Chevy Volt Counterarguments: Price, Government Subsidies, and Operating Cost

I guess for better or worse, I’ve become a Volt advocate.  I’m no fanatic, however.  Only time will tell whether the Volt is a win or a loss, either for me personally or for the nation at large.  Will the batteries fail as soon as the 8-year/100,000 mile warranty is up?  Will GM still be in business to honor those warranties?  Will this first leap into mass-market electric vehicles (including the Leaf and Tesla) drive technological improvements and economies of scale?

I can’t answer those questions.

But I do love our Volt.  My wife and I bought it not because it was an electric vehicle, but because it fell into the criteria we set for price range (with rebates), performance, and features.  Gas costs were a concern for us — as they are with most people — but that concern alone was not enough to drive us to buy a PHEV.

In researching the Volt, we came across a lot of arguments, both on forums and in the mass media, many against the Volt for a variety of reasons.  For my own catharsis more than anything, I’d like to present some counterarguments to the three things I’ve seen debated most often:  Price, government subsidies, and operating cost.

Price

“Chevy’s $40,200 puts this car outside the budget of most consumers.”

That’s an oft-heard argument.  But it’s both not true, and completely irrelevant.

Let’s ignore the federal tax credit for a moment.  I test drove the Acura TSX and TL before purchasing a Volt.  I drove a leased TL for three years, up until 2008.  In my most humble of opinions, if Acura took the Volt, slapped their emblem on it and tweaked the grille and tail lights just a little bit they could sell it at their dealerships.

A V6 TSX with technology package has an MSRP of $39,135.  I find it very easy to believe that consumers would pay an extra $4,000 for a fully-loaded electric version of the TSX (the fully-loaded Volt goes for about $43,000).

I think that people are surprised at the price because the Volt is made by Chevrolet, not because it’s an absurd price for an automobile.

Maybe you think I’m way off base comparing a TSX to the Volt.  If so, how about this:

Like it or not, there is a federal tax credit for Volt buyers (plus other state and utility incentives), and that credit will be applied to a whole lot of Volts.  With the tax credit, the base price of the Volt drops to $32,780.  Maybe that’s still high for a lot of consumers, but look at how many Nissans, Toyotas, Chevrolets, and Fords are prices over $32,000 once you add all of the features of a base-model Volt.

Finally, if you argue about the pricing of the Volt, you’re missing a key lesson of capitalism:  The correct price for any good or service is that which the customer is willing to pay.  And GM has had no problem selling its first production runs of Volts at that price.

Will the price drop?  There has been a lot of speculation about that, but let’s consider the point of the government subsidies.

Government Subsidies

“The liberals are taking money out of the hands of hard-working Americans to help the upper-middle class buy cars”.

That’s a paraphrase of the general tone of discussions I’ve seen online.  And while I understand the sentiment, I think it’s a short-sighted and ultimately irrelevant point to make.

Most people seem to misunderstand the purpose of the tax credits and other incentives directed towards improving the sales of the Volt (and Leaf, etc).  They are not  part of some magical, hippie, liberal wish to make global warming go away.  In fact, I’m of the opinion that the environmental aspect of plug-in electric vehicles is a far second to more practical and immediate economic concerns.  The incentives are part of a calculated plan to reduce our dependence upon foreign oil.

Regardless of political persuasion, most people can agree that sending trillions of dollars to various Middle Eastern countries is a bad idea.  Whether because it’s helping to unbalance our economy towards imports, or because its funding and motivating hostility towards our nation; The reason doesn’t matter.  Our dependence upon foreign oil is not a good thing for us.

Oil prices are only going to rise ever higher.  Not because of terrorism, the wars in Iraq and Afghanistan, or because “they just don’t like us”.  But because as China and India become more industrialized they will need more oil.  A lot more oil.  As we compete with those countries over a limited resource, prices will inevitably rise.

The Volt’s place in all this is pretty obvious, and I’ll use our Volt as an example:  In the first month of owning it, it burned about 4 gallons of gasoline.  It was an above-average month of driving for us, too.  Usually when my wife and I would go somewhere together, I would drive us there in my Jeep Wrangler.  Now we take the Volt.  In an average month of driving, the Mrs. would use about 70 gallons of gas.  That’s 66 fewer gallons of gasoline that she’s using now.

So where does our electrical power come from?  We’ve driven about 1300 miles on electric power to date, and if that’s coming from foreign sources than it’s no better than the gasoline.  According to our power company the sources are:  35% natural gas, 34% economy purchases (purchased from the wholesale market), 12% nuclear, 10% oil, and 9% other.

The vast majority of our natural gas supply is domestic.  We get all of our nuclear fuels domestically. I can’t say exactly where our wholesale energy comes from, but let’s assume the breakdown is on-par with the national figures:  49% coal, 19% nuclear, 12% natural gas, 7% hydroelectric, 13% other.

In other words, the economic impact of electric vehicles is positive.  The majority of our electrical power is derived from domestic fuel sources and domestic power plants.  Electric vehicles help shift the energy balance towards domestic rather than overseas production.

Because electric vehicles are good for our economy as a whole, the government is giving their development and sales a kick-start through incentives.  In fact, I’ve used the term “capitalist” in relation to these seemingly “socialist” incentives.  That may seem counter-intuitive, but I’ll explain what I mean.

Socialism?

It’s all about economies of scale.  Take the original Model T, for example.  Henry Ford could have built one Model T in his garage by himself. It would have taken a couple of years of his time, and probably would have cost upwards of $3,000.  Built on an assembly line in bulk, in 1915 Ford produced about half a million Model Ts at a cost of $440 each.  (They originally retailed for $850 in 1909).  The point is that the more you can make of a standardized item, the more efficient the manufacturing process and supply lines become, and the cheaper it becomes for the consumer.

