Can GM Save the Chevy Volt?

So far, General Motors' (NYSE: GM  ) electric car strategy has not lived up to expectations. The company introduced the Chevy Volt in late 2010 to great fanfare. The Volt was meant to be a demonstration that the Detroit automakers could still be innovation leaders in the industry. As my colleague John Rosevear recently observed, the Volt got good ratings from auto reviewers, and customers are very happy with the car.

The Chevy Volt. Source: General Motors.

None of this has helped sales. The Volt missed sales goals by a wide margin in 2011 and 2012. So far, 2013 isn't shaping up to be any better. Electric-car start-up Tesla Motors (NASDAQ: TSLA  ) just began delivering its Model S sedan in volume last fall, but the Model S still managed to outsell the Volt last quarter -- despite being far more expensive.

The Tesla Model S. Source: Tesla Motors.

However, help is on the way for GM, in the form of a car that isn't even called "Volt." At this year's Detroit Auto Show, GM unveiled the Cadillac ELR: a luxury coupe that builds on the Volt's plug-in hybrid technology. The Cadillac ELR may have more success than the Volt, as it's more likely to appeal to car buyers who would be willing to pay extra for a "green" car.

Electric means luxury
There's good reason to believe that price/perception problems have been the Volt's downfall. Even after tax credits, the base model costs more than $30,000 -- far more than comparable gas-powered cars in the Chevy lineup, such as the Cruze. It also costs significantly more than Toyota's (NYSE: TM  ) very fuel-efficient Prius hybrid.

In other words, if price is a consideration, it's hard to make a good "business case" for the Volt. Even if fuel efficiency is a high priority, moving from a hybrid to a plug-in hybrid like the Volt significantly adds to the cost, while providing a limited benefit. This logic has also weighed on sales of Toyota's Prius plug-in model.

On the other hand, if money is no object, you are probably not a likely customer for Chevrolet! By contrast, Tesla has successfully appealed to very wealthy individuals; the average selling price for its cars last quarter was nearly $100,000. The Model S offers a full luxury experience in a well-designed car and recently received the highest rating of any car from Consumer Reports. Tesla customers are willing to pay a handsome sum for this performance.

GM's advantage
Tesla clearly has a great product on its hands with the Model S and is building a strong moat with its proprietary powertrain technology and Supercharger network. However, Tesla is not invincible. The biggest drawback of the Model S is that its range of 250-300 miles (with the largest battery pack) is insufficient for long trips. By contrast, the Cadillac ELR -- like the Volt -- runs on gasoline power after the electric charge is depleted, giving it unlimited range.

The Supercharger network is Tesla's response to "range-anxiety." Tesla has nine Supercharger sites in California and the Northeast, with plans to expand to more than 100 stations by 2015. The Superchargers can provide up to 150 miles of range with a half-hour charge and are free to use for Tesla vehicle owners.

When fully built out, the Supercharger network will be a great asset for Tesla. That said, most drivers wouldn't naturally make a half-hour pit stop every 100-150 miles. Moreover, even with 100 stations, Supercharger facilities will be far from ubiquitous. Some destinations will remain inaccessible.

Furthermore, if there's traffic on the main highway, Tesla drivers will have to slog along, because that's where the Supercharger station will be. Meanwhile, their friends who are still stuck with internal-combustion engines will be able to make a detour, since they can fill up anywhere!

Can Cadillac be hip?
Thus, I believe that there's room for Tesla competitors in the luxury electric car market. Some consumers will prefer the flexibility of plug-in hybrids over Tesla's full electric vehicles. The key question is whether the Cadillac brand can appeal to the sort of customers Tesla has won over. The average age of a Cadillac buyer is 65: This is probably not a good target demographic for alternative-energy vehicles.

However, the most recent entry in Cadillac's vehicle lineup, the ATS, may be paving the way for the ELR. The Cadillac ATS is a luxury compact designed to compete with BMW's highly successful 3 Series. Earlier this year, GM reported that 20% of ATS buyers are under age 35, compared with just 10% for the rest of the Cadillac brand.

If the ATS can maintain its current momentum, it will improve Cadillac's image among younger car buyers. This could be a big asset in terms of boosting customer consideration of the Cadillac ELR. It also helps that the ELR has a very "sporty" look compared with the Volt.

The 2014 Cadillac ELR. Source: General Motors.

The ELR is a cool-looking car and appears to have a classy interior. The car also features some innovative features, such as paddles on the steering wheel that allow the driver to manually activate the regenerative braking system to slow the car while going around curves.

The Cadillac ELR is not expected to hit showrooms until 2014, but when it does, it will provide GM with a credible alternative-energy car in the luxury segment. Based on Tesla's success and the low sales for plug-in hybrids and EVs from mass-market automakers, the luxury segment may be the most viable market for these cutting-edge cars.

