Tags: Auto Industry, Cars, Electric vehicles, General Motors, Hybrid, Nissan, Tax Credit

GM Hopes to Lead Budding U.S. Electric Car Market with Chevrolet Volt

By , Associate Editor, Money Morning •

General Motors Corp. on Tuesday announced the price tag on its hybrid Chevrolet Volt due out this fall, hoping to blaze the trail for an up-and-coming U.S. electric car industry and entice buyers to take a greener route.

The extended-range electric Volt, running on battery power and a small engine, will be priced at $41,000 and will qualify for a $7,500 tax credit. The price is close to analysts' $40,000 estimate, but significantly higher than the $32,780 cost of its competitor, the Nissan Leaf.

GM justifies the price difference with the Volt's significantly better driving-range benefit: The Volt will run for 40 miles on battery power and then a small gasoline engine will kick in as a generator, powering the vehicle for another 300 - 400 miles.

The Leaf, the first mass-market car to run entirely on battery power, will go for only 100 miles before its battery needs charging.

"People are looking for a real car, not just an electric car," GM's North American marketing chief Joel Ewanick told the Financial Times. "That's a significant difference between us and our competitors."

GM hopes to quell consumers' "range anxiety" with its series-hybrid Volt and beat the Leaf as the top electric car option in a burgeoning U.S. green car market.

"The Leaf is a second or third car," Jesse Toprak, vice president for vehicle trends and insights at TrueCar.com, told The New York Times. "The Volt can replace your existing commuter car or even your family car, if you don't have a big family, and do just fine."

To charge, the Volt battery connects to a 120-volt outlet and each charge would cost owners about $1.00 to $1.50, depending on electricity prices. The battery is under warranty for eight years or 100,000 miles. Nissan is expected to offer an identical warranty.

GM is taking orders for the Volt, which will be available at limited dealers in November. Consumers also have a lease option for $350 a month over 36 months, where the leasing company gets the tax credit and applies it to the total leasing price of the car. Car industry experts are expecting about 60% of electric cars to be leased.

GM plans to build 10,000 Volts by the end of 2011 and 30,000 by the end of 2012 - and dealers are already seeing lengthy waiting lists.

"Between this year and next year we're only getting 10 or 12," Yale Kahan, general sales manager at Boardwalk Chevrolet in California, told The Times. "We've already got more orders than we've got cars."

GM's closest competition comes from Nissan, which is aiming to become the world's biggest electric-vehicle producer and is scheduled to enter the U.S. and Japanese car markets in December. The Leaf already hit 13,000 preorders in May.

Nissan also scored a sale with Enterprise Rent-A-Car to deliver 500 Leafs by January 2011 and sealed another deal with Hertz (NYSE: HTZ). The company said the deals will "allow us to get a fair amount of exposure and to get the car into the hands of some individuals who might not otherwise have considered it."

Still, experts expect the Volt's range capabilities to draw more consumers than a short-range option.

"The Volt is a much more usable vehicle" than the Nissan Leaf, Aaron Bragman, an analyst at IHS Automotive, told USA Today. "It's clearly the winner."

GM does not expect to earn a profit from early Volt sales, but instead is hoping the new models build a strong, desirable reputation for electric cars that will generate robust consumer demand. As technology becomes less expensive, carmakers hope to see a substantial earnings increase in the next few years.

Electric Car Market Powered By Government Funds

Carmakers are counting on the $7,500 tax credit to entice consumers into the electric car market. The credit will be reduced for each manufacturer's vehicle after 200,000 qualifying vehicles are made, and then will be phased out over a year.

At the National Academy of the Sciences' advanced battery conference in Michigan this week, the state's governor appealed to the U.S. government to continue to include electric vehicle incentives in energy legislation to help kick start the electric car market.

"We need some help from Congress," Governor Jennifer M. Granholm said at the conference. "This includes passage of legislation expanding the advanced energy manufacturing tax credit. We also have to continue to offer federal tax credits to consumers who purchase electric vehicles until the cost of manufacturing lithium-ion batteries is comparable to that for internal combustion engines."

U.S. President Barack Obama pledged during his campaign to put 1 million plug-in vehicles on the road by 2015, and in addition to the tax credit has earmarked funds for U.S. battery manufacturers.

Boston-based A123 Systems, Inc. (Nasdaq: AONE) received hundreds of millions in aid to set up a Michigan plant.

Michigan is becoming the unofficial "battery capital of the world," with almost $6 billion in battery-related public and private investment in the past two years. Sixteen battery companies have projects in Michigan and the Volt's battery will be built there.

President Obama is hoping that investing in the battery manufacturing will lead to lower costs for automakers and more affordable car prices for consumers.

"Because of advances in the manufacturing, [battery] costs are expected to come down by nearly 70% in the next few years," Obama said at the site of a planned battery factory in Michigan earlier this month. "That's going to make electric and hybrid cars and trucks more affordable for more Americans."

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