Automotive innovation doesn’t come cheap

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I moved this to the front page since it was only up for an hour until Spyker’s press releases started to fly out, including the announcement of JAJ’s retirement. It deserves some time on the front page. -Jeff

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This isn’t about Saab, per se. I guess you could say it’s more of a perspective piece on the industry as a whole. As I’m about to dip my toes into this industry, I’ve found it interesting to take a wider perspective and try to understand a little more of the ‘why’ – from the company’s point of view.

This article about the Volvo C30 Electric was on Autoblog earlier today:

A trial fleet of around 400 Volvo C30 Electrics is coming, and anyone who wants one had better have an awful big piggy bank. Speaking at a media launch near Indianapolis, IN today, the president of Volvo Car Special Vehicles, Lennart Stegland, said that, while the final price for the car hasn’t been set, Volvo will not sell the EV, but instead offer the car through a three-year lease for around 1,500 Euros. Per month.

I can’t imagine the digital decibels that would reverberate through comments if this were VolvosUnited. I can picture it now – we’d all be pleased as punch in the lead up to the vehicle’s introduction and then Volvo’s PR group would drop the pricing hammer and we’d go nuts.

And I can understand why, too. That’s a bucketload of money for any car, let alone a small 4-seater with a ill-shaped hatch opening.

That figure – which translates into around US$2,200 per month, by the way – is what first got my attention. Reading further into the article got me feeling a little bit sorry for our much larger Swedish compatriots.

…..so if you stick it out for the full 36 months, you get to spend $76,674 to not buy a car. Even worse, Stegland said that Volvo will lose money on the deal. Ouch. Developing electric vehicles for mass production is more than mildly expensive.

Isn’t that just a little bit amazing?

The company does the work, brings that work to market. They have to charge megabucks just to scrape back some of the cost and despite bringing such an innovative vehicle to market, they’ll still have to take the negative publicity that goes with such a high price as well as taking a loss on the vehicles.

Electrification, despite its prominence at recent motor shows, is still a niche when it comes to actual products for market. Toyota have been the most successful with partial electrification, selling Prius hybrids for over a decade now. Despite the age of their hybrid technology and there dominant market share in the sector, the most recent information I could find suggests that they’re still making a loss on each one the Prius lost around $10K per car and has only recently started to make real money per unit sold (corrected with a more recent source).

In other words, we’ve really only got widespread availability of hybrid Toyotas because the company was massive enough and profitable enough to absorb the cost of producing them for an entire decade or so.

If a huge, advanced and undeniably successful company like Toyota has had to rely on other models to fund the Prius program (now profitable and spread amongst other models as well), then consider the challenge a much smaller Volvo has just undertaken in order to bring this C30 Electric to market.

More than that, consider the technologies that Saab are about to build into their range of vehicles and the difficulties such a scenario presents for the smaller Swede. Yes, Saab have incredible talent in their engineering department and yes, they can be nimble and take decisions quickly to develop products and to negotiate with the right partners. But it’s still an incredibly complex and difficult exercise.

Good luck to Volvo. And long live Saab!

18 thoughts on “Automotive innovation doesn’t come cheap”

  1. Great points Steven. It’s slightly insane the amount they plan to charge for early adopters. Their plug-in hybrid model seems to make considerably more economic sense, and I wonder what their business model for that is, and how much they plan to charge. Volvo mentioned that there would be a premium for the V60 plug-in hybrid, but I can’t see them charging more than 20% for it. In the US, that premium would be nearly wiped out by tax credits we have ($7,500 per plug-in).

    Needless to say, I can’t see the value in the car in its current form if its price is much higher than where it is now. For electric cars to really take off, gas prices have to rise to a level that the payback for using electricity makes sense, and that doesn’t even take into account the hassle it is to have limited range. In the meantime, I expect plug-in hybrids to be where the real action is for the next decade, and hope Saab is working on some sort of solution.

  2. Started reading the article, kinda confused it was about Volvo -is this the new SU?-, then interested reading on I laughed and thought, “finally we have some good old SU humor in the text”, reading on, thinking “who is that new SU guy with such verbal talent?”, looking up to the top just to discover, it’s Swade all right!

    Keep on writing these pieces about Saab or Volvo or whatever, your language just rocks! And what you say always makes sense. What a good morning this is!

    Enjoy!

  3. Electric vehicles does not make sense in the US with a gas price that is less than half compared to Europe. If batteries last the vehicle life span and maintenance is cheap, electricity does not go up and taxes are low, then EVs might just be able to compete on cost with a diesel in Europe. US is not even close.

