Chevy Volt: Pricing and Capacity Decisions in Response to Government Incentives for the Electric Vehicle Industry

At the end of 2013, executives from General Motors (GM) must make decisions about what production capacity and price to allocate to the Chevrolet Volt electric vehicle considering the costs of supply chain shift necessary to make changes in the assembly process. Concerns about battery life, price, and driving range have influenced most consumers' decisions to continue to purchase conventional fuel vehicles despite the U.S. federal government's implementation of incentives. What must the senior GM team do to balance concerns of cost with the potential social effect of selling a public-interest good such as the Chevy Volt? Excerpt UVA-OM-1519 Rev. Jan. 7, 2015 CHEVY VOLT: PRICING AND CAPACITY DECISIONS IN RESPONSE TO GOVERNMENT INCENTIVES FOR THE ELECTRIC VEHICLE INDUSTRY At the General Motors (GM) headquarters in Detroit, the executive team reviewed the disappointing Chevrolet Volt sales from 2013. Although sales had been rising each year since the launch in December 2010, GM was still not meeting its internal sales targets. GM had accelerated production of the Volt, believing that sales would increase as the government continued to incentivize the purchase of electric vehicles (EVs). Those incentives supported President Barack Obama’s stated goal that the United States would become the first country in the world to have 1 million EVs on the road by 2015. The executives were hoping that many of those million vehicles would be GM vehicles. Consumers, on the other end, were hesitant to invest in expensive new technology such as EVs. Despite the incentives in place, sales of EVs—the Volt included—were not even near the 1 million mark. Taking into account consumer trends, government incentives, and GM’s internal cost structure, the executives wondered if they should reconsider their decisions for the upcoming year of 2014: How much capacity should GM allocate to the Volt, and how should the Volt be priced? Electric Vehicles as Public-Interest Goods . . .