Can GM Save the Chevy Volt?

So far, General Motors' electric car strategy has not lived up to expectations. The company introduced the Chevy Volt in late 2010 to great fanfare. The Volt was meant to be a demonstration that the Detroit automakers could still be innovation leaders in the industry. As my colleague John Rosevear recently observed, the Volt got good ratings from auto reviewers, and customers are very happy with the car.

The Chevy Volt. Source: General Motors.

None of this has helped sales. The Volt missed sales goals by a wide margin in 2011 and 2012. So far, 2013 isn't shaping up to be any better. Electric-car start-up Tesla Motors just began delivering its Model S sedan in volume last fall, but the Model S still managed to outsell the Volt last quarter -- despite being far more expensive.

The Tesla Model S. Source: Tesla Motors.

However, help is on the way for GM, in the form of a car that isn't even called "Volt." At this year's Detroit Auto Show, GM unveiled the Cadillac ELR: a luxury coupe that builds on the Volt's plug-in hybrid technology. The Cadillac ELR may have more success than the Volt, as it's more likely to appeal to car buyers who would be willing to pay extra for a "green" car.

Electric means luxury
There's good reason to believe that price/perception problems have been the Volt's downfall. Even after tax credits, the base model costs more than $30,000 -- far more than comparable gas-powered cars in the Chevy lineup, such as the Cruze. It also costs significantly more than Toyota's very fuel-efficient Prius hybrid.

In other words, if price is a consideration, it's hard to make a good "business case" for the Volt. Even if fuel efficiency is a high priority, moving from a hybrid to a plug-in hybrid like the Volt significantly adds to the cost, while providing a limited benefit. This logic has also weighed on sales of Toyota's Prius plug-in model.

On the other hand, if money is no object, you are probably not a likely customer for Chevrolet! By contrast, Tesla has successfully appealed to very wealthy individuals; the average selling price for its cars last quarter was nearly $100,000. The Model S offers a full luxury experience in a well-designed car and recently received the highest rating of any car from Consumer Reports. Tesla customers are willing to pay a handsome sum for this performance.

GM's advantage
Tesla clearly has a great product on its hands with the Model S and is building a strong moat with its proprietary powertrain technology and Supercharger network. However, Tesla is not invincible. The biggest drawback of the Model S is that its range of 250-300 miles (with the largest battery pack) is insufficient for long trips. By contrast, the Cadillac ELR -- like the Volt -- runs on gasoline power after the electric charge is depleted, giving it unlimited range.

The Supercharger network is Tesla's response to "range-anxiety." Tesla has nine Supercharger sites in California and the Northeast, with plans to expand to more than 100 stations by 2015. The Superchargers can provide up to 150 miles of range with a half-hour charge and are free to use for Tesla vehicle owners.

When fully built out, the Supercharger network will be a great asset for Tesla. That said, most drivers wouldn't naturally make a half-hour pit stop every 100-150 miles. Moreover, even with 100 stations, Supercharger facilities will be far from ubiquitous. Some destinations will remain inaccessible.

Furthermore, if there's traffic on the main highway, Tesla drivers will have to slog along, because that's where the Supercharger station will be. Meanwhile, their friends who are still stuck with internal-combustion engines will be able to make a detour, since they can fill up anywhere!

Can Cadillac be hip?
Thus, I believe that there's room for Tesla competitors in the luxury electric car market. Some consumers will prefer the flexibility of plug-in hybrids over Tesla's full electric vehicles. The key question is whether the Cadillac brand can appeal to the sort of customers Tesla has won over. The average age of a Cadillac buyer is 65: This is probably not a good target demographic for alternative-energy vehicles.

However, the most recent entry in Cadillac's vehicle lineup, the ATS, may be paving the way for the ELR. The Cadillac ATS is a luxury compact designed to compete with BMW's highly successful 3 Series. Earlier this year, GM reported that 20% of ATS buyers are under age 35, compared with just 10% for the rest of the Cadillac brand.

If the ATS can maintain its current momentum, it will improve Cadillac's image among younger car buyers. This could be a big asset in terms of boosting customer consideration of the Cadillac ELR. It also helps that the ELR has a very "sporty" look compared with the Volt.

The 2014 Cadillac ELR. Source: General Motors.

The ELR is a cool-looking car and appears to have a classy interior. The car also features some innovative features, such as paddles on the steering wheel that allow the driver to manually activate the regenerative braking system to slow the car while going around curves.

The Cadillac ELR is not expected to hit showrooms until 2014, but when it does, it will provide GM with a credible alternative-energy car in the luxury segment. Based on Tesla's success and the low sales for plug-in hybrids and EVs from mass-market automakers, the luxury segment may be the most viable market for these cutting-edge cars.

Foolish conclusion
There's no guarantee that GM will have any more success with the Cadillac ELR than it did with the Chevy Volt. However, deep-pocketed car buyers who can afford to pay extra for plug-in hybrid or electric vehicle technology will want an all-around luxury experience. The Model S offers that experience. By contrast, the Chevy Volt is a nice car, but not luxurious by any stretch of the imagination. By combining Volt technology with a premium Cadillac design, GM has hit upon a combination with better prospects for success.

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The article Can GM Save the Chevy Volt? originally appeared on Fool.com.

Fool contributor Adam Levine-Weinberg has no position in any stocks mentioned. The Motley Fool recommends BMW, General Motors, and Tesla Motors and owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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