GM-VOLT : Chevy Volt Electric Car Site

When GM Spokesman Rob Peterson outlined key marketing strategies Chevrolet is employing with the Volt at the EDTA conference a few weeks ago, the fourth point he said was, “last, but definitely not least.”

He titled it, “Managing expectations of both our products but also the EV movement itself.”

Matt Stehouwer is one person who knows what to expect from his Chevrolet Volt. Peterson acknowledged him for having flown into New York during a snowstorm to buy the car, then drive it home to Lansing, Mich.

Peterson said this is a defensive measure – and a necessary one – given the number of critics and other antagonists postured against the Volt and EVs in general.

Managing Expectations

“Most importantly, our greatest opportunity isn’t an opportunity to actually move the football past the goal line. It’s an opportunity to make sure that we don’t lose any ground,” Peterson said. “This is very important. There’s no question that our industry – this movement, EVs – is in the cross hairs of people that want to challenge the relevance of electric vehicles.”

GM’s intentions to build on the Voltec platform are seen as holding no water by those who are moved by a different agenda, Peterson said.

“There are groups out there – pundits and detractors – who desperately want to see this not succeed. I don’t want to say fail, they just don’t want to see it succeed,” Peterson said, “They will go to great lengths to try and challenge the success of what we’re trying to achieve here. We can’t do anything about it, quite frankly, except to protect our ground, but what we can do is make sure that we that we manage our expectations, and customers in the industry and of our dealer force appropriately.”

He highlighted some of the items on GM’s Voltec preparation to-do list.

“These are things such as making sure that we fully optimize our infrastructure; making sure that the understanding of the utilities and how utilities will work with charging in garages, and making sure that our production guides [are properly communicated to the public],” Peterson said.

Chevrolet Vice President U.S. Marketing Rick Scheidt holds the 2011 World Green Car award for the Chevrolet Volt at the New York International Auto Show Thursday, April 21, 2011 in New York City.

On this last topic, Peterson noted some of the flak and misunderstanding GM has had to contend with from some in the media.

“For us at General Motors, our product plans 10,000 units this year. We have a great deal of demand but we don’t have the supply, but we continually get challenged by media and others that, ‘your sales aren’t enough,’” he said, “Our sales are exactly where we want them to be.”

The need to qualify some of the realities of production EVs is also there, Peterson said.

“And then performance. There are certain elements of battery electric vehicles that physics dictates and we can’t overcome,” he said, “We need to make sure that we appropriately communicate the challenges and that we educate our customers, and we educate the media and those alike, so that they understand what those are – because there are significant benefits that people want to overlook in order to keep us in the cross hairs.”

GM’s intention to lose nothing gained, he said, includes holding onto its marketing point number one – building strategic relationships, as well as points number two and three pertaining to customer testimonials, which we featured earlier, and he summarized once more.

“So managing expectations. It’s not the high point. We have other things that we can do to tell our story. But the last thing we want to do is lose any ground that we’ve gained already,” he said, “So from a Chevrolet perspective, again, four areas of marketing that we’re looking at as we go forward: Relationships, we need to continue to build them throughout the industry. And we need to continue to build them as we launch this vehicle; make sure the customer ownership experience remains satisfying – above satisfactory, in fact, closer to remarkable.”

Rob Peterson (L, facing), and Tony Posawatz (R, profile seated) are a dynamic team representing the Volt.

Sharing plausible testimonials is core to accelerating EV proliferation, he said.

“And our ownership stories, and the people that have the passion and credibility – that their stories will be heard and shared, and that we properly manage the expectations of everybody that’s interested in electric vehicles,” Peterson said, “If we can do these four things successfully going forward, we have the chance to move this segment into the mainstream much faster.”

As he wrapped up, Peterson reiterated GM’s dedication to ushering in a new paradigm.

“We obviously at General Motors are very committed to electric vehicles. I think we have proven to those detractors and doubters who questioned our commitment in 2007,” Peterson said, “We’ve obviously invested significantly in bringing the Volt to market, but we’ve also invested significantly in the development of electric vehicle technology that will bring other electric vehicles to market as well. So this is of great interest to our company, and obviously to the other panelists here.”

The “New General Motors” is still on a roll, having posted $3.2 billion in net income for the first 2011 quarter despite a couple negative numbers reported on its balance sheets, and said it expects to continue to increase profits on average through the rest of the calendar year.

This quarterly profit represented GM’s largest net income since at least 1990, according to Bloomberg.

Increased spending on sales incentives, engineering costs and marketing did cut into overall revenues that nonetheless increased by 15 percent to $36.2 billion.

A Chevrolet Volt passes a gas station by in Boca Raton, Fla. last month.

As the company increases its U.S. and international sales, it said it expects “no material impact” as a result of the Japan crisis that is adversely affecting several Japanese automakers both in the U.S. and in other markets.

