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About That Chevy Volt Price Cut

Stocks in this article: GM TSLA TM HMC

Gasoline (or diesel, as it may be) savings are just not a rational reason to buy an electric car. Let's take the baseline scenario of someone looking to buy a new fuel-efficient car: Toyota Prius.

The average American drives 12,000 miles per year. With the Prius yielding 50 MPG, that's 240 gallons per year. At $4 per gallon, that's $960 per year.

Even if you assume that electricity is free, $960 per year is peanuts for the vast majority of people. Most people spend more than that on coffee. Hey, while we're at it, let's do the math on that, too: Two lattes every morning for $3.75 apiece is $7.50 per day. That's $2,737 per year, or almost three times a much as you spend on gasoline driving a Toyota Prius for one full year.

The other angle from which you need to understand GM's decision to ensure that the Volt MSRP was brought in line with actual transaction prices, is that the Volt is potentially on its last year of its life cycle. The all-new Volt 2.0 could be announced as early as January 2014 and be in production around the middle of 2014 as a 2015 model.

As things go in technology, when an all-new and much-improved model nears production, you have to discount the old stuff. Just watch how quickly a smartphone goes from $199 to $99 to free on a two-year contract, making way for the next model.

GM itself showed this over the last year with the large pickups from GMC and Chevrolet. A 2013 Chevrolet Silverado was discounted $10,000 leading up to the 2014 model entering production in the second quarter of 2013. Nobody said a peep about that.

Same thing with the 2014 Chevrolet Volt now: Taking $5,000 off the MSRP is simply the normal thing to do when an all-new model, radically re-worked from the ground up, is right around the corner. And in the automotive industry, "right around the corner" means one year away, not two to four months away as in the smartphone industry.

The interesting part about the upcoming all-new 2015 Chevrolet Volt 2.0 is that it will be the very first all-new replacement of a mainstream plug-in car. All other "new" electric cars are either completely on their first generation, have undergone only minor modifications, or are very small-volume (exotic) cars.

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