The only way to make a lot of something is to sell a lot of it in the first place.   The problem with electric vehicles is that they don’t make economic sense to the consumer unless the price of the vehicle is competitive with gas vehicles, or gas becomes so expensive that the reduced fueling cost would make up for a higher vehicle cost.

Although gas prices are very high right now, they’re not sufficiently high to meet the second criterion.  For example, I estimate the Volt will save our household about $1,100 per year in fuel costs (assuming current gas and electric prices).  If the Volt has a service life of 8 years, then we will save in total $8,800.  That’s actually pretty significant, but when adjusted for inflation it’s probably closer to $7,500.  And it’s not a one-time payout, it’s that sort of intangible long-term saving that doesn’t entice consumers.  It’s also not definitive as gas and electric costs will fluctuate.

Hence the only way to sell more electric vehicles is to drop the price.  But dropping the price has no advantage to Chevrolet, nor any other car manufacturer.  They would take a heavy loss, and the shareholders would riot.

And so we’re stuck in a world of gas engines, unless someone were to kick-start the process by either raising gas prices or offsetting the price of the car.  A tax credit is a fairly quick and audit-able way to reduce the price of the car, as are any incentives given to GM.

The government intervention won’t last forever.  As soon as production ramps up to a sufficient level to support efficient economies of scale, the government can “take off the training wheels”, and let sales of electric vehicles become self-supportive as the price drops and technologies improve.

That’s the plan, anyway.  Will it work?  Time will tell.  I’m of the opinion that it’s better to have tried and failed than to never have tried at all, especially when the damn plan actually makes sense.

(Tesla is somewhat of an exception, but without the participation of major auto manufacturers they’d probably be forever relegated to producing small volumes of niche products for the wealthy.)

Operating Cost

“Sure you’ll be spending less on gas, but your electric bill will be astronomic!”

Operating cost is a tricky number to determine.  Over its lifetime the Volt will of course consume a fair amount of gasoline.  It will also use a whole heck of a lot of electricity.  Gas prices vary throughout the nation, and even from gas station to gas station.  Electric rates vary even more.  Hawaii has the highest average electrical rate in the nation (as of 2007) at 20.7 cents/kWh, with New York in second place at 15.7 cents.  Idaho has the honor of having the lowest average rate of 6.3 cents.

Not only do rates vary from state-to-state, but within my state (New York) rates range from as low as 5.2 to as high as 26.8 cents/kWh.  Then you have to factor in delivery costs, additional fees, and taxes.

All that being said, the most-cited number for energy required to fully charge a Volt is 12kWh.  Even at the highest electric rates in New York, the cost to fully charge a Volt would be $3.22.  That’s without taxes and fees, and so the total could be more like $4.50, about the cost of a gallon of gas in my area.  For that money, the Volt will go 35-45 miles (depending upon conditions), which is much better than most real-world MPG numbers for fuel efficient cars.

Again, I was giving a worst-case example, and that example probably doesn’t reflect enough of a savings to motivate someone to buy an electric car.

It’s because of all those variables (gas and electric costs, miles-per-charge, charging efficiency, etc) that I aim to collect firm numbers specific to my Volt in my area.  If the numbers work out for me, then they will work out for a lot of people with similar or lower electric rates.

I recently completed a project wherein I installed a 240V charging station with a dedicated kWh meter.  This way, by taking note of the kWh reading and the “EV Miles” (the number of miles the Volt has traveled on electricity alone), I can determine the average kWh/mile that our Volt is using in the real world.  Then, knowing my electric rates I can figure out the cost/mile.  Only then can I effectively compare the cost of driving a mile on electric power with the cost of driving a mile using gasoline (referencing my local gas prices).

I pay 17.4 cents/kWh, including taxes and fees.  I estimate that charging the Volt from empty to full will cost $2.08, less than half the cost of a gallon of gas.  This will save us about $1,200 per year, compared to what we were previously spending on gasoline.  Of course those are just estimates.  After I can collect about 3 months worth of data, I’ll have a much more accurate picture of the real-world operating cost of the Volt.

Conclusion

The Volt is a regular car with a lot of technological innovations, including electric drive.  It’s fun to drive, not just because of its electric drive, but because it accelerates rapidly, takes turns tightly, and has a great set of entertainment and informational features.  It’s priced only a little above other top-selling cars with comparable performance and features, and that extra cost can easily be offset by gas savings let alone government and utility tax credits and rebates.

The goal of the federal tax credits (and other incentives) is often discussed in the context of environmentalism.  Its contribution to building the economy is usually diminished or dismissed completely.  I think that the economic impact of electric cars (the Volt just being a catalyzer) will ultimately be tremendous.  Our nation can use its own natural resources to power more cars and trucks.  That  means more domestic jobs in the mining, power generation and power distribution industries, and in all of their supporting industries (legal, chemical, equipment manufacturing, etc.)

It also means less money being sent overseas to the detriment of our national economy and the improvement of others’.  Most importantly, it will stem the tide of ever-rising oil prices resulting from the increased demand of countries like China and India.  Finally it will reduce our need for involvement in an area of the world wherein our involvement has been tumultuous at best and bloody at its worst.

Electric cars alone are not the solution to all of our economic woes, neither nationally nor globally.  They are a source of economic improvement for the future, and well worth our investment today.

About Scott

I'm a computer guy with a new house and a love of DIY projects. I like ranting, and long drives on your lawn. I don't post everything I do, but when I do, I post it here. Maybe.
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