GM’s 25-percent increase in sales was supported heavily by its most economical cars, as we reported yesterday. These economical sales are anticipated to continue, as the company said it is working on the assumption that higher oil prices are here to stay.

Increased sales also came at a price – an average of $3,566 spent per vehicle on sales incentives – which Autodata said was the highest paid among the eight largest automakers.

In all, North American sales rose $2.82 billion, but the company’s profit was cut by $700 million due to higher operating expenses.

According to Bloomberg, analysts and investors were not thrilled by the news.

“The market thought that they would beat the consensus by more than 5 percent,” said Adam Jonas, a New York-based analyst with Morgan Stanley to Bloomberg. “Nobody owns GM to meet numbers. They own GM to beat numbers by a significant amount.”

GM stock reportedly fell $1.02, or 3.1 percent, to $32.02 at 4 p.m. in New York Stock Exchange composite trading. This was the biggest decline since Feb. 24. The shares have slid 13 percent this year.

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In addition to a few key charts that display some of the data in different ways, following are paraphrases, excerpts and whole sentences from GM’s April 5 press release. The company portrayed the situation in a factual, but overall positive tone.

Those of you who want to see a 38-page PDF of detailed charts, click here. For GM’s “Highlights,” click here.

For the first quarter of 2011, General Motors’ $3.2 billion net profit and revenues of $36.2 billion represented a $4.7 billion increase compared to the first quarter of 2010.

“We are on plan,” said Dan Akerson, chairman and CEO. “GM has delivered five consecutive profitable quarters, thanks to strong customer demand for our new fuel-efficient vehicles and a competitive cost structure that allows us to leverage our strong brands around the world and focus on driving profitable automotive growth.”

Net income attributable to common stockholders included gains of $1.6 billion and $0.3 billion respectively related to the sales of GM’s ownership interest in Delphi Automotive LLP and Ally Financial Inc. preferred stock.

Also included was a $0.4 billion goodwill impairment charge at GM Europe (GME) resulting from a change in accounting standards and charges totaling $0.1 billion at GM International Operations (GMIO) related to revised tax regulations affecting the company’s India joint venture.

Combined, these special items increased the $3.2 billion net income attributable to common stockholders by $1.5 billion or $0.82 per fully diluted share toward a total $1.77 billion per fully diluted share.

GM North America (GMNA) reported Earnings Before Interest and Taxes (EBIT) of $2.9 billion compared with $1.2 billion in the first quarter of 2010. On an EBIT-adjusted basis, GMNA increased its earnings by $0.1 billion to $1.3 billion compared with the first quarter of 2010.

The company expects GMNA’s quarterly EBIT-adjusted results to improve on average for the remainder of the year compared with the first quarter as better pricing and improved fixed cost should more than offset commodity cost increases and unfavorable mix.

General Motors Europe (GME) reported EBIT of $(0.4) billion. GME’s results improved by $0.6 billion on an EBIT-adjusted basis compared with the first quarter of 2010. The company said it achieved “a significant milestone by delivering breakeven results on that basis.” Based on current plans, the company said GME is targeting to achieve breakeven results on an EBIT-adjusted basis before restructuring for the entire year.

General Motors International Operations (GMIO) reported EBIT of $0.5 billion compared with $0.9 billion in the first quarter of 2010. On an EBIT-adjusted basis, GMIO earned $0.6 billion in the first quarter, a decline of $0.3 billion compared with the first quarter of 2010.

GM South America (GMSA) reported EBIT of $0.1 billion, down $0.2 billion from the first quarter of 2010. There were no adjustments in either period.

For the quarter, automotive cash flow from operating activities was $(0.6) billion and automotive free cash flow was $(1.9) billion. Both figures include the $2.5 billion cash impact of GM’s decision, announced in October 2010, to end a wholesale advance agreement with Ally Financial.

The company said it ended the quarter with very strong total liquidity of $36.5 billion. Automotive cash and marketable securities, including Canadian Health Care Trust restricted cash, was $30.6 billion compared with $27.6 billion at the end of the fourth quarter of 2010.

“GM has great potential to deliver profitable growth around the world as the recovery continues,” said Dan Ammann, senior vice president and CFO. “While we’re encouraged, we keenly recognize we have more opportunities to leverage our scale, improve spending and investment efficiencies, and optimize our strong balance sheet.”

Source: Bloomberg, GM.

UPDATE: (1:45 p.m. E.S.T.)

Chevrolet sold 493 Volts in April, representing a decline from the 608 sold in March. Some may report this news as a perceived increase from Nissan over the Volt which sold more LEAFs.

Nissan’s April LEAF sales jumped to 573 units, compared to 298 in March.