  4. Most people still do not realize the battery problem. The high cost of the car is certainly mostly attributable to the batteries, not so much to development cost.

    And we are not talking about engineering here, but about basic science. Without tenfold capacities, tenfold charging speed, and one tenth the price, electrical cars will remain niche.

    It is beyond me why almost no European county invests in basic electrochemical research.

  5. I dont think complete e-cars is the way to go. It works as a Urban/city cafe racer , but not as your #1 car. But it is a fun #2 or #3 car.
    Tesla uses 6800 laptop batterys in one car, how green is that ? After they’re worn out..

    • I have to disagree a little…the lithium cells of the Tesla are recycled after 10 years, and the Tesla Roadster battery pack was alpha hardware to begin with. GM is partnering with alternative energy companies to develop pilots to reuse old Volt battery packs Electric vehicles are cost competitive if gas tops $7 a gallon in the US, before even taking into account the incentives governments are providing. Battery costs are decreasing and energy densities are increasing, I really think that in 3-4 years as the economy improves and BRIC countries demand more petroleum, that plug-in hybrids for the vast majority of us and full electrics for a certain segment of city dwellers will be not only cost competitive but have an advantage.

      • Reusing old lithium-ion batteries as stationary energy buffers sound good on paper when applying for government research grants etc. but it will never fly when the cost estimates are going to be predicted (€/Wh). At least not until you can more or less exactly predict the “life time” of such batteries.

    • This technology with thousands of batteries that Tesla uses to build battery packs is very old and inefficient. You will not see these type of battery packs at the more established car builders when they hit the markets.

  6. I think the prices could just as well be strategic, because if the EV is too cheap and accessible it will reduce sales of diesels and petrols…

    And IF the prices were correct, doesn’t that make the Tesla even more impressive?

  7. Remember that Saab builds 70 9-3 Electric within the same test program as the Volvo C30 electric. They have the same partners and technology. (Innovatum and ElectroEngine.)

    As pointed out by Swade, innovation does not come cheap, and requires a horizon beyond the next quarterly results. Toyota now makes money on the Prius and have shown that betting on the future was right.

  8. Important article, this. Too bad it sinks below the surface of the front page so soon under the flood of other Saab news.

    Imho, this discussion remains somewhat academic as long as

    – we run out of oil in maybe 50 years, which will make the hybrids obsolete pretty soon and, therefore, no more than a stopgap solution until a viable alternative comes up and

    – the storage capacity of even the most advanced batteries of today and their sheer numbers and combined weight doesn’t allow us to travel further than maybe 80 km’s before re-charging, IF we don’t use power-eating systems such as lighting, heating and ventilation.

    I believe the industry should not stop focussing on -amply available, cheap to produce and non-pollutant- hydrogen fuels and, for reasons of yield, keep looking into fuel cell technology. As long as electricity cannot be generated and stored in ‘volumes’ that make normal mobility feasible, it is and remains a dead-end alley.

    Ivo

    • Ivo, you’re spot on. This is a very hot topic, not the least in the wake of the Japanese events. Electricity will not get any cheaper and the calculated amounts needed to replace all transportation of today are just not available, neither today and nor “tomorrow”.

      Today I see no alternative for the current set up of gas/diesel powered engines. There will be developed more efficient engines and we will see more of the hybrid for the good green purpose sake.

      Electricity is not a fuel by the way, it’s a hard to capture and store intermediate.source of power. At the heart lies a massive challenge to find a sustainable solution for replacing the fossil fuels with something that has a high energy density, is easy to make/find/distribute i.e. is “cheap”, does as little impact on the environment as possible, and is safe,

      The sheer scale of the problem should worry many. Let’s go back and carry on and stay calm and be with our brand as it is today.

      And enjoy!

      • While I agree that electricity is in a transformative stage, to pretend that its a less viable alternative to gas or diesel propulsion is really a fallacy at this point. The volt and the leaf have essentially busted this argument, I’m not sure how it’s possible to argue against electric propulsion as a way to complement or increase economy and maximize efficiency in the next decade.

  9. Swade,

    Have you had your initiation yet?
    If so, I’m sure you’ve been let-in on the big secret of the auto industry: the fact that it’s just a front for the tooling industry.

    The first car off the line always costs millions or even billions, so Volvo’s complaint is misleading. They are trying to establish a premium price for their electric product in the hope that they can make it stick later when they have more cars to sell.

    To put this in context, here’s what GM had to say about their first airbags in the 1970s: “we should have sold the airbags and given the cars away for free.”
    R&D and tooling costs have long since been recovered, and now cars have more airbags than their buyers have shoes (and the airbags cost less).

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