Foolish conclusion
There's no guarantee that GM will have any more success with the Cadillac ELR than it did with the Chevy Volt. However, deep-pocketed car buyers who can afford to pay extra for plug-in hybrid or electric vehicle technology will want an all-around luxury experience. The Model S offers that experience. By contrast, the Chevy Volt is a nice car, but not luxurious by any stretch of the imagination. By combining Volt technology with a premium Cadillac design, GM has hit upon a combination with better prospects for success.

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Read/Post Comments (13) | Recommend This Article (2)

Comments from our Foolish Readers

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  • Report this Comment On May 11, 2013, at 4:45 PM, DaveLV1 wrote:

    The Chevrolet Volt is a small ugly car with tight interior and no trunk. The Tesla is a luxury good looking car, large on the inside, and has a trunk. The price difference is only $20k. When will manufacturers realize that designing solely for maximum fuel efficiency is not a market winner. The Prius is ugly, the Leaf is ugly. People want and will pay extra for a good looking usable electric car. How about taking something like the Camaro or CTS, and make them Volt drivetrain powered? The ELR if indeed it is over $70k is not the answer, as again the Telsa is far prettier and more usable. GM, if you don't want to end up bankrupt again, you need to find new market analysts that understand beauty comes first.

  • Report this Comment On May 11, 2013, at 5:16 PM, devoish wrote:

    I don't think the Volt is going to need "saving" because it is in second place in an 11 team league.

    The Honda Fit with sales of 68 units over the same time might be needing some saving.

    I think the Volt is clearly winning in its market vs the Prius plug-in and the Ford C-Max, the Leaf is clearly winning the lower cost market, and Tesla better hope the Cadillac doesn't just kick its butt.

    And Tesla should worry.

    I can go from Ca to NY in a Volt or an ELR. The Tesla Model S is a little more.. restrictive, and maybe a better fit for the money flaunting crowd than the intelligent buyer who understands global warming and is willing and also able to spend up to make progress in greenhouse gas reductions.

    Best wishes,

    Steven

  • Report this Comment On May 11, 2013, at 10:36 PM, TMFGemHunter wrote:

    @DaveLV1: Agree that EVs will need to look good to win beyond a small niche. On the other hand, the price difference is actually $30K now that Tesla killed the 40 kWh version of the Model S. The starting price is now around $70K before tax credits, vs. roughly $40K for the Volt.

    Personally, I agree that the Model S looks better than ELR, but I certainly wouldn't call it more usable. If you rarely go for a long drive, that might be the case. But if you're using the Tesla just for local driving, then I doubt you would need that big trunk very much.

    In any case, I think ELR will only be competitive if it comes to market cheaper than Model S: maybe around $60K before tax credits. I think that GM will aim for that sort of price point.

    Adam

  • Report this Comment On May 11, 2013, at 11:29 PM, markwb wrote:

    Lol, why does a profitable car need saving? Current sales may not be what was hoped for, but they are enough. Why? Didnt GMs CEO just say it was losing money?

    if GM where to surface the 2.4 ZEV credits it earns with each volt sold in California Since Feb 6 2012, then it is profitable today! (A Tesla earns 4 )

    But the just listen the the vested interests Howl ...

  • Report this Comment On May 12, 2013, at 12:33 AM, dm333 wrote:

    Tesla is an awesome car in every way. Its not just an expensive car. Fisker was similarly priced and was a similarly priced EREV.

    Maybe EREVs don't work. Volt has all the complexity of a gas car plus a large battery. Cramped interior, seating for 4 (not 5), small trunk, poor visibility, exorbitant price. Whats there to like? If you want extended range, buy a Cruze. If you want great gas mileage get a Prius. If you the best car that just happens to be electric, get a Tesla. There isn't a case to chose the Volt.

    I think GM is sunk unless they can bring the price down to be comparable to the Cruze after rebate. Otherwise hard to see what you get. Worse gas mileage, similar handling, smaller cabin. Just to get 38 miles of electric range which would take 40 years to pay back assuming no gas ever used.

  • Report this Comment On May 12, 2013, at 2:33 PM, Dhelg wrote:

    I agree the Model S is an awesome car. But so is the Volt! I didn't consider a Tesla because there is not a local service center (yet). I own a Volt. What's to like? Well how about that I haven't been to a gas station in two months? It's not just cost. It's not just convenience. Imagine not having to deal with the hassle, smell, etc. Anyone who thinks a Volt is just like a Cruze hasn't driven one. Handling is worlds apart. Instant torque. Nothing against the Cruze, but it doesn't drive like a Volt. The Volt has a lot of features you would expect in a Buick or a Caddy. You'd have to really trick out a Cruze to make it comparable, bringing the price difference closer. My previous four cars were BMWs and the Volts measures well.

  • Report this Comment On May 12, 2013, at 8:20 PM, bobbleheadguru wrote:

    This is a classic case of naive over analysis with a very limited data set.

    Facts:

    1. Chevy Volt launched nationally on 11.01.2011. Its first full year was last year, 2012.

    2. Chevy Volt generated over $1,000,000,000 in revenue for GM last year.

    3. Year one for Chevy Volt revenue far exceeded Toyota Prius year 1. The Prius is now the #3 nameplate worldwide. That is not a bad template to follow.

    4. The exact same GM engineers work on eAssist, a derivative Volt technology, which has boosted Chevy and Buick MPG on much higher volume car lines by 35% year over year. These vehicles will generate an additional $4-5B in revenue.

    5. The Chevy Volt is a flagship "halo car" of an ecosystem of high MPG technology. It is as silly to look at the Volt in a silo as to look at the Corvette (which the Volt outsells) in a silo. It brings people to showrooms to buy other cars and pushes the envelope of technology exactly like the Corvette does.

  • Report this Comment On May 13, 2013, at 3:00 PM, devoish wrote:

    "While the concept behind the marketing strategy was ingenious, it backfired dramatically in the months that followed. GM had turned to it’s VIP’s as opinion leaders for the Corvette but, unfortunately for GM, the majority of them did not like the car anywhere near as much as the marketers had hoped they would. The car was criticized as possessing too much “jet age” styling, of being “non-functional and faddish”, of containing clumsy add-ons (such as the aforementioned side windows), “off the rack” mechanicals and a price tag that was far in excess of what the car was actually worth. With a final sticker price of $3,490, the Corvette was out of reach for many of the younger consumers for which the car was being marketed, further bringing into question the viability of this new sports car."

    "Six years ago, the oldest production Corvette in existence, Corvette #003, sold for $1,080,000 at Barrett-Jackson’s Scottsdale sale. RM Auctions is not expecting a repeat of that sale when the third-oldest Corvette, Corvette #005, crosses the block next month at its Arizona auction, but is still predicting a sale price of about half a million dollars."

    So what if we add ridiculously overblown political controversy to a car that uses first time ever technology to bridge the gap between fossil fuels and electric power, and has unmatched owner satisfaction?

    So which Volt compares?

    "In December 2010, retired airline pilot Jeff Kaffee become the first Chevy Volt owner in the world.

    Since then, Kaffee has racked up a decent amount of miles. But it’s not the mileage on his Volt’s odometer that’s the story here. Rather, it’s that Kaffee’s Volt is averaging over 450 miles per gallon of gas consumed".

    So what happens to this cars value as an investment over the course of the next 50 years, especially if they are popular, but just out of reach of the money most car buyers can spend?

    "And of course he was the first in the nation to own a Chevy Volt, but now Kaffee says “…the car is ubiquitous, you see them everywhere.”".

    This car will be one of the best investments of 2010.

    Best wishes,

    Steven

  • Report this Comment On May 13, 2013, at 7:44 PM, CluckChicken wrote:

    "As my colleague John Rosevear recently observed, the Volt got good ratings from auto reviewers, and customers are very happy with the car. None of this has helped sales."

    Count the number of car reviews for the Volt and then count the number of negative news items about the Volt that are really people just complaining about the bailout. It is very difficult for people to think of the Volt as a positive when Fox news used it as it's poster boy for a bad government and why green technology shouldn't be invested in.

  • Report this Comment On May 14, 2013, at 9:26 AM, capsman727 wrote:

    Can GM Save the Chevy Volt?

    Better question is Why even bother?

    If a quality electric car does become economical, it certainly won't be a GM product.

  • Report this Comment On May 15, 2013, at 5:46 PM, devoish wrote:

    CluckChicken,

    That political drivel from FOX, combined with the technology, and happy customers is exactly why this car will be more of a collectors item than Corvettes.

    Best wishes,

    Steven

  • Report this Comment On March 10, 2014, at 5:02 PM, danwat1234 wrote:

    capsman727, a used Volt will certainly be economical to buy and have as a primary car.

  • Report this Comment On March 11, 2014, at 2:34 AM, ispconsultant wrote:

    The Volt is a good option for most short trip commuters. We bought 2 and we rarely use gas now. (I downgraded from an Expedition which I loved but was tired of $100+ fillups and with the kids in college, I dont need a big car to go to work). So far these cars have been very good. When I do use gas, I am getting 45mpg.

    The big thing about Volts and ANY other electric car is they must be priced at almost the same as a regular engine car. Otherwise, it will never pay for itself. With all the rebates, we got them both decked out with every option for about 24K each.

    I dont agree the government should be paying me to drive a Volt. But I also dont agree they should be taking 45c of every dollar I make so I look at this as getting back some of the tax dollars I pay in. GM and Ford must make these cars as cheap to buy as the normal cars. I am sure in time, this will be true. For now, the rebates make it pretty close.

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