As we reported four weeks ago to the day (April 6), this is of no concern in any sense of a race. In an interview with GM Spokesman Rob Peterson, this was predicted:

Excerpt:

Also, going forward through 2011, don’t expect to see 12 months neatly divided into the number of units projected, he added, or even a consistent progression. Peterson already predicted April’s sales numbers may look lower.

“There are months in which we have more production not going to retail and April happens to be one of those months,” Peterson said. “We will be billing out the remaining demonstrator vehicles for the dealers. And so we’ll be earmarking a large portion of our production to hit dealer demonstrators rather than going to retail. So you might see a retail sales dip in the month of April.”

So you read it here first [written April 6]. The Volt already was the brunt of several April Fool’s jokes. If April’s sales are low, don’t let an after-the-fact April fools lark concern you.

The Volt may be rolling out at a deliberately slow pace, but this has not prevented Chevrolet from posting substantially increased sales of its economical internal combustion models.

Last month Chevrolet announced a 25-percent year-over-year increase in total and retail sales after selling 169,794 vehicles.

Nearly 40 percent of these April sales were from just three fuel-efficient models: the Volt’s cousin, the Cruze, as well as the Malibu, and Equinox.

Chevrolet dealers are selling more and more fuel sipper cars. The Volt should be welcomed into this environment being established.

A big spike reportedly came from California where gas prices are really starting to make people react as evidenced by their purchasing behavior.

“With gas as high as $4.50 a gallon in parts of California, the number of miles per gallon is just as important as the monthly payment for many shoppers,” said Joe Herold, president of Quality Chevrolet in Escondido, Calif., “That demand for fuel economy has made the Cruze one of our most popular models – we sold five times more Cruzes in April than we did the Chevrolet Cobalts last year.”

But California is not the only trend setter, as nationally, average April Cruze sales crested three times above what Cobalt sales were the year prior.

Chevrolet said nationwide it sold 25,160 of the up to 42-mpg, four-cylinder Cruzes in April – a new high, and the most compact cars Chevrolet has sold since May 2008.

As for the 33-mpg, Ecotec four-cylinder-powered Malibu, in April Chevrolet said it sold 24,701 – a year-over-year increase of 49 percent.

The various iterations of the Cruze are leading the charts.

Malibu sales were the best Chevrolet has seen since 2000, and specifically, were up 8 percent for April, and 4 percent for the year compared to 2010.

Similarly, Chevrolet had positive news for the 2.4-liter, Ecotec four-cylinder-powered Equinox – sales of 17,067 units represented a 42-percent jump for the crossover, and the best April sales ever reported for this model.

“Our lineup of gas-friendly vehicles like Cruze, Malibu, and Equinox offer drivers more miles per gallon without sacrificing performance, style or value,” said Alan Batey, U.S. vice president, Chevrolet sales and service, “Clearly, that is resonating with car buyers today.”

As reported yesterday, Chevrolet has also recently said the Volt has proven a major draw to Chevrolet dealerships.

In regions where the Volt is available, it was credited as being the single largest attraction to new car buyers, and nine out of 10 trade-ins at Chevrolet dealers were from those who had never owned a Chevrolet product.

What is unknown is what dealership sales reps are saying to make a sale on eco-friendly models other than the Volt.

Certainly the Cruze is less which will be recognized by buyers already concerned about costs. The Cruze has an MSRP from $16,525 into the low 20s, and it’s a very nice car for the money as conventional cars go.

Out of curiosity, a couple days ago I stopped into a suburban Philadelphia Chevrolet dealer in a fairly high per capita earning neighborhood to inquire when it would be getting its allocation for the Volt.

The Volt does cost twice what a Cruze does. It can also get 5-10 times the fuel mileage in some usage cases, if not more.

Two salesmen in a showroom devoid of shoppers told me they were Volt trained, expected it in a couple months or so, but – as salesmen will do – they tried to sell the model they had on hand.

While I had asked for the Volt, and demonstrated some knowledge of the car, one of them told me the Cruze represented a far better value – and I could practically get two for one.

After some talk along these lines for a little while, I asked the other salesman, “So you’re not sold on the Volt?”

“No, but I’m not supposed to tell you that,” he said, as I sat in a Cruze on the showroom floor.

In order to acquire a Volt, a buyer better have extra disposable income, I was told. It is like a lot of things, if you want to be environmentally friendly, you need to be sufficiently well off.

Since this was only one dealer, this by no means represents a survey, but we have heard of unmotivated potential Volt sales people in other regions already, so bring it up for what it is worth.

No doubt other dealerships will embrace the Volt, and sell it properly.

But given mixed reviews by some media, and considering a number of other subjective factors, we would not be surprised to learn would-be Volt customers will be converted by some sales reps to the far-lower-price Cruze, or other models.

