The Chevy Volt Is Dead ... Long Live the Electric Car?

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News that General Motors (NYSE: GM  ) is idling its Chevy Volt plant shouldn't come as much of a surprise. In the short run, the electric car hasn't lived up to the high expectations that have bubbled up over the past few years. That doesn't mean electric cars are failures. In fact, despite the idling -- a temporary five-week shutdown -- GM's Volt sales improved markedly in February after a disappointing January.

The cars aren't perfect, and the technology isn't fully mature. But the Volt is only one early entry in what's likely to soon become a crowded field. The last thing the electric car needs is more hype, but that's something every transformative technology succumbs to in its early adoption phase. In the long run, cautious optimism is the best attitude to adopt while waiting for the electric car to take off.

Counting your plug-ins before they're charged
The sad truth is that any technology attempting to move us away from fossil fuel becomes a political football to be punted around. Plug-in electric cars are one glaring example, but hybrid vehicles were no exception. Here are a few comments that could apply to either the Volt today or the Toyota (NYSE: TM  ) Prius a decade ago. Try to figure out which quote is referring to which car.

  1. "With most subsidies, the government pays someone to produce something that no one wants to buy. But what happens when the government pays people to buy something that no one wants to produce?"
  2. "Taxpayers are rightly grumpy about ponying up a ... subsidy on a car that is generally priced around [no clues!]. People who will spend [that much] for a small four-passenger car don't need a subsidy."
  3. "It is not, repeat, not the wave of the future. It's just too impractical for a large number of everyday drivers."
  4. "Obviously, these cars can't achieve profitability under any reasonable sales projections."
  5. "News stories about the popularity of these vehicles simply aren't true. There's a waiting list ... but that's because [Car Company] will only ship 12,000."
  6. "Taxpayers and corporations can't prop up this flop forever. ... management should end the misery before being told off by the voters, the markets and its own technology."

Stumped? The first, fourth, and fifth comments were all from a Cato Institute op-ed slamming the Prius back in 2001. The rest are from... the Cato Institute, which has published multiple op-eds slamming the Volt over the past few months.

This comes despite the Prius' ensuing great success for Toyota, as it's now sold more than 2 million units and moved 400,000 worldwide last year. That puts the lie to the claim that no one wanted to produce the cars, and also makes a mockery of the assumption that no one wanted to buy them. The Cato Institute's 2011 article claimed that Toyota was losing $17,000 per Prius; today, the company's gross profit per Prius is estimated to be about $3,000, though that number may have gone down since first being posited.

A failure of long-term thinking
Is the Cato Institute wrong on the Volt? It's early yet, but they might be proven right on the particulars while still being very wrong on the bigger picture. The Volt could be the plug-in electric spiritual successor to Honda's (NYSE: HMC  ) hybrid Insight, which never matched up to Toyota's hybrid standard-bearer. The Insight's sales tailed off substantially after 2001, and Honda even halted sales for two years before reintroducing the model to moderate success in 2009. By then it had long since been eclipsed by a proliferation of other hybrids:

Source: U.S. Department of Energy.

I've pointed out in the past that plug-in electric cars have already pushed ahead of the hybrid adoption curve. This year alone, the Volt and the Nissan Leaf will be joined by a roster of attractive options, including Tesla's (Nasdaq: TSLA  ) long-awaited Model S (sold out pre-production), Toyota's RAV4 (jointly developed with Tesla) and plug-in Volt-like Prius, and a hotly anticipated Ford (NYSE: F  ) Focus electric. But most automakers are now doing conservative rollouts, perhaps wiser in the wake of mediocre Volt and Leaf sales to date.

There are problems on both sides of the aisle when it comes to electric cars. These cars -- with ranges that generally max out at 100 miles, and price tags beyond the reach of many consumers -- aren't going to significantly change American driving habits. Not yet. There hasn't been a national effort to change driving habits on the scale of the national highway system since, well, the national highway system. Giving out subsidies isn't remotely comparable in scope. Even hybrids are a rounding error in America's annual auto sales figures.

