Militant Rants

Volt vs Prius – A Tale of Government Handouts

by Aaron Turpen, EVMeme

Today on TorqueNews, I wrote an article debunking the lame comparison people like to make between electric vehicles and personal computers.  Basically, the comparison is useless for one big reason: the PC didn’t get piles of government money to promote its development, it depended almost entirely on market forces and real-world needs.

But wait?  Does this mean that electrics are doomed because they’re nothing more than an EPA pipe dream?

Well, let’s have a look-see.  A real apples-to-apples comparison between electric vehicles and the real world would be to compare the Chevy Volt, arguably the most-subsidized automobile ever built, and the Toyota Prius, which is the most-sold electric vehicle of all time.

Let’s start by analyzing the history of the two cars and noting the big differences between them.  We’ll begin with the Prius, since it’s been around longest.

History of the Prius

The Prius launched in Japan in 1997 and then went international in 2001.  The original sticker price on the car was $17,000 USD although the car cost about twice that to make (around $32,000).  Toyota took a loss on every Prius sold for about five years, until economies of scale and unit sales figures got large enough to equalize the price point.

Toyota Americanized the Prius with its launch in the U.S., adding a more powerful engine to satisfy American expectations and longer-distance driving needs.  This model, the NHW11, was otherwise the same as the original Japanese-only model, although air conditioning and electric power steering were standard options here.  The more practical Prius did well in the American market versus its only competition, the Honda Insight 2-seater.  It sold for about $20,000, still undercutting Toyota’s production cost of about $22,000 at that time, though Toyota claimed to be breaking even.

Although the Prius was one of the first hybrids on the mass market, Toyota undercut the price in order to drive sales and acceptance.  The Japanese carmaker has proven itself several times to be a long-term thinker when it comes to automotive sales.  This was a repeat of what the company did when first entering the U.S. market in the mid-1950s.

The Prius we all recognize today is actually the second-generation car, reconfigured as a hatchback sedan rather than a 4-door coupe.  This design meant better aerodynamics to make up for the larger size and introduced an industry-first all-electric air conditioner compressor.

Throughout this history, the Prius received few government incentives for its design or early production.  Consumers were eligible for a $2,000 federal tax deduction as the Prius qualified as an Ultra Low Emission Vehicle (ULEV) and to use the HOV lane in states like California where the California Air Resources Board allowed ULEV vehicles that privilege (it was recently rescinded).

History of the Chevrolet Volt

The Volt began design about eight years ago, in 2005 or 2006, and was first revealed as a concept in 2007 at the North American International Auto Show (NAIAS) in Detroit.  It is a plug-in hybrid car, though General Motors prefers to call it an electric car with gasoline engine assist or a range-extended electric.

GM applied for and received a government grant of $240 million from the Department of Energy to help design the Volt.  Then, a year later, it asked for restructuring and during the auto bailouts of 2008-09, GM received more than $50 billion from the federal government.

During that restructuring, the Volt, which even promoter and former Vice Chairman Bob Lutz admitted was not expected to be anything more than a low-selling “showcase car” from Chevrolet, production of the Volt became a priority.  Largely due to pushes from the federal government, which was desperately in need of an American car maker with an electric vehicle on the market to justify its $1.5 billion in consumer incentives via tax breaks ($7,500 per qualifying vehicle).

The Volt entered production in 2010, after corporate restructuring was complete, and has been met with dismal sales figures.  The car has a price tag of about $41,000, before incentives, and is sold as a compact, making it one of the highest-priced compacts in the market.  In reality, the Volt should be competing with entry-level luxury sedans in the small car market, but the accoutrement that are included do not justify this comparison.

Chevy’s decision not to undercut the price of the Volt in order to drive sales and acceptance has been speculated to be due to government ownership of GM.  Politically, if the company the federal government had just bailed out and owned a controlling share of were to sell its first “green car” at a loss, those opposed to both the bailouts and the government’s subsidization of automotive, especially “green dreams” (a favorite term amongst opponents) would gain a lot of ammunition.