We are also pretty certain Chevrolet would not want even one of its dealers shooting the Volt down before it hit the showroom. The company is going to great lengths to prepare its nationwide dealers, and has a lot wrapped up in this car as a centerpiece for the new GM.

The Volt has developed a lot of interest for new Chevrolet customers. Certainly motivated dealers who really believe in the value will continue this trend.

It is true that conventionally powered, lower-price cars can be a path of least resistance for salesmen who just want to make a sale, and less stress for less-than-fully informed customers to pull the trigger on.

But Chevrolet’s April results indicates the Cruze and other economical models are already doing great without any need to steal sales from the Volt.

For those who will truly be best served by another model, we wish them all the best.

Otherwise, to the degree that it is true, we hope any tendency to denigrate the Volt in order to sell lower priced models will be brought fully to Chevrolet’s attention.

The Volt must be properly represented, and if its own dealers won’t do it, this stands to adversely affect its success as Chevrolet anticipates nationwide roll-out of its most prized economical car by year’s end.

A few days ago we gave center stage to GM Spokesman, Rob Peterson, who in his own words described how Chevrolet is marketing the Volt in these first critical months and going forward.

His prelude at the EDTA conference in Washington, D.C. during Earth Week spoke of an over-riding philosophy of “transparency,” and his first point out of four was “Relationships.”

Building on these are points number two and three – which we’ll cover in this segment. Respectively, these were, “The ownership experience,” and, “The amplification of the voices of the customers who are absolutely enthusiastic to drive electric vehicles.”

A deep-hue green image is part of the broader marketing picture. Here a pre-production Volt is shown in front of the GreenHouse, a custom-built 4,000 square-foot carbon neutral house in McLean, Va.

In describing Chevrolet’s deceptively simple strategy, Peterson also indicated GM has clearly assumed a leadership role in the electric vehicle market.

He did not talk about catchy marketing slogans, or slick media spots, but focused on how GM wants to foster authentic grassroots enthusiasm for the Chevrolet Volt.

No doubt advertising and more details are also part of the marketing mix, but following is the broad brush picture that Peterson saw fit to lay out to an audience of industry peers.

For those paying attention, his words were rather generously offered as a template for others to follow as GM has already paved the way since 2007, and all indicators are it is on the right path.

The Ownership Experience

“Last month we went out and surveyed our owners of the Chevrolet Volts that many of them have had for three-four months at a time. We asked them to simply describe in one phrase or one word ‘how do you feel about your Chevrolet Volt?’” Peterson said, “It was obvious that they liked the vehicles quite a bit. They came back [most often] with ‘it’s fun to drive.’ The ownership experience of the electric vehicle is something that most people don’t recognize until they get a chance to actually experience it themselves.”

Peterson mentioned to the audience he hoped they had a chance to sample the Volt at the test drive corral across the street from the convention center.

Creating buzz and excitement that won’t disappoint is the name of the game. Here, Volt Product Specialists chauffeur media around an indoor test track Volts Feb. 9, 2011 at the Chicago Auto Show.

“Having spent a lot of time with customers, media, other stakeholders policy members, you put them in an electric vehicle – their response is almost instantaneous: ‘Wow. What an awesome experience,’ Peterson said in a calm, measured tone, “That is something that we need to continue to foster.”

And if Chevrolet is doing its job right, customer satisfaction should be comprehensive, he said.

“It doesn’t just happen on the drive experience. It has to happen in all elements of the ownership experience – from the charging experience inside the home, to the dealership experience, to the service experience to all elements of the ownership experience moving forward,” he said, “It is key that we deliver on the promises that we set forth. Whether it is the Volt or any other electric vehicle.”

His last statement hinted at a subtle bit of coaching for anyone who would like to succeed in the EV industry.

“Our customer experience shows that it’s fun to drive. One side benefit that we’ve been seeing a lot of late is that our owners are also enjoying the fact that gas prices are actually increasing. Because quite frankly, they’re not going to gas stations. They’re driving past them. And it’s a game to them. You know, how long can they go in between their need for beef jerky to get over to a gas station,” Peterson said, “Right now, with daily charging in the month of March, our customers averaged a thousand miles on a full tank of gas. They were going to gas stations about once every 30 days. And with a nine-gallon tank of gas and $4 per gallon, you’re talking about a gas bill of about $36 per month. That’s a pretty solid cost of ownership and a great ownership experience.”

The Voice of the Customer

“This young lady down in the front down here. That’s Mary Brazell and her father is James; James is a PR dream. Let’s call it that way. He is a retired VP of oil exploration for Texaco. He put his money down on the Chevrolet Volt almost 18 months before we came to market,” Peterson said, “He traveled all the way to Washington, D.C., from his home in Ashville just so he would be one of the first people to have one. He now owns it. He schedules his own events. He’s constantly on the road with his Volt, demonstrating the Volt and electric vehicle technology. In fact Mary told me yesterday that he is scheduled to participate in three Earth Day activities tomorrow and several other activities going along the way.”