That doesn't mean plug-in electrics will be money-losers and subsidy hogs forever, or that their development won't bring about something even better. Long-term thinking and technological optimism are good traits to have, whether your goal is to go to the moon or wean a country off imported fuel. And both sides need to be willing to accept the costs of progress. A Democrat pointed to the moon and promised we'd get there, but a Republican congratulated the men who made it.

No, the Chevy Volt isn't close to a moon-shot. But the first rockets only had to reach orbit. There needs to be some perspective on the march toward better technology.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more news and insights. The Motley Fool owns shares of Ford Motor. Motley Fool newsletter services have recommended buying shares of Tesla Motors, Ford Motor, and General Motors. Motley Fool newsletter services have recommended creating a synthetic long position in Ford Motor. 

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Read/Post Comments (8) | Recommend This Article (14)

Comments from our Foolish Readers

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 March 05, 2012, at 5:24 PM, DJDynamicNC wrote:

    "Is the Cato Institute wrong on the Volt? It's early yet, but they might be proven right on the particulars while still being very wrong on the bigger picture. "

    Right for the wrong reasons is still wrong.It would be difficult for me to be less surprised that the Cato Institute has been repeatedly wrong on this topic; whatever their merits (and they do have some strong merits), the organization pushes an agenda first, regardless of the facts. That's a recipe for getting things wrong, fast and frequently.

    Only time will tell, of course, but many Americans are tired of being held hostage by gas prices.

  • Report this Comment On March 05, 2012, at 6:28 PM, xetn wrote:

    Maybe these charts will help clarify the rise in gas prices:

    I think it is clear, there would probably not be a Volt without the bailout of GM and government subsidies.

    I keep hoping for a real quantum leap in technology that will provide a real replacement for the gas engine. It hasn't happened yet.

  • Report this Comment On March 05, 2012, at 10:13 PM, ETfirst wrote:

    Even a direct purchase assist of $7500 has not influenced enough people to buy the Volt to produce sales anywhere near the production levels which had been predicted. The advanced Li battery technology has given the Volt more sportscar like performance than the Detroit Electric had. The Volt will go faster, but not as far on electric power. According to 1920s engineering test repots, the Det El was capable of up to 80 miles in city traffic (for which it was intended) on battery power. In on track tests, it made 130+ miles on lead/acid batteries. Speaking of batteries, most veersions of electric powered vehicles use some form of Li battery. According to the USGS, less than 1% of the world's known Li reserves lie within the U.S., and all of that is owned by a single, privately held company. Fifty percent of the world's reserves are in Bolivia, 30% is divided between Argentina and Chili, 15% is divided among Australia, China, and Russia.The remainder is scattered around the world. Until someone perfects a means of wireless transmission of useful amounts of electricity, vehicles like the Volt will remain toys for the affluent. Currently, the median annual income for a Volt buyer is $175,000.

  • Report this Comment On March 05, 2012, at 10:23 PM, mgpblue wrote:

    3-5-12... is no surprise at all to have read of the Volt in today's IBD...I have been watching the car wars for over fifty years now..I can remember watching video of American auto workers literally sledge hammering a Toyota in the early '70's, where they should have been sledge hammering the heads of the exec's of the auto company they worked for..

    as if that would have done any good..I have no sympathy for them, with their arrogance and complacency, which is what has gotten them to where they are today..RIP AMC..who thought salvation was with Renault of France..they were 'one and done:' the Alliance; Chrysler..bought and sold twice in just fifteen years (after giving up on their Hail Mary 'K' cars)....Daimler was as relieved to have unloaded it to Fiat of Italy as GM was with anyone who would have it..sure, Chrysler's sales have spiked, but I'd be willing to bet that they spiked after Daimler acquired them. Now, the doubt referred to as the Prius 'killer' in some circles..another example of 'Detroits' technical savvy, bought and paid for with taxpayer dollars..when was the last time Toyota or Nissan

    ran to 'Mommy' saying 'save us, save us..' Any car is good when it's new, even Fiat's. I personally will never buy an American nameplate, even if it is two-thirds owned by a foreign automaker, they cannot/will not learn..

