Automakers can’t sell All-Electric Cars and Hybrids because Car Buyers don’t Want Them

Posted by PITHOCRATES - September 30th, 2012

Week in Review

The American car buyer has looked at all-electric and hybrid cars.  And after about two years of looking at them they are telling us what they think about them.  They don’t like them.  They don’t want to buy them.  And the automakers are starting to get the message (see Buyers, automakers raise doubts about electric cars by Chris Woodyard posted 9/28/2012 on USA Today).

Having largely exhausted a pool of electric-car devotees as buyers, automakers are facing headwinds in trying to make plug-in cars a mass-market product.

Nissan joined General Motors last week in offering deeper lease discounts on its premier electric car. The latest deal on the all-electric Leaf brings the lease payment closer to the level of a comparable non-electric car, not counting the gas savings, an analysis for USA TODAY by Edmunds.com finds…

Yet, some automakers are stepping back when it comes to battery-only electrics:

Toyota, for instance, announced this week that it will bring as few as 100 of its electric version of the Scion iQ to the U.S., not the thousands expected earlier. Toyota Vice Chairman Takeshi Uchiyamada warned that current all-electric cars just don’t meet the range requirements of most drivers.

The electric car is perfect for someone who doesn’t drive anywhere.  Where the range of the all-electric car isn’t an issue.  If you have a short commute to work or all your needs are satisfied within a 10 minute drive from your house than the all-electric car is for you.  Well, that.  Or walking.  But if you have a 30 minute drive home from work in a winter blizzard you’re going to want a gasoline engine under the hood.  To keep you warm.  To keep your windows defrosted and ice free.  To keep your headlights shining bright.  And best of all, to get you home so you don’t have to walk home through that blizzard.

EV start-ups aren’t having any easier time. Tesla warned in a filing this week that production of its new $57,000-and-up all-electric Model S sedan has fallen far behind schedule.

The higher price also has put off buyers, and the non-partisan Congressional Budget Office recently issued a report concluding that the government’s up-to-$7,500 tax subsidy for buying an electric car will cost taxpayers $7.5 billion over seven years but does not make up for the extra cost of the cars. It found that electric cars average $16,000 to $19,000 more than a comparable gas-engine or hybrid vehicles.

But cheap leases, along with the savings on fuel costs, have closed that gap some, at least for the Volt and Leaf.

GM has sold 13,497 Volts in the first eight months of this year, according to Autodata, more than three times as many as in the same period last year. The total has been helped by the fact that on the $39,995 Volt, Chevy is offering a $299 monthly lease after a $1,529 down payment.

The Edmunds.com analysis finds that before adding in fuel savings, this amounts to 34 cents a mile for the life of the lease, compared with 22 cents a mile for a comparable, non-electric Chevrolet Cruze, which has a sticker price of less than half a Volt’s.

This is the big problem with all-electric and hybrid cars.  They cost too much.  And people only buy them because the government slaps fat subsidies of taxpayer money on them.  Or by the sales of gasoline-powered cars.  For when they sell a car below cost they have to recover that cost elsewhere.  And the only place they can is in the price of the cars people want and are buying.  Those cars with a gasoline engine under the hood.

So if you want one of these electric cars you have to make big sacrifices in your life.  From not driving anyplace more than a 10 minute trip from your home.  To not buying other things because you’re paying so much more for a car than you have to.

It is clear that the all-electric and hybrid cars are just not viable business models now.  That could change.  But for now any more taxpayer money invested in electric and hybrid cars is money wasted.  Because car buyers simply don’t want to buy them.  Now all we need is for our government to learn what our automakers have learned.

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The Amount of Loss per Chevy Volt Sold is in Dispute but what is Not Disputed is that Each Volt Sold Loses Money

Posted by PITHOCRATES - September 16th, 2012

Week in Review

Some number crunching shows the Chevy Volt to be a disaster.  A Reuters’ article (see below) puts the loss per Volt sold as high as $49,000.  Which GM disputes.  Even former GM vice chairman Bob Lutz wrote an article in Forbes disputing this.  Criticizing the authors of the article for dividing the total Chevy Volt investment by the number of Volts sold to date.  And not the projected sales over the 5 year life of the vehicle.  But if you crunch the numbers over this 5 year period they still aren’t good.  And show a loss that may never be recovered (see Insight: GM’s Volt: The ugly math of low sales, high costs by Bernie Woodall and Paul Lienert and Ben Klayman posted 9/10/2012 on Reuters).

