Does GM's New Electric Car Matter?

General Motors (NYSE: GM  ) dropped a surprise on Wednesday: After spending the past few years pooh-poohing the idea of selling a purely electric-powered car in the U.S., the General announced that it will sell an electric version of its tiny Chevy Spark here starting in 2013.

The whole point of the Chevy Volt, to hear GM tell it, is that it's an electric car with a normal car's range, thanks to the gas engine that essentially serves as an onboard generator. Regular electric vehicles (EVs), with their limited ranges, induce "range anxiety," the General has long maintained. But now, the tune has changed: The Spark EV is likely to have a range of 100 miles or less, yet it's coming to America.

It's an interesting strategic move, for a few different reasons. But in the grand scheme of things, how much does it -- or any electric car -- really matter right now?

It depends on whom you ask.

Putting electric-car sales in perspective
Electric vehicles get an awful lot of attention from the press, including here at the Fool, but so far, their impact on the U.S. market has been microscopic: Through September, Nissan (OTC: NSANY.PK) had sold just over 7,000 Leafs here this year, while GM has moved less than 4,000 copies of its sorta-EV-sorta-hybrid Chevy Volt. And the much-hyped Tesla Motors (Nasdaq: TSLA  ) has sold fewer than 2,000 cars ever, though it does have more than 5,000 orders for its upcoming Model S sedan.

Each of those totals is arguably impressive in some way, given the enormous technological hurdles and barriers to adoption faced by the programs that brought (or in the case of the Model S, is bringing) each of those cars to market. And in each case, there's an argument to be made that the low sales totals aren't (entirely) due to a lack of demand. These are new technologies, mass production is still a work in progress, and supplies of critical parts are still constrained.

But all that said, some context is necessary here -- context that often gets lost in overheated discussions of what many view as a paradigm-shifting technology: Ford (NYSE: F  ) sells more than 10,000 F-series pickups in the U.S. every single week -- almost 2,000 a day, on average.

Or, put another way: 13 million vehicles will be sold in the U.S. this year, give or take, and statistically speaking, almost none of them will be EVs.

But that doesn't mean they're not important. Important to whom, though, is an interesting question.

The significance of the Spark
Depending on where you live, you may never see an electric Spark, which is based on the even-tinier sibling of the just-launched subcompact Chevy Sonic. It might be offered in just a few markets -- GM is being coy about which, though it did mention "California" in the press release -- and the sales totals seem likely to be very small, maybe even smaller than we've seen so far with the Leaf. Its impact on GM's bottom line is likely to be somewhere between "negligible" and "microscopic."

But that's not why GM is going to offer it here. That's not why the Leaf exists, it's not why Ford's upcoming Focus Electric will exist, and it's not why Toyota (NYSE: TM  ) has invested so much in electric R&D (and in Tesla Motors). Looking at EVs as bottom-line exercises for the major automakers misses the point, at least in the near term. These cars are at (or coming to) your local dealership for two reasons, neither of which is really about the profits they'll generate directly.

First, these cars represent a bet that EVs will become much more widespread in a few years. Batteries remain expensive, but they'll get cheaper. Huge investments are being made in battery-production capacity by companies from A123 Systems (Nasdaq: AONE  ) , which will supply the Spark EV's sparks, to enormous auto supplier Johnson Controls (NYSE: JCI  ) . By mid-decade, battery supply may exceed demand. Meanwhile, more huge investments are being made in building out an electric-car infrastructure, in California and elsewhere.

The upshot: Batteries will become cheaper and better, improving EV range and lowering prices -- and a network of recharging stations will make EVs viable for longer trips, just like gasoline cars. Meanwhile, the few EVs sold now help to defray the R&D costs of the much larger wave we'll see later on. Lower prices, range comparable to conventional cars, and a developed infrastructure together are likely to lead to mass-market acceptance of EVs, or so the thinking goes.

That's all important. But it's not the real, bottom-line reason that the Spark EV is coming to America.

The real reason the Spark is coming here
The Spark -- EV and otherwise; a gas-powered version will also be sold here -- isn't really a car that was designed with U.S. drivers and U.S. tastes in mind. Like its larger siblings, the Cruze and the Sonic, it was designed mostly in South Korea for markets all around the world, but the Spark is a size smaller than anything in GM's (or Ford's) current U.S. lineup. And unlike the Cruze and Sonic, the Spark almost certainly won't be built in the United States. It may be imported from South Korea. And even then, GM's margins on the car are likely to be tiny. The EV may even be sold at a loss.

Still to be answered is this: Will U.S. consumers go for such a small car, electric-powered or otherwise? It doesn't really matter: GM needs to offer the Spark, and its EV variant, for the credits it'll get under the new Corporate Average Fuel Economy rules. The gas-powered Spark and its tiny 1.2-liter engine will probably get well over 40 miles per gallon -- and the electric version will qualify for special, extra credits under the new rules.

