was corrected on 27 January 2010.