Nearly two years after the introduction of the path-breaking plug-in hybrid, GM is still losing as much as $49,000 on each Volt it builds, according to estimates provided to Reuters by industry analysts and manufacturing experts. GM on Monday issued a statement disputing the estimates…

GM’s basic problem is that “the Volt is over-engineered and over-priced,” said Dennis Virag, president of the Michigan-based Automotive Consulting Group…

GM’s quandary is how to increase sales volume so that it can spread its estimated $1.2-billion investment in the Volt over more vehicles while reducing manufacturing and component costs – which will be difficult to bring down until sales increase…

The lack of interest in the car has prevented GM from coming close to its early, optimistic sales projections. Discounted leases as low as $199 a month helped propel Volt sales in August to 2,831, pushing year-to-date sales to 13,500, well below the 40,000 cars that GM originally had hoped to sell in 2012.

Out in the trenches, even the cheap leases haven’t always been effective…

It currently costs GM “at least” $75,000 to build the Volt, including development costs, Munro said. That’s nearly twice the base price of the Volt before a $7,500 federal tax credit provided as part of President Barack Obama’s green energy policy…

The car entered production in the fall of 2010 as the first U.S. gasoline-electric hybrid that could be recharged by plugging the car into any electrical outlet. The Obama administration, which engineered a $50-billion taxpayer rescue of GM from bankruptcy in 2009 and has provided more than $5 billion in subsidies for green-car development, praised the Volt as an example of the country’s commitment to building more fuel-efficient cars…

Before GM resorted to discounting Volt leases, sales were averaging just over 1,500 cars a month. A huge part of that reason was consumer push back over the price, according to Virag of Automotive Consulting.

GM forecasted selling 40,000 cars per year over 5 years.  Before the discounting leases they were selling only 1,500 per month.  At that pace that comes to 18,000 cars per year over 5 years.  If you divide the $1.2 billion by 200,000 (40,000 X 5) cars sold that comes to a projected investment recovery of $6,000 per car sold.  If you divide the $1.2 billion by 90,000 (18,000 X 5) cars sold that comes to a projected investment recovery of $13,333 per car sold.  So the projected loss on their investment based on the current pace of sales over 5 years is $7,333 per Volt sold.  Or a profit margin of NEGATIVE 18.3%.  And that’s without adding any production losses.  The longer it takes to meet sales projections the greater the losses climb.  And the less likely they will ever make money on the Volt.  Even with all the subsidies and tax credits.

The big question is what do the taxpayers get for this massive investment into a car that can’t sell?  It’ll help GM advance technology for the next generation of hybrid car?  But isn’t that something car companies are supposed to be doing anyway?  And should a company that is coming out of bankruptcy protection be experimenting in exotic new technology instead of focusing on selling what people are buying to return to profitability?  So they can raise their stock price so the government can sell their shares of GM stock without a loss to repay the American taxpayer?  GM, and the American taxpayer, would be better off if GM focused on selling their more profitable trucks and SUVs until they repay their taxpayer debt.  Then once they were on more steady financial ground they could explore the exotic technologies.

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The Chevy Volt is too Expensive unless you want to Drive in the Carpool Lane Alone

Posted by PITHOCRATES - September 9th, 2012

Week in Review

The government rarely runs anything well.  Because few politicians have any business experience.  Which explains why the more they intervene into the private sector economy the more the economy suffers.  Case in point GM.  GM was losing money because they couldn’t sell cars at a high enough price to pay their bills.  Especially their retiree pension and health care costs.  Instead of allowing GM to go through the bankruptcy process to fix their problems so they could sell cars at prices that would pay their bills the government bailed out the UAW.  And did not fix their underlying problem.  What caused all of their problems in the first place.  High labor and retiree costs.  So it’s no surprise that GM did not emerge leaner and meaner from bankruptcy.  Like the airlines typically do.  Instead they left the problems in place.  And told GM to build the Chevy Volt (see The Chevy Volt: Dead or alive? by Brooke Crothers posted 9/3/2012 on CNET News).

