How to Lose Money Without Really Trying
By Chris Haak
The business case for EVs and hybrids has been on less-than-solid footing for years, both from the consumer’s point of view and the manufacturer’s vantage point. For instance, the payback period of the price premium that hybrids cost (in terms of savings at the gas pump) often extends beyond the typical ownership duration of a new car. And we know that it costs GM about $40,000 to build a $41,000 Chevy Volt, and that’s probably excluding considerable promotional and advertising expenses.
Now, Fiat CEO Sergio Marchonne, who has a reptuation for speaking his mind, had this to say about the economics of EVs while on the sidelines of Fiat S.p.A.’s general meeting earlier this week:
“The economics of EVs simply don’t work. On the 500 that (Chrysler) will begin selling in the U.S. next year, we will lose over $10,000 (per unit) despite the retail price being three times higher.”
Of course, he was talking about the price differential between the gasoline-powered Fiat 500, which starts at about $15,000 in the US, and the Fiat 500 EV, which will sell for around $45,000 (and apparently cost Chrysler $55,000 apiece to build).
So why do the car at all?
Though the company will lose $10,000 on each one sold, Fiat-Chrysler does not plan to sell many of the 500 EVs. A fleet of 500 of the 500 EVs (which, although it’s a wild guess on my part, would seem to be an appropriate number given the car’s name, and the fact that BMW built 500 MINI Es for its demonstration fleet) would lose the two companies $5 million combined. That’s not a lot of money for real-world experience in production, servicing, and maintenance experience in electric vehicles, though if I were a Fiat 500 EV buyer, I might be concerned that I’m being used as a beta tester with a car that I paid $45,000 for (before tax credits).
Aside from the working experience in electric mobility, which Fiat and Chrysler can leverage for their hybrid drivetrain development in future vehicles, there’s also a tangible CAFE advantage to the EV, which – if the Nissan Leaf 99 MPGe combined rating is any indication – will put up some gaudy numbers on its Monroney. In Europe, there are CO2 limits that each manufacturer has to abide by, and each 500 EV sold will count as 3.5 cars with minimal (or zero) CO2 output for regulatory purposes.
It seems unlikely that a little thing like economics is going to slow the march toward vehicle electrification, and it’s good that companies seem to be willing to invest in further development of the technology. They can only hope that consumer acceptance will follow eventually, or we’ll see a cottage industry spring up for kits to convert former EVs into gasoline-burning cars, just as many diesel-engined cars were converted to gasoline-engined ones in the early 1980s as diesel lost its luster in the US.