GM Needs to See Two Things Before They Push Electric Vehicles

I’ve read an increasing number of news articles and stories that either openly question GM’s commitment to building electric vehicles or imply that GM isn’t actually serious about following through on CEO Mary Barra’s plan presented to Barclays in late 2017. In both cases, I think these stories are missing the mark because they are attempting to assign emotional motivations to what are quite clearly pragmatic business decisions.

Based on what I’ve observed from GM’s actions and the comments and statements of various executives, they are certainly committed to a fully electric future; however, they are also not ready just yet. GM is clearly waiting on two breakthroughs before it plunges full-force into electric vehicle production, marketing, and sales. Those two breakthroughs are electric vehicle viability and profitability.

While I don’t always agree with GM’s electric vehicle strategies, I have no reason to doubt their commitment to transitioning to all-electric vehicles after they move past those two perceived barriers. To me, the more significant point is that GM – one of the largest automakers in the world – now believes that they will soon be able to build viable electric vehicles profitably.

In this story, I will explain exactly what I think electric vehicle viability and profitability look like to GM, and how soon we can actually expect them to start mass producing electric vehicles.

Significance of the Chevrolet Bolt EV
Before I start, I do want to call attention to the Chevy Bolt EV, which I think is the principal reason we’ve seen GM start a very rapid shift to electrification across their entire fleet, stating that they will have 20 electric vehicles available by 2023. The Bolt EV also enables us to more accurately define what GM considers “profitable” and “viable” as it relates to electric vehicles.

As someone who has owned and followed GM electric vehicle products since 2012, I noticed a marked change in GM’s tone toward electric vehicles in early to mid-2016. While that is technically before the Chevy Bolt EV was released, it was after GM had more or less finalized the design. I had personally seen a Bolt EV driving around in full zebra camo in late 2015, and I was able to drive next to it on the freeway for several miles before it pulled off at the Camarillo Outlets (presumably to charge at the EVgo DC fast charger).

Even before GM unveiled the Chevy Bolt EV to the press or published the official EPA range numbers, they knew they had a winner. My impression was that they left their engineers alone to build the Bolt EV, and the results surprised even their executive team. Chevrolet proudly invited members of the press to drive the Bolt EV 229 miles from Monterey to Santa Barbara on a single battery charge (a feat that many in the EV world attempted to dismiss as nothing more than a publicity stunt, though the Bolt EV’s EPA rating and real-world range proved otherwise).

When it came time for deliveries, GM intended to do a slow roll out of the Chevy Bolt EV, focusing primarily on deliveries to California. Most states wouldn’t have access to the car until after August of 2017, about nine full months after the first full load of Bolt EVs was delivered to California. However, the response by consumers actually forced GM to change their policies because the Bolt EV appeared to be every bit as popular outside of California. A number of people in other states ordered cars in California and either had them delivered or drove them back to their home states, so GM put a moratorium on California Chevy dealerships selling to out-of-state buyers.

By November of 2017, GM CEO Mary Barra was delivering a presentation to Barclays, laying out GM’s plan for a fully electrified future with “Zero Crash, Zero Emissions, Zero Congestion.” The Bolt EV was front and center, and it was the first step in that path.

Chevy Bolt EV Profitability
In numerous stories and interviews, GM representatives have emphasized that the Chevy Bolt EV is not profitable. However, what GM saw in the Chevy Bolt EV was a pathway to profitability for electric vehicles.

Early on, news leaked that GM was only paying $145 per kWh of battery capacity for LG battery cells, which was more than 30% less than many other EV automakers were paying at the time. Still, it meant that the cost of the Chevy Bolt EV’s battery cells alone was $8,700 (nearly a quarter of its $36,620 MSRP).In the five years following the Bolt EV’s release, GM projected battery costs to continue dropping. By 2020, battery prices were anticipated to drop to $120 per kWh, and then again to $100 per kWh by 2023. That would result in another 30% reduction in battery cell costs, and the cost of the Chevy Bolt EV’s battery cells would be less than $6,000.

According to a separate UBS report, each 2017 Chevy Bolt EV cost GM about $28,700 in materials and labor to produce. Compared to the MSRP, that production cost leaves very little in the way of margins. Per that same report, GM would eventually be able to make the Bolt EV profitably if they were able to produce over 200,000 units. Without those economies of scale, however, the Bolt EV wouldn’t be profitable when sold at MSRP without some other factor.
Currently, that factor is the ZEV credits, which enable GM to sell the Chevy Bolt EV profitably in a number of states that have adopted the CARB model. The Chevy Bolt EV qualified for 3.9 ZEV credits, and at $5,000 per ZEV credit, GM was more than able to make up their losses selling the Bolt EV in CARB states.

However, due to constantly shifting regulations and requirements, those ZEV credits cannot be counted on long term. In order for GM to consider an electric vehicle to be profitable, that vehicle’s margins cannot be based on an outside regulatory incentive. While GM doesn’t need to reduce the Chevy Bolt EV’s production costs by the entire $19,500 they receive in ZEV credits, they do reduce production costs enough so that the Bolt EV (and other GM electric products) can stand on their own without government incentives.

The $3,000 reduction in costs per battery that GM foresees will offset some of that need for ZEV credits, but the rest is likely to come from improving delivery chains, streamlining production, and improving economies of scale. In 2018, GM worked with LG to build a new electronic components plant in Hazel Park, Michigan, reducing the cost and time to deliver electronic components to the Orion Assembly plant. In March 2019, GM announced a $300 million investment in the Orion Assembly plant to add an additional electric vehicle to be built alongside the Chevy Bolt EV. And in December 2019, GM announced a $2.3 billion joint venture with LG to build a battery manufacturing facility in Lordstown, Ohio that would support the manufacturing of hundreds of thousands of electric vehicles per year.

