Fiat/Chrysler Exhibit All the Business Brilliance of a Gnat

The whole purpose of building cars is to make money. Lots of money. So, when you start selling a car that will cost you $10,000 more to build than to sell, something is quite wrong.

In fact, that's a huge gaping hole in Fiat and Chrysler's business plan for the sale of the upcoming Fiat 500 electric vehicle.

Chrysler Group LLC will lose more than $10,000 on every battery-powered Fiat 500 its sells, Fiat-Chrysler CEO Sergio Marchionne says. That heavy financial hit won't stop the automaker from launching the Chrysler-built electric version of the minicar in the United States in 2012, underlining the pressure automakers face to improve fuel economy and remain competitive in the race to offer alternative powertrains.

"The economics of EVs simply don't work. On the 500 that (Chrysler) will begin selling in the U.S. next year, we will lose over $10,000 (per unit) despite the retail price being three times higher" than a version of minicar with an internal combustion engine, Marchionne said on the sidelines of Fiat S.p.A.'s general meeting on Wednesday.

Marchionne said that Fiat would lose a similar amount on the Fiat 500 EVs it will get from Chrysler's Mexico plant once the Italian company starts the car's European sales, likely in 2013. Chrysler has a license from Fiat to build the fuel- and battery-powered versions of the 500, which means the U.S. automaker gets all the profits – or losses – from North American sales of the cars. Fiat has a 25 percent stake in Chrysler.

In the rush to market electric vehicles, car companies seem to have forgotten the bottom line. You need to make money on the car in some fashion, and for a struggling carmaker, the decision to sell cars at a loss like this can and will be disastrous. Fiat left the US market because its cars couldn't compete. Chrysler went bankrupt because its cars couldn't stay on the road and because it couldn't market vehicles that people wanted and turn a profit. Now, the combined company is about to make the same mistakes.

Don't say I didn't warn you.

Of course, there are going to be those people who claim that these cars will eventually be sold and that the costs to the manufacturers will come down as sales increase, but one has to wonder exactly when the manufacturer will recoup the costs. The companies aren't making enough money elsewhere to cover the kinds of losses that could be envisioned on the Fiat 500 EV, and the experience with the Chevy Volt and Nissan Leaf should be instructive. Since they were introduced in 4Q 2010, both cars have sold a grand total of nearly 2,000 cars. Their sales have inched upwards slightly (and Nissan may have trouble in upcoming months as their distribution network was hammered by the 9.0 earthquake and tsunami), but barely register among overall sales.

Had Chrysler/Fiat sold this many of the Fiat 500 EVs, they'd have lost $20,000,000 just to move that many cars. That's unsustainable.