GM's Chevrolet Volt : The Big Gamble
Shaunak is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
General Motors (NYSE: GM) is looking for $8 billion-$10 billion in revolving credit facilities from its lenders. Well last time GM spent billions, it crashed into their research and development for the hybrid Chevrolet Volt which is yet to pay off and was more of a gamble than a measured move. So where do they stand now?
GM Played Bold:
General Motors' Chevrolet Volt, rolled out in late '10, was meant to be the car that would lead the way when it came to delivering new technology to customers. With prices starting at $41,000, the Chevrolet Volt was no way an easy buy considering its product category - 4 passenger compact car. Whats more surprising is that Industry experts estimate the end to end line production cost of the plug-in Hybrid somewhere around $65,000-$70,000 which is a strong indication of the losses the company is still incurring per unit.
Justified the Act:
One might argue that a hefty sum of investment is always required when venturing into the less-explored terrain. Such might just be the case with Chevrolet Volt. General Motors has agreeably spent millions into their research for what you may call "Volt - Technology." This technology in all probability will be put to use in the future generation of cars and their research investment will probably pay-off. This move does in fact do loads to contribute not only to the Green Movement due to its minimal gasoline usage but also in shaking off the customer's dependency on the almost spent resources of nature. As far as I am concerned, on paper this is a win/win situation. It’ll keep the customers happy, GM happy, Green Peace Activists happy !
The Players:
As Volt struggled through most of 2011, Toyota's (NYSE: TM) Prius sales soared. There were about 140,000 Prius-es on the road in 2011 compared to Volt's near about 7000 units which is a fraction of Toyota's widely popular Hybrid! Although that means GM has effectively pulled a few Hybrid fans towards their camp, there’s a long way ahead if it actually wants to compete with Toyota on that front and be a forerunner in hybrid technologies that it has invested in!
Volt might have edged past Nissan's (NASDAQOTH: NSANY.PK) Leaf due to its flexibility in the use of gasoline as well as sleek looks and it’s only fair to compare the two since they were rolled out around the same time.
The Gamble:
Sales for Volt hit a high in August with a total of 2800 units that month. Well heres the fine print:
Most of these sales were boosted by a 25% knock-off on the sticker. 25% off meant a concession of about $10,000 .
So here are the figures:
Per Unit Investment : $65,000-$70,000(roughly)
Per Unit Price : $40,000
Per Unit Discount :$10,000
I'm pretty sure one can do the math from here on.
A loss of $25,000 - $30,000 per unit? Can General Motors really afford that? I wouldn't really particularly be happy about boosting my sales if I was at the end of paying $30,000 for selling something that I built!
How does GM want its investors to see this? How does GM expect short term investments to come in for a product that's potentially losing over $25000 every unit?
These are questions that need some answering!
General Motors’ Chevrolet Volt not only fell short of the company target of 10,000 units in 2011, but it also seems en-route to miss this year's target as well and the road doesn't look good for GM. The initial slump in sales may be attributed to some real bad timing with a recession shy market and the lack of Bailout package for GM, but things havn’t changed much since then and the future does not look bright!
How it Played Out :
The game might not be over but the gamble surely hasn't paid off yet and with the slump in Auto Sales Growth expected, I do not see much interest and hope when it comes to GM's shares and would keep away for the time being.
Shaunak88 has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend General Motors Company. 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.If you have questions about this post or the Fool’s blog network, click here for information.