About as strong a testimonial as Chevrolet could wish for: James Brazell – a retired oil company executive – gets a closer look at his new 2011 Chevrolet Volt electric vehicle Feb. 25, 2011 in Woodbridge, Va. (Photo by Mark Finkenstaedt for Chevrolet)

He also told of Matt Stehouwer who flew into a snow storm in New York City, then drove his new Volt back through that same storm to his home in Lansing, Mich.

Peterson said they are just two of many such real life tales of satisfied owners it has heard.

“These stories add to the credibility of electric vehicles. It’s their passion, their enthusiasm that will drive what we have right now which is early tech adopters. They’re going to drive the fast followers: that segment of people who don’t want to own the first technology, but quickly want to own the second one and want to be right behind them,” Peterson said, “They’re going to be the credibility that gets those people into that marketplace even sooner. So we have countless stories like this. It’s our job – from Chevrolet and that at the EDTA and the industry – to amplify these voices to make sure that masses hear the story of electric vehicles.”

This is vital, he said …

“So that others can experience what it’s like to drive electrically. What it’s like to drive past the gas station, what it’s like to charge up at your home, what it’s like to experience paying on average 11 cents per kWh or 3 cents per mile, versus 12 cents per mile or even higher,” he said, “These are the ways that we’re going to market the vehicle to the masses.”

Simple and real is the best policy

This policy may sound elementary, and is probably not the first time you heard of customer testimonials, but for Chevrolet it is working. If you do a Google news search, week after week you will find human interest stories around the country about the novel new American extended range electric car called the Volt.

This effort is exactly what GM is attempting to foster. For a company that admits it started with credibility at a low point in 2007, the need to earn the respect of new owners is its first priority in order to continue improving its already growing credibility as fast as possible.

Of course getting Hollywood stars to do a photo-op also never hurts. Eva Rojas (L) and Vanessa Branch are shown on the green carpet of Global Green USA’s 2011 Pre-Oscar Party, Feb. 23, 2011.

Speaking with Peterson in follow-up, he agreed a lot of people are accustomed to not knowing what to believe, but hearing positive stories from real people is plausible.

From what we can ascertain, it is the advertising that money cannot buy that Chevrolet values the most.

And thus far, with numerous awards, positive media recognition, and the voices of real owners, this has not been too difficult. The Volt is the outcome of a billion-dollar project, and it would appear GM has already earned what it says it is now reaping.

The most recent affirmation to this came May 2 from a Chevrolet press release saying that the Volt demo program is drawing new customers to Chevrolet dealers.

These are people who might never have darkened the door of a Chevy dealer, the company said, and now they are walking right in.

The Volt’s slow roll-out of is credited with some rather remarkable ancillary benefits.

“Almost nine of 10 customers who traded in a vehicle as part of their purchase are new to the Chevrolet brand,” said Chevrolet, “That’s why hundreds of Volts that could be sold to individuals are tagged for dealers as demo vehicles, meant for customer exposure to the Volt and to other Chevy products they might otherwise not see.”

Evocative images are part of the plan as well – and this is one photogenic car that emits next to no pollution to obscure the light-blue sky under which it serenely sits.

In the first quarter of this year, 1,210 new Volts were sold. Beyond this, more than 550 dedicated Volt demos have gone to dealers in the initial launch markets of California, Connecticut, Maryland, Michigan, New Jersey, New York, Texas, Virginia and Washington, D.C.

By year’s end, more than 2,500 U.S. dealers will receive a dedicated Volt demo as Chevrolet rolls out the car to the remaining states.

In short, Chevrolet said it is reviving its sales and reputation with no small thanks to the Volt by creating and meeting great expectations – and that’s a hint for Rob Peterson’s topic number four, which we’ll save for another day.

A potential cost to adopting electric vehicles early was highlighted last week by Pike Research.

In a report on “the plug-in vehicle residual value conundrum,“ it was said electric and plug-in hybrid end-of-lease values will remain lower than those of gasoline-powered nearest equivalents for at least the next several years as the market decides how to assess these new vehicle types.

The residual value is an indicator of what a vehicle will be “worth” at the end of a specified lease contract, and may also be a guide to anticipate relative used car prices for buyers who anticipate trading in or selling their car after a few years.

Plug-in cars can still be a great deal for many reasons.

The article was written by David Hurst, a senior analyst for Pike Research who primarily contemplates emerging markets for EVs, natural gas and hydrogen fuel cell vehicles.