Depending on who you believe, the Volt is either alive and kickin’ or in its death throes.

The most recent news about GM’s plug-in hybrid gives fodder to both sides. On the upside, GM said on Wednesday that it already has sold more than 2,500 Volts this month. That would be a monthly record, bringing the global total this year to about 13,000, according to reports.

But critics quickly jumped on another piece of news: GM’s suspension of Volt production for four weeks.

Dying or not this is not good news for the Volt.  Very few are buying these cars.  And those who do are not buying them because they are great cars.  They’re buying them to make a statement.  Or for some other reason.  And that is the problem for the Volt.  When a vehicle is selling well you hear the rank and file complaining about all of the overtime they have to work.  To keep up with demand.  While demanding their factories add another shift.  But when you’re only selling 13,000 a year (just over 1,000 a month) you can shut down for four weeks.  And no one will even notice.

But the completely electric Nissan Leaf has not fared well either. It has a goal of 20,000 units this year, which the Detroit News says is increasingly unlikely.

Another problem GM faces is competition. It’s no longer the only plug-in hybrid on the block. Ford has its C-Max Energi plug-in hybrid ($32,950) and Toyota is now selling a Prius plug-in hybrid ($32,000)…

GM says one in three Volts are now sold in California. And there are reasons for an uptick in Golden State sales. The Volt earlier this year finally qualified for the California provision that allows environmentally friendly cars to use restricted carpool lanes whether they’re carrying passengers or not.

And the Chevy Volt sells for $40,000.  People just aren’t demanding these cars.  Because they’re expensive, small cars.  And the people that are buying the most Volts are in California.  Just so they can drive in the carpool lanes.  Where commuters will pay almost any price to avoid that awful Californian gridlock.  Especially if you don’t have to drag along another body with you.

The federal government poured a lot of money into the Chevy Volt when they bailed out the UAW pension fund (aka the auto bailout).  This was the car of the future.  Because President Obama said so.  And proclaimed the new GM would sell a million Volts a year.  And GM would use the proceeds from these sales to repay the taxpayers.  Not only have they grossly missed the president’s sales target.  The government interference in the company (by making them build a car that no one demanded) has caused the stock price to fall.  While the government still owns a substantial amount of shares.  Pushing any repayment of the taxpayers’ money further out in the future.  If there is any repayment at all.

It just may not be time for the plug-in hybrid.  Based on these sales numbers.  So it probably wasn’t wise to make it such a big part of GM’s turnaround plan.  Or to pour so much taxpayer money into it.  Worse, GM is not positioned any better to compete in the market place.  Which is why their plug-in hybrid is the most costly one in the market place.  And will be for the foreseeable future.  Until they have a true bankruptcy reorganization.

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The Problem with Building Car Batteries is that People aren’t Buying Electric Cars

Posted by PITHOCRATES - June 22nd, 2011

The Dot-Com Bubble and Green Energy

Bill Clinton has all the answers.  He knows how to fix the economy.  How to fine tune it so it purrs.  Just like he did during the dot-com boom and bust (see It’s Still the Economy, Stupid by Bill Clinton posted 6/19/2011 on Newsweek).

When I was president, the economy benefited because information technology penetrated every aspect of American life. More than one quarter of our job growth and one third of our income growth came from that. Now the obvious candidate for that role today is changing the way we produce and use energy.

But most of it was just an illusion.  It was a bubble.  There was an explosion in dot-com companies trying to be the next Microsoft.  Investors bid Stocks up into the stratosphere.  Alan Greenspan called it irrational exuberance.  It wasn’t healthy economic growth.  It was only a bubble.  And the bubble eventually popped.  As they always do.  And with the bubble went a lot of those jobs.

Of course, when he says energy, he doesn’t mean drilling for oil.  He means green energy.  As in batteries.  For all those electric cars the president is urging GM to build.

