At the 2016 CES in Las Vegas Chevrolet showed its 2017 Bolt to the public. GM claims the new Bolt will be able to go over 200 miles on a charge, “…well beyond the driving range of most drivers,” GM’s chairman and CEO Mary Barra said. In a prior article, I already described that 200 miles of range would be more than just sufficient for most US drivers after an analysis of the largest scale NHTS database of US driving behavior. But more than just having sufficient range, costs of the 2017 Bolt will also be reasonable and affordable at around $30,000 - after collecting the $7,500 government rebate.
This might very well be the first mass market ready electric vehicle (EV) ever produced. But why does Michigan analyst Alan Baum then only project 20,200 Bolt EV sales for year one when GM claims a production capacity of 50,000 units per year? What could hold customers back from buying the most useful mass market EV out there?
Michigan analyst Alan Baum is projecting only 20,200 Bolt EV sales in 2017. He states factors like limited demand in a country of cheap gas and GM’s track record of marketing electrified vehicles. In this article I will talk about both points and thus will start by analyzing potential demand for the 2017 Bolt before trying to understand why that car might not become the game changer it could be.
First of all, as we already know from a prior article, 200 miles is easily sufficient for mass-market adaptation from a pure usage perspective. Although range and infrastructure anxiety are still major issue for the mass market customer, there are several studies proofing that around 50% of car buyers would consider buying an EV once it reaches 200 miles. Thus, the current race among manufacturers to produce the first 200 mile range, mass market priced, battery electric vehicle (BEV). The 2017 Bolt reached a price that is affordable to masses with $30,000 and a range that will satisfy most customers real life needs.
Second, the cost savings compared to a internal combustion car (ICE) are significant . Lets calculate the potential savings of ownership for the 2017 Bolt. Many assumptions I make will come from plugincars.com but I will make some changes as well that I will explain.
I assume that the Bolt can drive 3.5 miles on one KwH (similar to todays BEVs) and that it costs $0.12 to charge one KwH. I also assume that an average modern sedan/hatchback gets around 30 mpg. Thus, 8.7 KwHs would take the Bolt 30 miles and would cost an equivalent of $1 per gallon of gas. That is still $2 less expensive than today’s cheap prices at gasoline stations as mentioned by Alan Baum.
Moreover, EVs benefit from not requiring oil changes or other maintenance costs for exhaust systems. Studies have shown that this represents a 35 percent decrease in cost over time. Some calculations claim this to about 3 or 4 cents per mile of maintenance cost in an EV versus closer to 6 cents in an ICE. Assuming a differential of 2 cent the cost difference per 30 miles (or gallon) would add up $0.6. The total differential cost including maintenance and energy costs would add up to $2.6 per gallon.
With around 15,000 miles driven per year by the average US driver today, that adds up to savings of $1,300 every year. Assuming that the car has a lifetime of 10 years, that makes $13,000 in savings before even including the benefits of saving the world or never having to wait at a gas station again (major benefit!). For Uber/Lyft drivers and long-distance commuters, this car could pay off even sooner as they drive more miles per year. Long-distance commuters could charge at work which increases the savings even further. Thus, I do believe that there could be more demand than 22,200 projected Bolts in 2017, maybe even more than the 50,000 production capability. But, lets also look at how that number compares to other EV and car sales.
The best selling EV in the US last year was the Model S and it sold 25,7000 times. In total, Tesla produced a little less than 50,000 cars for worldwide markets last year. We are talking about cars with an average sales price of >$100,000. So, selling 50,000 BEVs at ~$40,000 (before tax benefits) doesn’t seem to be that much in the growing EV market segment. Even less so when assuming that the Bolt is a real alternative to a mass market ICE vehicle.
The Camry sold 429,000 times, Corolla 363,000 times and the Accord 355,000 times in 2015. A 2016 Camry starts at $23,000, a 2016 Corolla at $17,000, and an 2016 Accord at $22,000. After savings of $13,000 over 10 years (I do understand the time value of money but lets keep it simple) the MSRP of $30,000 (after tax incentives) surely puts the Bolt into a price-compatible range; especially for the driver who puts above average miles on that car.
I believe that if Chevy really wants to sell 50,000 Bolts per year it could do so. Now, why wouldn’t Chevy want to sell its Bolt? Maybe, it would be cannibalizing other model sales; models that they want to sell more; models that are just more profitable. That would be a rational decision. But, lets start by looking at the following promotion video by Chevy.
This is a very interesting marketing campaign considering that the Bolt, Chevy's BEV, was just introduced to the public. Although GM states that the Bolt is “not a compliance car”, it does seem that there might be a higher interest to sell other models instead of its BEV; but why?
For simplicity lets assume that battery packs are the main differential costs between ICE and BEV vehicles. GM states that is has reached $145 costs per KwH of battery. For consistency lets also assume that the Bolt again goes 3.5 miles on a KwH. A range of 200 miles would thus put the Bolt at 57 KwHs and COGS of $8,265 for the battery pack. That is an extra $8,265 for every single Bolt. Some of us drive vehicles that have cost less to build in total! The influence on GM’s profit margin, if the Bolt were to became their best selling car now would be significant.
If large manufacturers have little incentive to sell low priced BEVs (outside of brand positioning), why don’t startups step in and disrupt the industry? Well, Tesla is trying to… and it will. However, to be able to produce a car at low costs, a company needs time to perfect all processes and large volumes. It needs to achieve economies of scale that only large manufacturers can reach today.
After this analysis I do believe that Chevy's 2017 Bolt will sell well, much better than the predicted 20,200 in 2017 but will it be allowed to become a real game changer for the whole electric car industry? That depends on GM's willingness to give up profits to position itself as major EV player.
Sini Ninkovic analyzes the EV market and its customers since 2012. He helped bringing BMW's i3 and i8 to market and currently works as Product Planner for Lucid Motors.