He noted the Chevrolet Volt and Nissan LEAF have a three-year lease price of $349 per month, but the residual value for a $41,000 Volt will be just $17,630 after 36 months, and for the LEAF it will be $13,440. In the Volt’s case, the residual will be about 43 percent of its selling price, whereas a Chevrolet Cruze has a residual closer to 52 percent.

Hurst also cited a $499 payment with $2,250 down for the limited availability BMW ActiveE car due to launch this fall. This is significantly more than the lease price for a comparable gas-powered BMW 1 Series which ranges from $329-$399 per month with $1,000 down.

These higher barriers to entry are reflective of across-the-board lower plug-in car residual values, Hurst said. Because the assumption is the end-of-lease value will be less, the up-front monthly payments must be higher to account for the greater depreciation though the lease term.

“Overall it seems likely that the initial residual values are going to be relatively low,” Hurst said, “Industry average after a three year lease is roughly 54 percent to 55 percent.”

To determine a lease rate, four factors are typically considered. Aside from residual value, these are selling price, the “money factor” – which is akin to an interest rate – and the amount of down payment at the lease inception.

The present state of plug-in car residual values is being attributed to a few unknowns.

One is the remaining service life in a used EV battery after three years. GM and Nissan say it is five years, Hurst said.

Another unknown is the rate of future decrease in EV-compatible lithium-ion battery costs. This factor is also making lease companies hedge their bets.

Since before it was launched, the Volt Team has had a mandate to reduce what it pays for its lithium-ion battery pack.

The Volt’s T-shaped li-ion battery was a departure from nickel metal hydride batteries which made them more of an unknown. Also a mystery is what GM will be paying for them by 2012-2013 when the LG Chem factory begins producing the cells in Michigan.

Two years ago, GM’s Jon Lauckner, vice president of global program management wrote in response to criticism the Volt received in a study by Carnegie Melon University:

In the CMU study, the so-called “base case” used a Lithium-Ion battery cost of $1,000 per kWh ($16,000 for a 40 mile Volt pack) that was cited in earlier academic articles. The problem is this cost is many hundreds of dollars per kWh higher than the actual cost of the Volt pack today [written Mar. 3, 2009]. Moreover, our battery team is already starting work on new concepts that will further decrease the cost of the Volt battery pack quite substantially in a second-generation Volt pack. Unfortunately, the impact of dramatically lower battery costs (to $250 per kWh) was treated only as a “sensitivity” in the CMU study when it probably should have been highlighted as THE critical element that would dramatically change the cost-effectiveness of plug-ins with greater electric-only range.

We know from recent reports the push to cut the Volt’s battery costs – along with other production cost factors – is “on track.”

These were projections published by Deutsche Bank Dec. 22, 2010. Note it only took one year for it to slash projections, while following a similar rate of decline. In short, no one knows the future, but it is the nature of business to want to, and nothing stops some information purveyors from trying.

Another battery price indicator came at the end of 2010, when Deutsche Bank reduced future cost projections from the year prior, and for all anyone knows, the projections could decline again as variables change.

Hurst said it therefore remains only a semi-educated guess today for leasing companies trying not to get caught short at the end of a lease term.

“To cover their exposure for these vehicles, the companies calculating residuals (banks, insurance groups, and valuation companies) seem likely to set residual values lower than market average,” he said, “It is then up to BMW, GM, and Nissan to decide what value they want to put on the vehicles, which could potentially cost them significant money if the resale values are below their estimated values. It seems likely that to match the Leaf’s lease rate, GM is betting the Volt’s residual value will be closer to that of the Cruze at 52 percent.”

This chart was supplied courtesy of EPRI yesterday and is thought to be based on fairly recent analysis. Instead of pretending to have a crystal ball through to 2020, it bases its projections on a cost decline relative to unit production.

Another factor that especially affects new plug-in car makers like Think, Fisker, and Tesla is these companies are relatively unproven. The same would be true of any other new players in the plug-in vehicle market. Sort of a double whammy, if you will.

As for his own educated guess, Hurst predicted that new plug-in vehicle residuals will edge upwards year by year assuming no truly bad press comes out over EV batteries, and gasoline prices continue to rise.

At this beginning stage, it is all the more important that plug-in vehicles maintain a perceived high reliability record. Recalls, or other negative publicity stand to jeopardize the increase in residual values needed if they are to achieve parity with internal combustion vehicles.

At the recent EDTA conference in Washington, D.C., Indiana-based Remy International, Inc. said it has an answer for a growing dilemma facing the electric and hybrid vehicle industry.

While Americans are thinking about improving batteries to reduce dependency on foreign oil, at the same time, increased reliance on permanent magnet electric motors stands to set us up for a new dependency on foreign-sourced rare earth metals.

Most of the world’s supply is controlled by China which has been accused of aggressively manipulating it for political and economic gain.

