General Motors Company Bets Big on the Chevy Volt -- Again

Despite slow sales, GM is spending big to build an all-new version.

Apr 12, 2014 at 11:03AM

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Sales of the Chevy Volt have been disappointing, but GM has decided to invest in an all-new version. Source: General Motors

Has the Chevrolet Volt done well enough to deserve another big bet from General Motors (NYSE:GM)?

GM seems to think so. This past week, the company announced a $449 million investment in what it called "next generation electrification."

The money will fund upgrades in two factories in order to make an all-new Chevy Volt, as well as other hybrid and battery-electric vehicles.

Reuters also reported this week that the all-new Volt will come in two versions, one of which will have a smaller battery pack, a shorter range -- and a lower price.

Given the Volt's lackluster sales, is this money well spent?

A big investment in a slow-selling model
GM's Detroit-Hamtramck Assembly Plant is a large facility. Much of it is devoted to the production of the Chevy Malibu and Impala sedans. These are core GM products that together account for over 30,000 U.S. sales every month.

But it also builds the Chevy Volt, which racked up 3,606 U.S. sales in the first quarter of 2014, and its two mechanical siblings, the European-market Opel Ampera and the Cadillac ELR luxury coupe.

GM said this week that it would spend $384 million to upgrade facilities and tooling at Detroit-Hamtramck in order to build "the next generation Chevy Volt and two future products."

It's also spending another $65 million to upgrade the separate factory that builds the battery packs for the Volt, Ampera, and ELR.

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The Cadillac ELR coupe is built on the technological bones of the Chevy Volt -- and on the same assembly line. Source: General Motors

In a statement accompanying the announcement, GM North America manufacturing chief Gerald Johnson said, "These investments will help the next-generation Chevrolet Volt build on its position as the leader in electrified propulsion."

I'm sure that last phrase caused some chortles at Tesla Motors (NASDAQ:TSLA) and probably a few grimaces at Nissan (NASDAQOTH:NSANY), maker of the so far best-selling electric car (that would be the Nissan Leaf).  

But that actually raises a larger point: Given the advancements that Tesla -- not to mention Nissan, and several of GM's other large global rivals -- have made in electric cars and hybrids since the Volt's debut, and given the underwhelming sales of the current Volt, is GM doing the right thing by pressing on?

GM doesn't really have a choice
The Volt has been on sale for a little over three years, and in that time, it has sold a little over 58,000 units through the end of March -- despite several price cuts and a variety of incentives. 

Depending on who you believe and how you do the math, it cost GM anywhere from $700 million to $2 billion or more to develop the Volt. By most automakers' standards -- by the standards GM likely applies to most of its other models -- that's a poor return on investment. 

But here's the thing: GM doesn't really have a choice. It has to press forward with the Volt, and with its other hybrid and electric-car programs. 

Tesla's success notwithstanding, it's not yet clear that electric cars are the future of the automobile. But they are a possible future, and they're increasingly important in the present. In order to stay competitive, GM has to keep pace with giant global rivals like Toyota and Volkswagen (NASDAQOTH:VLKAY) and Ford (NYSE:F), all of whom have committed massive sums to the development of various kinds of electrified vehicles and related technologies. 

And it should be said that the Volt is a very good product that has produced a lot of delighted customers for GM. The Volt's owner-satisfaction ratings are consistently among the best in the entire industry. In that sense, the Volt has been a very successful product, one that fully delivered on GM's bold promises for it.

And it seems like GM has a solid strategy for the next Volt: A lower-priced version should broaden its appeal and improve the profitability of the overall program. Meanwhile, the longer-range version of the next-generation Volt will (we hope) improve on the current car's technology while carrying forward the things current Volt owners love about their cars.

But where is GM's bold move?
The thing is, to be taken seriously as a green-car leader, GM needs more than an improved Chevy Volt. 

That doesn't mean GM shouldn't improve the Volt. But former CEO Dan Akerson hinted that something more dramatic was in the works: an electric car (presumably a Cadillac) that would challenge Tesla head on.

These investments don't mean a bolder move like that isn't in the works. It's possible the technologies being developed for the next Volt will prove to be a stepping stone toward a Tesla-fighting Cadillac -- or a $30,000 Tesla-fighting Chevy, for that matter. 

But right now, at least in public, GM appears to be -- at best -- treading water in this space, while others are moving aggressively forward. 

I have no doubt there's much more going on behind the scenes at GM. Here's hoping that work bears bigger fruit, and sooner rather than later.

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John Rosevear owns shares of Ford and General Motors. The Motley Fool recommends Ford, General Motors, and Tesla Motors. The Motley Fool owns shares of Ford and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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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