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When General Motors (GM) first introduced its Volt gas–electric hybrid vehicle, it anticipated sales of around 60,000 cars per year. Instead, it has averaged around 12,000 sales annually, suggesting that the market might not be as vast as the company predicted. But faced with competition from an innovative automotive manufacturer and the prospect of new regulations, it has essentially doubled down on its investment.

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In particular, GM announced this year that by 2017, it would offer the Chevrolet Bolt, a fully electric vehicle that promises to go 200 miles between charges. That is, rather than abandon the electric vehicle market, GM has committed to entering it even more fully with another car model that seemingly would compete with its existing Volt.

Part of the reason for this announcement is likely the similar announcement by Tesla, Elon Musk’s game-changing car company, that its S model would be available in 2017, at a base price of around $35,000. The prices of previous Tesla models have been at least twice that, so consumers seeking electric vehicles have faced the need to make a serious investment. If it can produce a vehicle that is more in line with the average prices people pay for cars with conventional engines, it might expand the market substantially, by including price-sensitive consumers who still care about the environment.

The Bolt seeks to undercut the price of the Tesla, with an anticipated base price of $30,000—which is also well below the Volt’s $40,000 price. Yet even as it announced the impending new model, GM also introduced an updated version of the Volt hybrid, for those consumers who cannot wait until the fully electric models are available.

The drive behind both the Tesla models and the Chevrolet Bolt may stem from U.S. regulations that will require car manufacturers to double the fuel efficiency of their cars by 2025. In California, state-level legislation also demands more zero-emission products from automakers, and even China has indicated its desire for more battery-operated vehicles.

Such developments mean that carmakers must develop more efficient vehicles, even if market demand for them is low. Demand has dropped remarkably in the first quarter of 2015, largely due to the steep decline in gas prices that consumers have confronted at the pump. When they can buy gas for $2 or less a gallon, buyers are less likely to seek out efficient alternatives. But because they are required to keep producing them, GM and Tesla aim to persist in their efforts.

Discussion Question:

Why are car companies developing electric vehicles, even though consumers don’t seem to want them?

SOURCE:“G.M.’s New Electric Car Could Upstage Tesla, and Its Own Volt,” The New York Times, January 12, 2015, “GM Hopes New Volt Plug-In Helps EVs Get Out of Low Gear,” The New York Times, January 12, 2015, http://www.nytimes.com

 

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