Who Doesn't Love A Catchy Title? Not CNBC
A controversial Reuters piece yesterday that suggested GM was losing as much as $49,000 for every Chevrolet Volt sold, and that selling a lot of cars "probably isn't a good thing for the automaker's bottom line," has taken a lot of criticism from not only GM itself, but from many industry analysts.
Now add Bob Lutz to the list. Lutz is widely credited as being the "father of the Volt," seeing it through from a sketch on his desk, all the way into production. Needless to say, he strongly disagrees with Reuters as well.
"The statement that GM “loses” over $40K per Volt is preposterous. What the “analyst” in whom poor Ben Klayman placed his faith has done is to divide the total development cost and plant investment by the number of Volts produced thus far. That’s like saying that a real estate company that puts up a $10 million building and has rental income of one million the first year is “losing” 9 million dollars, or several hundred thousand per renter."
Mr. Lutz goes on to explain that one can't know the final cost until all the cars from the investment have been counted, and that the Chevrolet Volt is far from being done any time soon.
He also makes some interesting claims on some previously unknown variables on the Volt, like the cost of its 16 kWh lithium battery (now 16.5 kWh in the 2013 model).
"The Volt “variable cost” (labor and materials, without revealing any confidential GM information), looks very roughly like this: A Li-Ion battery today runs about $350 per KWh. The Volt’s is 16KWh, so that’s roughly $6000. Add $4,000 for the battery pack structure, the cooling, the high-voltage wiring, the motor and the power electronics. So, that’s the electric portion. Add about 20 hours of assembly labor which we’ll round to a very generous $1000. The dealer net price is, say, $37,000. We now have $26,000 left for the rest of the car, which, cost-wise, is about equal to a Chevy “Cruze” which sells for around $22,000 retail! "
If anyone should know the true cost of the Chevrolet Volt, it is Bob Lutz, and $26,000 left over to build the "Cruze" part of the car (the Volt and Cruze share the same Delta II architecture), means GM is indeed well into some decent automotive gross margins on the car. The former GM VP says that even now, GM may be breaking even or eeking out a small profit once all the expenses associated with the car are factored in.
"Thus, the “Volt”, by my estimate, is either close to “variable break-even” or may be on the cusp of a positive gross margin. Deduct the per-unit allocation for all fixed cost, depreciation and amortization and it is, surely, still “under water”….but not by much, and less and less so as the volume builds and other, higher-margin GM cars, like the Cadillac ELR, piggy-back off of the Volt’s initial investment."
Bob then finishes up his rebuttal with the kind of statement we have all grown to love:
"So, once again, the knee-jerk Volt bashers, devoid of any real knowledge, have had their usual joyous verbal catharsis, but the car doesn’t care: The volumes are building globally and it’s doing exactly what it was designed to do."
Read all of Mr. Lutz's comments in his rebuttal at Forbes. com
Bob was also on Larry Kudlow last night, and expressed his opinion on the Volt's fiscal position: