Reuters' Math Fail! Why GM Is Not Losing $49k Per Chevy Volt
Right-wingers couldn’t have been more thrilled to read a Reuters story revealing that GM is losing $49k on every Chevy Volt. Electric car haters and anti-government zealots rejoice! Except, Reuters — and the threejournalists bylined on this story — it turns out are really bad at basic business math. Reuters writes, “Nearly two years after the introduction of the path-breaking plug-in hybrid, GM is still losing as much as $49,000 on each Volt it builds.”
So where’s the problem? The International Business Times explains:
General Motors has sold approximately 21,500 Volts since the gasoline-electric hybrid was introduced in December 2010, and development costs of the high-tech car are estimated at between $1 billion and $1.2 billion by Reuters' calculations. Production costs for the Volt are estimated at between $20,000 and $32,000, a wide margin to be sure. The Volt retails for a base price of $39,145 (before a federal tax credit of $7,500).
The issue with Reuters' math, though, is that it only takes into account the 21,500 Volts sold so far, as if GM would never sell another one. If that is taken to be true, then each Volt sold has cost GM around $55,000 in development costs. However, each Volt sold spreads out the development costs incrementally, pushing down the R&D cost per unit. GM has acknowledged that it has not yet sold enough Volts to break even, but it suspects that it will reach the break-even point by the time the second- generation Volt is introduced onto the market in about three years' time.
Conservatives had a field-day of course, running with Reuters poor reporting. As Wonkette details:
But look at the capitalism experts at sites like The Blaze, or Free Republic, or Townhall, or the hideously named “Twitchy.com” — The typical comment goes something like this: “They’re losing $50K per car, but don’t worry, they’ll make it up in volume!!! HAW HAW HAW!” Um. Yeah. Actually, that is how development costs work. We thought you guys understood business?