Is the Chevrolet Bolt a Tesla-Killer?

Posted by | Fuld & Company

Tesla has been synonymous with electric cars for nearly a decade. Sleek, forward-thinking, high-end: that’s the Tesla we know today. Still, from the inception of the Tesla Roadster, CEO Elon Musk has insisted that Tesla’s strategic end-goal is to one day create a “super affordable” electric vehicle with mass market appeal.

That day has finally come. But it’s not Tesla holding the prize.

General Motors exhibited its new Chevrolet Bolt electric vehicle (pictured above) at the recently-concluded 2016 Consumer Electronics Show in Las Vegas. With an MSRP of $37,500 – and a $7,500 tax credit – the Bolt promises that buyers can “do it all. Except stop for gas.” 

The Bolt joins an increasingly crowded marketplace of electric vehicles offered by the likes of Ford, Nissan, Mitsubishi and others. Despite the crowd, the Bolt improves Chevrolet’s competitive position in a number of ways.

Have battery life, will travel

A historic hurdle for all-electric vehicles (EV) is range. Unlike hybrid vehicles which have a traditional internal combustion drive system supplemented by electrics, all-electric vehicles have an exclusively electric system and rely on shore power for re-charging.  Without a gasoline motor on-board, most EV’s have very limited range, usually less than 100 miles.

A range of less than 100 miles might be perfectly acceptable to coastal city-dwellers. In Middle America, this kind of limitation can be a deal-breaker for selecting a daily-driver. 

The well-known Tesla Model S offers the longest range in the industry at 208 miles, but comes with a $71,100 sticker price – hardly an everyman’s car.  The Chevrolet Bolt offers would-be EV drivers an alternative to the conundrum of unacceptably short range or budget-busting MSRP.

I’ve crunched the numbers on the EV segment and have calculated the ratio of MSRP to single-charge range as an objective metric of value and buyer appeal.  In effect, this ratio represents the initial capital investment needed for one mile of range and is shown against the left axis in Figure 1.

The Chevrolet Bolt blows the rest of the segment out of the water with an MSRP/Range ratio of only $188/mi.  This is nearly a third more miles per dollar than the next nearest competitor, the Nissan Leaf.  To go along with this strong value proposition is the Bolt’s reported 200 mile range, nearly twice that of the Leaf and comparable to the Tesla (shown against the right axis in Figure 1).

What Chevrolet has accomplished here is remarkable, offering a product with industry-leading value and single-charge range.  This combination can appeal to people in suburban and rural America in a way that other vehicles in the market cannot.  People who have never before considered buying an EVmight take a look at the Bolt.  This is a major accomplishment in and of itself.

R.I.P. Tesla?

Not resting on their laurels, Tesla will reportedly bring a more affordable offering, the Model 3, to market later this year.  This begs the question, what if the Model 3 matches or exceeds the Bolt’s performance and value?  A closer examination of Tesla and Chevrolet’s styling and dealer networks indicates that the two cars (and the two companies) are unlikely to find themselves in direct competition, at least in the near-term.

A cursory glance at dealership locations of the two companies reveals some stark differences. Tesla dealers and service centers are largely clustered in the Boston-Washington and San Francisco-Los Angeles population centers.  In contrast, Chevrolet has a strong sales and service presence across the country, even when accounting for locations that don’t currently service EV’s.   

The styling and brand image of the two companies is could not be more different.  The Tesla Model S is a beautiful vehicle and wouldn’t look out of place in Saint Tropez or Beverly Hills.  That the Model 3 will hold a family resemblance to its big brother is a reasonable assumption. In contrast, the Chevrolet Bolt is a much more utilitarian affair, more appropriate for the local mall than the Casino Royale.

Further, the Tesla brand is very hip and equally synonymous with coastal chic as with technological innovation. Chevrolet, on the other hand, has historically marketed itself very differently (see the 1988 ad below), focusing on mass-market appeal to Middle America.  Even if the Bolt and the Model 3 are comparable in pricing and performance, it is unlikely that the two companies will find themselves fighting over the same clientele.  In this case, Chevrolet is a little bit country and Tesla is a little bit rock and roll.

Fueling the competition

A final question arising from the Bolt’s launch is why Chevrolet would choose to bring an EV to market against a backdrop of $2/gal gasoline?

Chevrolet likely committed to the Bolt several years ago when gasoline prices were significantly higher than they are now.  Chevrolet gains nothing by keeping the Bolt on the shelf and would endanger their investment by allowing the competition time to close the gap.

The importance of the Bolt to Chevrolet’s compliance with mandated Corporate Average Fuel Economy (CAFE) standards cannot be discounted either.  Next year, automakers need to meet an interim 37 MPG standard on the way to the ultimate federal mandate of 54.5 MPG in 2025.

Chevy’s Crossovers and SUVs

Low pump prices have actually driven fuel efficiency down recently. The New York Times reports that new vehicles sold in December 2015 have an average fuel efficiency of less than 25 MPG, a two-year low.  This puts automakers between a rock and a hard place. Low pump prices are driving consumers towards popular, but less fuel efficient light trucks, SUVs, and crossovers.  However, this shift in consumer preference comes as federal fuel efficiency mandates become ever-tighter.

Enter the Bolt.

As an all-electric vehicle, the Bolt improves Chevrolet’s CAFE-compliance position significantly.  With some breathing room gained with the Bolt, the company can more easily continue to realize strongprofits in their light truck offerings, which are the true money-maker in the North American automotive market.  Otherwise, Chevrolet may have to take steps to improve the fuel efficiency of these models and run the risk of turning off both GM-loyalists and potential new customers alike.

Developing a strong EV is not the only strategy for staying competitive in a CAFE-compliant world. In contrast to Chevrolet, Ford has been very aggressive in improving the fuel efficiency of their light truck offerings, introducing more efficient turbo-charged gasoline engines and a weight-saving all-aluminum body.¹  Ford’s approach is a bigger gamble, but it appears to be paying off so far.

Struck by the Bolt

No, the Chevrolet Bolt is not a Tesla-killer, at least not yet.

For Chevy, it doesn’t matter. The Bolt represents a major technological step-forward in the EV segment with appeal for a much wider audience, especially if gas prices rise again.  Perhaps more importantly, the Bolt supports Chevrolet’s more profitable, albeit less environmentally-friendly offerings by improving the company’s CAFE-compliance position.

Tesla, meanwhile, is unlikely to feel any significant fallout from the Bolt. Rather, they will be able to bring aspiring Tesla-drivers into the fold with the more affordable Model 3 and continue to sell to their core market of image-conscious coastal city-dwellers, leaving Middle America to Chevy.   

Even with Tesla still in the ring, Chevrolet has significantly improved their competitive position by killing two birds with one electric stone.

Tags: Automobile Industry, Automotive, Competitive Strategy, Information Technology, Market Analysis, Pricing Strategy, Tesla