Comparing the Prius and the Volt

The Prius sells remarkably well in the U.S. market, which makes up about 1/3 of Toyota’s total sales of the car worldwide.  That equates to about a million cars per year sold in North America as of 2011.  The Volt, which has only been on the market for roughly a year, has not done so well – though comparing the two on that single metric is not really fair.

What is different is the way the two companies approached their designs and market sales of the vehicles.  The Prius received little to no government money during its development and early sales stage whereas the Volt received government grants and loans almost from the first day it was proposed.

Toyota bit the bullet and waited for the car to become accepted on the market and for the economics to even out and finally turn in the company’s favor.  So the company produced the car at a loss for several years before finally turning a profit and eventually getting a return on its investment.  General Motors, however, did not go this route and instead priced the Volt at it’s actual cost (not actual cost of production, but cost after government investment).  This has meant lackluster sales.

In turn, the government’s involvement in GM during the Volt’s lifespan have turned the car into a political kicking board.  It’s a target on all sides as either a good or bad example of what government largesse can do.

This, folks, is the real problem.  When government gets involved, no matter how well meaning, things rarely turn out well.  The Volt might have been a great car and a first step towards GM entering the electric vehicle market with game-changing technology.  Instead, it’s just an overpriced and impractical political machine that will likely go down in history as such.

Note the photo used in this article is from David Herron at TorqueNews.

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Militant Libertarian

Site owner, philosopher, certified genius, and general pain in the establishment's ass.

2 Comments

smartone

sorry but you forgot one note . Toyota is a JAPANESE company and some former Toyota employees have admitted that in fact the Japanese government paid for 100 percent of the development of the battery and hybrid system that went into the Toyota Prius –

In addition The Japanese government, has long supported technology initiatives to lower tailpipe emissions and increase fuel economy to lessen smog in its crowded cities through consumer tax incentives. Japan’s “Green Taxation” system, for example, gives consumers a tax credits to purchase low-emission vehicles to offset a portion of sales tax paid on a new car, a system similar to consumer tax incentives in the U.S. to buy hybrids and electric vehicles.

Another fact you have not put into your article is the Prius was initiated by Toyota because of a high profile event at Clinton White House in 1996 where major American Automakers announced Hybrid type cars where part of plans. This scared Toyota so much that they put the Prius in development shortly after. What Toyota did NOT know was the hybrid development was part of White House – US Automaker secret agreement ,in exchange for developing hybrids and other green Cars (GM EV1 was another car) then Clinton White House would not push increase in CAFE Standards. This was a verbal agreement that the Automakers broke as soon as Bush won election in 2000. Ironically Toyota Continued to develop Prius and now it is one the best selling in the world.

So in fact the Prius seems to have gotten the same type of government help as Volt , the only difference is Toyota with support of Japanese Government was able to keep producing Prius until it became profitable but less than one year out the Volt becomes a political football

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Aaron

A couple of problems with your “history” there. First, while the Japanese government has long given incentives for purchasing and often for the development of alt-fuel / clean cars, they did not fully fund the Prius as you claim. Those statements you refer to are heresay, not fact, and have been greatly distorted by pundits who use them to “prove” that alt fuels are unrealistic.

Next, the “1996” agreement you refer to could not have culminated into the EV1 since that car came out that year, so it would have had to have been built with absolutely no R&D. Not to mention no other company in Detroit made anything even remotely resembling the EV1 or Prius in that time period. While most car companies have had research into various alternatives and ideas throughout their histories, none raised the bar on R&D at that time to add proof to your alleged “verbal agreement.”

Toyota began R&D on the Prius well before that magic 1996 number too, btw. In fact, at least five years before that, as research into hybrids in Japan began in the late 80s and when the Prius released, the Honda Insight had already been on the roads for nearly two years. It was Honda that Toyota was scared of, not Detroit.

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