Q&A: Will the Chevy Volt make money for GM?

For a car that won't be available for more than a year, the Chevy Volt has got a huge following. Over 50,000 people have signed up for a waiting list run by a non-GM Web site. It's a compelling design idea: a car that moves from a peppy electric motor but has a gas tank to run a generator for longer trips.

But scratch the surface a bit and you'll find doubters. As competitor Toyota moves into plug-ins, it advocates sticking with the blended mode of today's hybrids, where the gas engine and battery move the car, because it believes that technology is more affordable.

A Carnegie Mellon study last year (click for PDF) concluded that hybrids with large batteries, such as the Volt, are not the most cost-effective choice among plug-in options. That's a view shared by the federal government's auto industry task force, which last year said that big reductions in battery costs would be required to make the Volt cost-competitive. (Click for PDF.)

GM executives have said all along that the Volt will be expensive because it's the first generation of the technology and there isn't yet a high-volume supply chain to keep costs down. In an interview earlier this week, General Motors CEO Fritz Henderson said the price of the Volt will be about $40,000.

To get an idea of what GM's expectations were for the financial impact from the Volt, I spoke with Tony Posawatz, the vehicle line director for the Chevy Volt, during the Business of Plugging In conference in Detroit last week.

In terms of volume, GM expects to sell thousands of Chevy Volts in the first year, he said, which means the company's fortunes in the near future hinge on other models.

Down the road, the question is whether GM can ramp up sales by lowering costs and by adapting the powertrain technology to other vehicles.

Q: I've been writing about the Volt for a couple of years now. It's cool technology but do you think it will be a commercial success?
Posawatz: All bets are off if gas prices are under two bucks a gallon. This could be a challenging environment, no question about it. Now we don't anticipate that in the long term. And because the launch volume in the first few months is relatively modest, I think we can do OK. I think the real question will be in the 2012 time frame. Where will the economy be then and can we reach beyond the early adopters?

Well, do you think you can reach a broader audience?
Posawatz: We think we can. The intent is that in year two we will be making tens of thousands of vehicles. The exact number will depend on the economic climate, the demand from new customers, etc. We have a pretty good feeling given the uniqueness of this product. I just finished up a pretty lengthy drive and we had (tested) some competitive vehicles which shall remain nameless, and there was a significant difference in the driving experience of this car. That's the hidden pleasure that people can't see and feel until they drive the car.

You have a low center of gravity and you have instantaneous torque--you can burn rubber on the car--and no transmission shifts... It will have a high "fun to drive" quotient.

So is this going to be a high-end car aimed at affluent customers?
Posawatz: A lot of the first folks will be the early adopters. To a certain degree, we'll seek them out because those are the guys that will effectively help tell the story. You know, the person who is always the first to use technology and he tells you it's OK, he's proved it out. We're going to look for those guys.

I think you hit on the key question: what happens after that? We're hoping that the aficionados, the folks who really understand technology, they say, "Wow, this is the car." I think it will always be more (expensive) than a conventional car because of the nature of the battery, the nature of the high technology. And there will be some very cool features in there. Very akin to consumer electronics. You'll see less hardware updates and more software updates and maybe even apps that come along with the car (through OnStar).

How can you bring down the cost?
Posawatz: The other interesting piece of the puzzle is the benefits that people will get which will soften the blow of the price tag on the car. There's a $7,500 tax credit that will be available for a long time so take that off the price. There's a charging fueling rebate (for fueling with electricity)--up to $1,000.

We anticipate that some localities (could) give you preferred parking, HOV access, free electricity at place of work--all which will end up being positive. So there will be a different kind of calculation for customers. And there are some interesting business models as it relates to spreading the cost of the battery over time (such as leasing). We're investigating a lot of this stuff.

The projections for all-electric vehicles (also called battery-electrics) and extended-ranged electric vehicles (like the Volt) are that they will only be about 1 percent of sales in five years. Given the investment and attention you're getting for the Volt, is that OK?
Posawatz: Like a lot of stuff, the gen one version is probably not the most important play. It's ultimately what we do after that. By building it on an existing platform, different body styles can go on it. We have a pretty good understanding on how we can reduce the cost in the next generation of technology, with a little bit more competition in the supply base, etc. So this is a much more of a longer-term game (with an eye toward markets outside the U.S. as well)...We'll see. The good place to be is on the first mover side. The first movers also learn the fast.

I'm bullish on battery electrics, the question is when. Because the Volt is an electrically driven vehicle, we have the different components set up for that. Ultimately, at some point somebody will say they've come up with a battery with twice the energy and power density and half the cost.

So you think that Toyota's more conservative approach is not the way to go?
Posawatz: Every company has to find what they think is their formula for winning. And we think the regular hybrid architecture is still an internal combustion engine. We now have the possibility of different variants for engine generators. It could be a whole different gas tank size and fuels. The Volt will come with a gas version and an E85 (ethanol) version. Oh, and you can take the engine generator set out and it could be a battery-only vehicle. You could use fuel cell stack. You can't do that with a conventional hybrid.... (though) we have hybrids, too.