On the day President Obama took office, the U.S. had less than 2 percent of the world market in manufacturing the high-powered batteries for hybrid or all-electric cars. On the day of the congressional elections in 2010, thanks in large part to the cash—incentive policy, we had 20 percent of global capacity, with 30 new battery plants built or under construction, 16 of them in Michigan, which had America’s second—highest unemployment rate. We have to convince the Republican Congress that this is a good thing.

One thing Bill Clinton is right on is the similarity between information technology and green energy.  One was a bubble.  And the other is sure to be one, too.

The Biggest Problem of Electric Cars is the Battery

The all-electric car is an elusive dream.  Hybrids have had some moderate success.  Because they come with a backup internal combustion engine that makes up for all the shortfalls of an all-electric car.  The battery (see Better Batteries Will Save the World by Farhad Manjoo posted 6/21/2011 on Slate).

If we had batteries that matched the price and performance of fossil fuels, we would not only have cleaner cars, but we might be able to remake much of the rest of the nation’s energy infrastructure, too. Wind and solar power are generated intermittently—sometimes the wind doesn’t blow and the sun doesn’t shine—and batteries can moderate that volatility. Stores of batteries placed in the electric grid could collect energy when the sun shines or when the wind blows and then discharge it when we need it. Not to put too fine a point on it, but you might say that the future of the world depends on better batteries—a better battery would alter geopolitics, mitigate the disasters of climate change, and spur a new economic boom.

This glosses over an important point that few discuss.  Batteries are not energy.  They store energy.  Energy that we have to create.  And right now, because we don’t have a massive infrastructure to store energy when the wind does blow and the sun does shine, that leaves fossil fuels.  Which means there is no net saving in carbon emissions if we start driving electric cars.  This just transfers the pollution our cars emit to the power plants.  Most of which use the most polluting of all fossil fuels.  Coal.  So going all electrical in our cars may actually increase pollution.

This aside there are other problems with batteries that make gasoline a better choice.

The fundamental problem with batteries is the existence of gasoline. Oil is cheap, abundant, and relatively easy to transport. Most importantly, it has a high “energy density”—meaning that it’s phenomenally good at storing energy for its weight. Today’s best lithium-ion batteries can hold about 200 watt-hours per kilogram—a measure of energy density—and they might theoretically be able to store about 400 watt-hours per kilogram. Gasoline has a density equivalent of around 13,000 watt-hours per kilogram.

The only reason electric cars might one day compete with cars that rely on internal combustion is that gasoline engines are highly inefficient; nearly all of the energy stored in gasoline is lost to heat. But gasoline makes up for that flaw with another advantage: When your car’s out of gas, you can refill it in a few minutes. With today’s electrical infrastructure, batteries need many hours to recharge. There’s some hope that we might one day install fast-charging stations across the country, but the researchers Fletcher interviews point out that this is a daunting challenge. The battery in today’s Tesla roadster needs about four hours to charge. If you wanted to charge that battery in 15 minutes, you’d need a 200-kilowatt electric substation feeding the charging station. “Your house takes 1 kilowatt,” one expert tells Fletcher. “If you want to have something like a gasoline fuel station that is all electrical, you’re talking about multimegawatts of power at that station. And I just don’t see that happening.”

It’s that energy density of gasoline that lets you sit in rush hour traffic in February with your lights on and your heater keeping you toasty warm.  And alive.  But should you run low on gas you can always take 10 minutes and fill your tank.  Then you can rejoin that rush hour traffic.  And sit in it.  With your lights on.  And your heater still keeping you toasty warm.  And alive. 

The other nice thing about gasoline is that it’s pretty safe to handle.  Most gas stations in America are self-serve.  People pump gas without a second thought about safety.  For an electrical ‘quick’ charge, though, you’re playing with electrical energy that typically only skilled electricians work with.  After extensive safety training.  And while wearing special protective clothing and gear.  Probably not the kind of thing you want your daughter playing with on her way home from the big game.  Unless she is a highly skilled electrician.

In theory, the lithium-air battery could store 11,000 watt-hours per kilogram, which makes it, Fletcher says, “the best chance battery scientists have to beat gasoline.” A lithium-air battery could allow a car to drive 500 miles before recharging. With that range, you wouldn’t need a nationwide system of quick-charging stations. You could drive pretty much wherever you wanted all day, and then recharge your car at night.

But lithium-air is the cold fusion of the battery world—a would-be game-changer that has the unfortunate downside of being impossible to achieve (probably).

There is a battery technology out there in the research and development stage.  But it’s a long way from a manufacturing plant.  Right now the electric car is far inferior to the gasoline-powered car.  And if you want a car to take you to and from some place safely, you’re probably buying something with a gasoline engine.  A car where you can use the heat and switch on the lights without worrying if you’ll have enough juice to make it home.  And that’s just something the internal combustion engine will always be able to do better than the all-electric car.  Get you home.

Electric Cars not Selling Well

With Bill Clinton convinced that car batteries for electric cars are an important part of our economic revival, let’s take a look at some electric car sales numbers.  I mean, if everything is contingent on these things, let’s just make sure people are buying them to support this battery economy.  Before we build more plants that may end up building something people don’t want to buy (see Sales update: Nissan Leaf hits 573, Chevy Volt at 493 in April posted 5/3/2011 on Autoblog).

The latest cumulative U.S. sales totals for the plug-in duo, since launching in late 2010, has the Volt leading the pack with 2,029 units sold, while the Leaf comes in at 1,044. Year-to-date, Volt sales stand at 1,703, while Nissan says Leaf production had, as of April 15th, hit nearly 8,000.

And it doesn’t look like people want to buy these electric cars.  Nissan built 8,000 Leafs and only sold 1,044 of them.  That’s pretty bad.  There appears no point in building them anymore.  Not with a backlog of just under 7,000.  And with 87% of all Leafs built sitting unsold, there’s no point in building batteries for more of these cars.

Okay.  Let’s take a closer look at the Volt to see how viable a business model that is (see Will GM’s 2011 Chevy Volt Evolve Or Become A Costly Dead End? by George Parrott posted 6/20/2011 on Green Car Reports).

While the 2011 Chevy Volt will find its way to between 10,000 and 15,000 U.S. buyers, that’s far from enough volume to make any car a production success–or to make it profitable.

Most mainstream car models must sell 100,000 or more units a year to produce black ink.

No point in making batteries for these cars either.  No one’s buying them.  Other than then environmentalists.  Or rich people who can afford a toy car that they can take out for show while using their real internal combustion engine car to commute to work and take on vacations.  And it’s a money hole for GM.  Not exactly what they need while coming out of a ‘bankruptcy’.  If they’re smart they’d give up on the Volt before they have another round of financial problems.

The Irrational Exuberance of Green Energy

There’s a similarity between information technology and green energy.  And that similarity is irrational exuberance.  The market for all those dot-com companies was illusionary.  As is the market for electric cars.  So it makes little sense in building more batteries for cars people aren’t buying.

Adding batteries to our electric grid will be an enormous investment of tax dollars to improve the efficiency of some of the most inefficient energy sources.  Wind.  And solar.  Besides, for anyone who has suffered through multiple power outages each year, do you really want to add more complexity to the electric grid?  Something else that lightning can strike?  Something that is so complex that can’t be repaired or replaced as easily as a downed wire?  I shudder to think about waiting for that power restoration.

The point of green energy is twofold.  To get us off of expensive foreign oil.  And to stop global warming.  But the green energy solution is going to cost us more in the long run than foreign oil.  And with the science telling us sunspot activity may be heading towards a Maunder Minimum, we’re probably going to see some global cooling coming our way.  Not warming.  So what’s the point?  We don’t need green energy right now.   Especially if it costs more than foreign oil.  And we don’t need a bubble of green energy jobs to come back and bight us in the ass when that bubble pops.  As all bubbles do.

We use a lot of oil.  We should build on that.  For now.  Create some good, high paying jobs in the oil business.  Drill for more oil.  And bring it to market.  To meet a soaring demand.  You see, that’s an economic model that works.  Meeting demand with supply.  It works.  Always has.   And always will.

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