Remy supplies motors mostly for larger vehicles, but is posturing itself to handle the burgeoning electric and hybrid automotive market as well.

In an effort to fortify America’s advanced-tech transportation future, in May 2010, the U.S. Department of Energy finalized a $60.2 million American Recovery and Reinvestment Act (ARRA) grant for Remy to develop its HVH electric motor technology.

A hybrid version of this motor looks like a fix for the China question, and apparently government investment in this motivated company is paying off.

China now produces about 95-percent of rare earth metals. Last September it was accused of stopping supply of this vital resource to Japan to punish it for detaining one of its ships, thus demonstrating the potentially antagonistic political will of the Chinese government.

While circumstances surrounding that incident were obscured, it remains clear that world supply is threatened. According to a Wharton school publication, in the second half of 2010, China slashed export quotas by 72 percent, then in the first half of 2011 further restricted exports by 35 percent compared to the year prior. The prices for some rare earths have spiked 1,000 percent. It is estimated global demand for these minerals might more than double by 2020 from last year’s 125,000 metric tons.

For now the advanced-tech industry continues to use permanent magnet motors, but should they become prohibitively expensive, Remy says it has an ace up its sleeve.

An American solution

Last week GM-Volt.com was told that Remy’s legal department advised its executives against interviewing with us. This was because in March, Remy International, Inc. filed an S-1 registration statement with the U.S. Securities and Exchange Commission for a $100 million initial public stock offering.

The Remy HVH250 uses its proprietary stator (outer part on lower right). This design can be made with either a permanent magnet or AC-induction rotor. Remy says it has an off-the-shelf EV solution. It has signed with Zap to supply its EVs, AMP to power its converted Chevrolet Equinox, MotoCzysz, and others to supply their electric drive needs.

Not wanting to excite the price one way or the other prior to an estimated summer IPO, Remy told us it will have to wait. It did say what was on public record was fair game however.

And fortunately, we have a complete public recording from Remy’s Global Director of Product Engineering, Andrew Worley. At the the breakout session titled, “Game-Changing Technologies,” he laid out the case for a motor Remy developed that does away with the need for rare earths.

Worley has his PhD in electrical engineering from the University of Leeds in the U.K., where he received his undergraduate degree as well. He earned an MBA from Purdue and a Certificate of Lean Process Development from the University of Michigan. Following is what he said …

Prelude

“I’d like to start this afternoon’s presentation by presenting a scenario, a question if you like,” Worley said, “and then during my presentation I am going to present what I believe, what we at Remy believe, is a solution to this particular dilemma.”

With a tinge of drama, he set the stage outlining a typical possibility.

“So here’s the scenario, the dilemma: We’re all here involved in hybrid vehicles, electric vehicles in one way or another,” he said, “Just imagine a scenario: You’ve done your market research, you’ve done your engineering, your development, you’re ready for manufacture. You’ve got a couple orders coming in. Life looks good for 20-50-100,000 units a year. But there’s a critical element within all of our products, with most of peoples’ products, which is rare earth.”

He noted that those listening had likely attended an earlier session, titled, “Materials and Rare Earth Metals: Ramping Up For the Future.”

“Many of you here today sat through earlier, I’m sure, talking about rare earth magnets and what the challenges are,” he said, “So it is a challenge, it is a risk.

Worley showed a slide illustrating that Remy has over 100 years experience, 5,500 employees, 23 facilities in 10 countries and produces 17 million units annually. Within Remy Inc., is Remy Electric Motors for which he works.

“We do high output traction motors and generators for hybrid and electric vehicles. We believe we have the highest power density electric motors on the market,” Worley said, “We have proven reliability and durability; we have over 90,000 motors on the road, over a billion miles and very high reliability. We’ve been in this market since 2002 and so no stranger to this technology at all.”

19th century technology reinvented

“So, about this game changing technology. We’re reducing our dependence on rare earth permanent magnets,” he said, “I think most of us are aware rare earth permanent magnet motors are the most popular choice for our applications today because of a high torque density, high efficiency, wide range of constant power; good designs, quiet, have low torque ripple.”

However these motors leave OEMs vulnerable to the rare earth supply question, he said.

“But we keep having this question. And the solution is a technology that’s been around for a long time,” Worley said, “We just think there are some things we can do with that to address some of the perceived disadvantages.”

Remy’s answer is a twist on a motor first developed in the 1880s.

“And the solution is the induction motor. The humble induction motor has been around for a very, very long time, since Nicola Tesla discovered it many, many, many decades ago,” Worley said. “I’m going to talk a little bit about the winding technology we use in our machines. What we call the High Voltage Hairpin, or HVH winding.”

Remy says it has an elegant solution for the rare earth dilemma.