That, in turn, will give GM some breathing room under the rules to offer more of the larger, thirstier vehicles that it knows Americans want. Those are the vehicles that drive the bulk of GM's profits. So yes, the Spark EV matters a lot -- to GM. And that's why it's coming to America.

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Fool contributor John Rosevear owns shares of Ford and General Motors. You can follow his auto-related musings on Twitter, where he goes by @jrosevear. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of Ford and General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 16, 2011, at 5:45 AM, camper9574 wrote:

    I have been driving Volt # 1496 since March. Living in Mass., I had to go to NJ to get it.

    At 7,800 miles (on a bit over 50 gallons of gas) I am averaging 143 MPG lifetime. My electric bill is about $45 a month more than before.

    The car corners like it's on rails, handles like a sports car, has the acceleration of a jackrabbit.

    It is fun to drive. Love it!.

  • Report this Comment On October 17, 2011, at 2:11 PM, TMFMarlowe wrote:

    @camper9574: That's great to hear. How do you like the interior and more mundane features (stereo, convenience options, etc)? Did you consider other cars when you were shopping, or did you know up-front that the Volt was going to be your next ride?

    Thanks for reading.

    John Rosevear

  • Report this Comment On October 18, 2011, at 2:18 AM, spectechinvest wrote:

    I recently had a promotional lease of a Chevy Volt for 3 days and drove it on many small day trips. If i forgot to charge it over night it started eating up gas and averaged 48 miles/gallon, but obviously its better milage if I plugged it in over night every night.

    I have some pictures and commentary of the center console interface on my blog: http://thespeculativetechinvestor.blogspot.com/2011/10/3-day...

    For the most part the user interface was not very spectacular, and my roommate who works for BMW complained even more than me about how cluttered and confusing it was.

    The sport electric motor was probably the best part. BUT every electric engine car has that same peppy feel to it.

  • Report this Comment On October 18, 2011, at 10:02 AM, JoJoBinks wrote:

    I hear this constantly....Americans don't want smaller cars they want huge cars with lots of interior features....blah blah....I thought this was America land of Choice! Not centralized demographic planning by corporations...just substitute Government planning with corporate planning....and you have communism.

    What Americans want is choice. I want the same choice given to Europeans...who have natural gas cars and hi performance turbo chargers. I want cars they have in Brazil or Japan, Korea or China ...where they really know what is happening. I want an electric car. Yes I WANT AN ELECTRIC CAR! What everyone always fails to address in these silly "America prefers" arguments...is PRICE. The people that want Electric Cars are not the people who can afford them!!! Duh....

    There are millions and millions of new college students that would buy these cars IF they were affordable. There are millions and millions of city dwellers who would buy these cars if they didn't have to spend so much on their city apartment.

    In other words, this America "prefers" argument works for the suburban family of 5 , but is a worthless argument for "real" demand. Of course companies have to make a profit, but what we have here is a lack of commitment from car companies to actually pursue a market. How many companies pursue "loss" leaders and less profit to gain market share? EVERY COMPANY that is in growth mode. Problem is, no American auto company is in growth mode, they are all in defensive mode. So this article does hit on the reason these cars are so expensive....it's only to create the illusion that they are doing something to beat back "regulation" of higher fleet gas mileage, it is not to pursue a new market. I would love to be in the board meeting of one of these companies to explain what America really wants!

    WE want a new Model T, a new AFFORDABLE electric car. Not these "elitist" "green" cars .Whenever something has "green" attached to it...the price goes up 30%.

    This article does bring up a glimmer of hope though....the US just passed trade legislation which will allow more open trading with Korea and other countries that will snap up these cars....especially since I am sure they will be offered at much better prices overseas....don't even get me started on that idea....

  • Report this Comment On October 18, 2011, at 10:25 AM, TMFMarlowe wrote:

    @JoJoBinks: You miss the essential problem, which is that the technology to give you what you want is still several years away. Believe me, a LOT of people and resources and dollars are being thrown at the problem of making a mass-market-priced EV with range, comfort, safety, and utility comparable to something like a Ford Focus or Honda Civic. It's not here yet, plain and simple. Your charges of "elitism" or whatever are misplaced. Meanwhile, yeah, you get a $30k Nissan Leaf because that's what it costs to make right now, and it's only got a maybe-80-miles-on-a-good-day range because that's what the best batteries available can do right now at that price point, and it's only sold in warm-weather areas because the tech isn't sufficiently advanced to deal with anything like Minneapolis in January. (Batteries lose power when they're cold. This is one of many, many problems that have to be overcome.)

    Reality rarely fits so nicely into convenient political narratives. Acknowledging that makes ranting so much less satisfying, I know, but it's a necessary precondition for progress.

    John Rosevear

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