Chevy Bolt EV Viability
In terms of viability, the Chevrolet Bolt EV also provides some insights into what GM considers a viable electric vehicle. Prior to the Chevy Bolt EV’s EPA rating being released, some GM employees and representatives had leaked that the Bolt EV’s range would be over “200 miles.” This humility is rare among automakers, and it actually led many people in the EV world to believe that the Chevy Bolt EV would see an EPA range rating of just 160 to 180 miles. I was actually laughed at in the GM-Volt forums for even including an option for over 230 miles of EPA range when I set up a poll for members to guess the upcoming 2017 Chevy Bolt EV’s range, so it was quite a shock when the Bolt EV’s published EPA range was 238 miles.

As a Chevy Bolt EV owner who has driven a lot of hard miles, however, I can see exactly where GM was coming from when they referred to the Bolt EV as a “200-mile EV.” With gentle driving around town, it’s easy to get close to 300 miles out of a single Chevy Bolt EV battery charge, but when winter weather sets in or you take it out on a long freeway drive, the Bolt EV’s maximum range drops quickly. When I go on my long, freeway speed drives, I no longer consider my 2017 Chevy Bolt EV a 238-mile electric vehicle. I plan to see no more than 200 miles out of a full battery charge.

For the average American driver, they can expect to see 20% to 40% less than the EPA rated range in an electric vehicle when driving at freeway speeds or during winter. This is counter intuitive for the average automotive consumer because the internal combustion vehicles they are accustomed to operate the opposite way. Essentially, a gas powered car will get worse mileage in the city and better mileage on long freeway drives, and GM’s hypercritical range assessments of their own electric vehicles might align better with customer expectations than the EPA’s rating system.

More importantly, that conservative approach to range rating provides insight into what GM considers a “viable” electric vehicle. Throughout Mary Barra’s presentation to Barclays, she refers to “300 miles” as the new standard for electric vehicles, and even GM’s work with Envia (a failed battery producer) was built around gaining access to batteries that would enable a “300 mile” electric vehicle. If GM is being consistent with their internal language, their expectation for viable electric vehicle is that they are capable of 300 miles of range per battery charge even at freeway speeds in a variety of vehicle formats.

I also must emphasize that last point about formats. Most American consumers are, at this point, moving away from small cars and toward crossovers and SUVs. Regardless of the reasoning, this change in consumer taste means that it is not possible to rely solely on efficient car designs in order to achieve 300 miles of range. Tesla has proven that achieving close to 300 miles of range at freeway speeds is possible in an electric vehicle; however, it’s only possible when relying on a small, sedan format (one of the most aerodynamic shapes for a vehicle). GM, on the other hand, is emphasizing these crossovers and larger SUVs, so 300 miles of range will be a bit more difficult to achieve.

In fact, a large segment of GM’s business is focused on building trucks, and in a recent article, GM President Mark Reuss outlined three problems that need to be overcome in order for electric trucks to be viable. The key problem that Reuss identified was range, which demonstrates how keenly aware GM is that 300 miles of range in a truck is extremely hard to achieve. The other problems Reuss identified were price, which ties back to what I described earlier about GM’s waiting for electric vehicle profitability (they have to be able to sell these vehicles for a profit at a reasonable price) and infrastructure.

That last point also indicates a shift in GM’s perception about the importance of public charging infrastructure as an aspect of electric vehicle viability. This is further supported by GM’s announcement in May 2019 that they were partnering with Bechtel (one of the nation’s largest construction firms) to build a nationwide infrastructure of charging stations. GM would provide data based on electric vehicle driving behaviors, and Bechtel would provide engineering and construction support. While there hasn’t been a significant update, GM was seeking investors to help fund the network.

Ultimately, all of these issues of electric vehicle viability appear to hinge around battery technology, and in the same Barclays presentation where Mary Barra spoke about battery cost reductions, she also referenced a new, modular battery technology that would support longer ranges and faster charging speeds.

Conclusion
It might appear to some that GM has been dragging their feet in terms of building, developing, and selling electric vehicles; however, it is more likely that GM is strategically investing in production facilities and partnerships that will enable them to profitably build compelling electric vehicles when the technology required to do so is available. GM clearly doesn’t consider electric vehicles with less than 300 miles of real-world range to be viable as mainstream offerings, and those vehicles will not be profitable outside of regulatory incentives until battery production prices reach $100 per kWh or less.

While it is clear that GM isn’t ready to move fully into electrification at this point, their investments and partnerships indicate when we can expect that to happen. Those developments also align with GM’s announcement that they will have 20 new electric offerings by 2023, a point when both electric vehicle profitability and viability will likely be achieved.

About The Author
Eric Way focuses on reporting expert opinion on GM brand electric vehicles at Torque News. Eric is also an instructional designer and technical writer with more than 15 years of writing experience. He also hosts the News Coulomb video blog, which focuses on electric vehicles, charging infrastructure, and renewable energy. Eric is an active member of the EV Advocates of Ventura County, a volunteer organization focused on increasing the widespread adoption of electric vehicles. You can follow Eric on News Coulomb Youtube, on Facebook at @NewsCoulomb as well as on Twitter at @eway1978.