According to a Remy white paper on the design:

In contrast to conventional roundwire windings, the HVH™ stator winding uses precision-formed rectangular wires. Multiple layers of interlocking “hairpins” produce a superior slot fill (up to 73 percent vs. 40 percent for typical round-wire windings),” the paper says, “This patented design also creates a shorter end turn space than round-wire stators, thereby reducing heat and improving the motor’s torque and power density, and lends itself to robust construction at the critical connections between the conductors. Combined, the high slot fill and shorter end turn space reduce the winding resistance causing less heat generation. The HVH™ windings are well-suited to liquid cooling that further enhances performance and reliability.

This design can be used with either a permanent magnet rotor or AC-induction rotor.

Worley contrasted traditional concentrated stator windings with Remy’s innovation.

“A concentrated winding is great in some applications – doesn’t make a very good induction machine,” Worley said, “Our [HVH] winding has low loss, and we use oil cooling which is good for not only a permanent magnet machine, but also an induction machine. So we’re seeing some of what we already have in our permanent magnet motors translates very nicely over into induction machines.”

He then addressed what he called misconceptions about induction motors.

“The first one is they can’t deliver the same performance,” Worley said. “Well, I’ve just shown here. I’ll explain the graph (see below). It’s quite busy; the dotted lines represent continuous performance from three different machine technologies. The solid lines represent peak performance, so that’s performance for up to 60 seconds. The red lines – the dotted and the solid ones – represent the varied permanent magnet motors.”

Dotted lines show continuous performance between a permanent magnet motor (red line) and Remy’s AC-induction motors (black=aluminum rotor, yellow=copper rotor). Solid lines represent peak performance of the same. Increasing system voltage (purple arrow) improves the AC-induction motors’ torque and efficiency.

Permanent magnet motors usually outperform induction motors, he said, but not in this case.

“You can see that typically they sit above the black and the yellow lines. The black line would be an induction machine [with HVH winding] with an aluminum rotor, the yellow line being an induction machine with a copper rotor [and HVH winding],” Worley said, “What I’d like to point out to you is over towards the left you can see the induction machines can deliver comparable performance to the permanent magnet machines and of course that’s dependent on a bunch of things including the cooling and electromagnetic design.”

He described how Remy further improved on Nicola Tesla’s design.

“As you move up in speed for the same system voltage, the induction machines deliver less performance than the permanent magnet machines, but that’s the purpose of the purple arrow,” Worley said, “If you increase the system voltage you can get more torque at higher speeds. Now an advantage of induction machines over the PM is you can increase the system voltage. With PM it’s always a concern because of back EMF [electromotive force].”

The High Voltage Hairpin (HVH) winding can be combined with an aluminum or copper rotor and do away with need for rare earth-based permanent magnet rotors.

Worley said his demonstration showed proof that EVs and hybrids do not need rare earths.

“And the message from this slide really is by working together to develop a system with the OEMs and everybody involved in developing the system we can actually get to the same performance; equivalent performance,” he said, “The next point I’d just like to talk about is efficiency. In general induction machines are believed to not have such good efficiency as the permanent magnet machines. What I’ve shown in this slide is efficiency beginning from the three different motor technologies. I think what’s interesting is at high speed where many of our applications operate and where people tend to be very concerned about efficiency, induction machines are equivalent or in some cases slightly better than the permanent magnet machines in terms of their efficiency.”

It’s a win-win, Worley said.

“So using the same battery, inverter, cooling system and stator, at full load at a high speed we’re getting equivalent or better efficiency on this,” he said, “So, my conclusion here, the message here, is induction machines can provide a viable alternative. And I think the important thing here is: all of this simulation, all of the results I put up on the screen are based on taking an existing permanent magnet motor, removing the rotor, and inserting an induction rotor. So there’s a minimal disruption to the topology of the vehicle, minimal disruption to the systems integration, and build that’s already been done.”

Some may remember the Remy name as Delco Remy, as it was called while a GM division. The now independent company’s HVH permanent magnet motors are extremely efficient. If needed, they can be made into a hybrid AC-induction design and remain competitive.

Worley finished by explaining that Remy is positive rare earth supply need not be a concern.

“So in conclusion, we believe we have an option here. I think like everybody in the room, I very much hope that the rare earth dilemma turns out to be something we don’t have to worry about, but always of course you worry about,” Worley said, “It’s the things you don’t think about that bite you. So here at Remy we have developed what we believe is an option where we can reduce our dependency on rare earth materials, and give maximum benefits to our customers.”

Prior to its IPO, Remy has taken a conservative stance by not talking to the press. Behind the scenes, its senior management is obviously quite bullish. Its motors could be made for electric or hybrid trucks, autos, and motorcycles. They were represented as a home-grown solution that helps America’s energy independence from antagonistic suppliers with no down side.