Chevy Volt: Why is production being halted?

Even though expectations were high for the Chevy Volt this year, things aren’t looking all that electrifying for the vehicle right now. High gas prices might change that.

With gas prices headed skyward, 2012 might still turn out to be the year of the plug-in electrified car. But even though pop star Justin Bieber just got a hot, new electric Fisker Karma sports car for his birthday, things aren't looking all that electrifying for the dozen new battery-powered vehicles right now.

Bad news for electric cars has come in waves.

Late on Friday, General Motors said it would shut down on March 19, for five weeks, its newly overhauled Detroit manufacturing plant for the Chevy Volt. This plug-in hybrid has a big electric motor and battery – and a tiny gas engine to extend its range. The company said it was sitting on more than 6,000 unsold Volts – a 154-day supply.

"We’re going to match production with demand," Daniel Akerson, GM's chief executive officer, said last month. "There are new variables in the equation, so we’ll see."

Also last week, Bright Automotive, a would-be manufacturer of plug-in vans based in Rochester Hills, Mich., said it would close because it never got the Department of Energy loan it needed to build the advanced van.

Meanwhile, Fisker Automotive, which received $529 million in DOE loans in 2010, last month stopped work on its new Wilmington, Del., factory, where it had expected to build its first US-made plug-in vehicle. The Energy Department cut off loan funding last May because it had not met sales targets.

"We would expect plug-in vehicle sales to rise as oil prices go up, however existing data from hybrids shows there is a lag between the two events," Kevin See, plug-in vehicle analyst at Lux Research, a Boston-based renewable-energy market research firm, writes in an e-mail interview. "Even more important here, is that plug-in vehicles incur such a large price premium that we’d expect more modest changes with oil price."

The world's No. 1 automaker sold just 7,671 Volts last year. Some 1,203 Volts were sold last month, about double the number for January, but well below December's total of 1,529.

Sales of the Nissan Leaf, an all-electric car, were down, too – just 1,154 in the same two-month period. Nissan sold 9,674 Leafs in 2011.

It didn't help that last fall, certain Volts were involved in fires because their batteries weren't drained, more than a week after they had been used in government crash tests.

What GM and the industry may be suffering from is an acute case of overexpectation. Sales of the Volt have fallen well behind the 45,000 sales pace (3,750 vehicles per month) that GM said it expected this year. Overall, industry estimates had been for sales of about 100,000 plug-in vehicles this year – but sales so far are looking to be far short of that number.

"It shows that plug-ins do indeed have a long way to go, with one of the most critical factors being the high cost of batteries," Mr. See says. "As with last year, you will see manufacturers adjust their goals over the course of the year, as real sales performance may not match their grand plans."

Sluggish sales for plug-ins reflect "the high cost of the vehicle relative to comparable gasoline cars, coupled with a lack of consumer understanding about the capabilities of the vehicles," John Gartner, head of the Smart Transportation practice at Pike Research based in Boulder, Colo., writes in an e-mail interview.

Still, demand for the Volt could surge later this year, he suggests. GM has said it will retool the Volt to meet California’s HOV access requirements. It’s likely that some consumers held off on purchasing the car until that feature was added in late February, Mr. Gartner says. Also, demand for electric vehicles or plug-in hybrid electric vehicles is “likely to increase after gas prices remain above $4 for several months," Gartner writes.

The Volt assembly-line closing is "a necessary reality check for GM that they need to readjust their sales forecast for the vehicles for 2012," Gartner writes. At the Volt’s current price of more than $40,000, GM will sell only about 19,000 Volts in North America this year, Pike Research says.

Cost is a huge issue. Why would someone pay $40,000 for something that looks like a compact Chevrolet, some say. Or, why would someone ante up $38,000 for a vehicle like the Nissan Leaf – which gets about 100 miles to a charge, thereby limiting the total distance traveled. Even with a $7,500 tax credit, cost is a question.

"Consumers who were initially really excited about replacing gasoline with electrons are now realizing that it doesn't exactly go as they expected," says Thilo Koslowski, a senior automotive analyst with Stamford, Conn.-based Gartner Group, a market research firm. “It's not an exact replacement for gas because it requires a behavior change."

Indeed, consumers remain confused about what the Volt and other vehicles do for their high price tags – and the big auto companies haven't done a great job explaining the virtues of the plug-in, which includes low maintenance, Mr. Koslowski says.

"Emotionally, consumers have to be wowed, and they're just not there yet," he says.