    I Love my Prius...

  • Report this Comment On March 05, 2012, at 11:05 PM, oldguy1950 wrote:

    Quote: "According to the USGS, less than 1% of the world's known Li reserves lie within the U.S., and all of that is owned by a single, privately held company. Fifty percent of the world's reserves are in Bolivia, 30% is divided between Argentina and Chili, 15% is divided among Australia, China, and Russia." End quote.

    We might be able to buy Bolivia for less than the subsidy on the Volt.

    Seriously, Lithium batteries are not the answer. And, without using fossil fuels (natural gas, clean coal, etc.) and/or nuclear, shifting to electric powered cars in a big way will just drive up the price of electricity. Using electricity from fossil fuel generation is arguably much freer of pollutants than exhaust from gas-guzzling vehicles and should be considered as an environmentally friendlier option. However, until fuel cells replace batteries, electric cars are a very limiited range commuting-only option. Not saying they wouldn't catch on at the right price point. In any case, as soon as they become mainstream, the loss of gas tax revenue would be a prohibitive burden on states and govenments would slap a mileage tax on them to replace the consumption tax on gasoline. Green ideology only carries so much weight when it conflicts with state social programs.

  • Report this Comment On March 06, 2012, at 10:22 AM, catoismymotor wrote:

    I think the number of hybrids are going to jump in the coming decade. I can see it happening as the costs of the technology come down and technical improvements increase. Couple those reasons with higher prices for gasoline and you'll see a desire from the consumer drive the market. For our household as things stand now with gasoline at $3.69 a gallon the idea of getting a hybrid (used, of course) makes economic sense. What would be saved in fuel could be turned around and used to pay down the loan faster. The Ford Fusion and Toyota Highlander in hybrid form on the used market look like good values.

    I don't think it is right to have the government take money from you in order to give it to me in order to make it so I can afford an overpriced product. Involutary redistribution of wealth is creepy. I know there are laws on the books prohibiting *dumping* (selling products at a loss) and I am not sure how said laws work regarding domestic automakers. But why not encourage GM to sell the Volt at a loss? Can't they turn around and apply that loss to their taxes? It is still their benefit to sell the Volt, even if it is at a loss, because it helps GM's overall fleet MPG numbers.

    - Catoismyhybridmotor

  • Report this Comment On March 06, 2012, at 10:32 AM, mikecart1 wrote:

    Put an electric car inside a decent body and frame and I guarantee you that sales will not be hard. The problem with current electric cars or those that study them is that the body of the cars aren't that attractive. There is no rule book in car manufacturing that requires an electric car or a high mpg car to look like a stumpy failed attempt of an old Saab car. Make the car decent. It doesn't have to look like a Ferrari but make it look like a decent sports car and I guarantee that sales won't be an issue.

  • Report this Comment On March 15, 2012, at 5:12 PM, SasparillaFizz wrote:

    It's a good article overall - but something that the author is missing is important. The hybrid value that someone gets when buying a hybrid is still about the same as when they were introduced (you pay more for a good deal better mileage, city mileage in particular). But this value hasn't changed overall.

    Plug-ins EV's will be different - because the main technology they are relying on (batteries) is advancing rapidly (both in cost and capacity) and is expected to do so throughout this decade and beyond. Generation 2 plug-ins (~2015) will have batteries with twice the capacity of Generation 1 plug-ins for the same cost (or better). Generation 3 (~2020) plug-ins EV's will have batteries with twice the capacity of Generation 2 vehicles for the same price (or better) making plug-ins EV's at that point a no brainer (numbers wise) for a big chunk of the market (about the same cost as a regular ICE vehicle, runs on a fuel that costs 70% (or less by then) than gasoline, has close to the same range, no oil changes and instant torque etc..

    This is a disruptive technology that we will get to watch happen and the adoption curve, particularly by generation 3 will be much steeper than the hybrid adoption curve.

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