Wednesday, July 28, 2010

Pricing the Chevy Volt: Sorry Toyota



Pricing for the Chevy Volt was announced yesterday. The cars will sell for about $41,000, minus a $7,500 tax credit. So the actual price is closer to $33,500. That tax credit was the subject of substantial lobbying from General Motors, especially once the company realized that they had to price the car over forty grand.

The trick to these types of tax credits is that the companies lobbying for them want the credits for their products only. To ensure that other electric and hybrid vehicles wouldn't be eligible for the credits, GM argued for the credits allocated by battery size. The larger the battery the larger the credit. Here is how the GM Volt blog describes the credit:
Sweetest for future Volt buyers is what’s called the Transportation and Domestic Fuel Security Provision.

This provision provides a tax credit for buyers of plug-in electric vehicles. It provides a base of $2500 plus an additional $417 per kwh for batteries greater than 4 kwh. For the Chevy Volt, that works out to $7500 per car, a number GM had lobbied for.

Because the Volt has a 6kwh battery, the car gets the full amount of the credit. Toyota's Prius only has a 1.5 kwh battery, so they don't even qualify for any part of the credit. As you might expect, Toyota isn't happy about this.

A last point is that the lease available for the Volt seems like a good deal. You can lease the car for $350 per month. For every lease, GM gets the $7,500 tax credit. That's why GM is pushing leases. They will get paid by the US government for each car, have their customers pay for the depreciation, then get the cars back in two years to sell again. It's a good deal. It's not a nefarious situation, but rather I point all of this out because the pricing has been predictable for sometime. In a counter-factual situation, I expect that in the absence of the tax credit the cost of the car would have been about $33,500.

UPDATE: Matt Kahn discusses other strategies about the Volt pricing here.
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