Note: This article was originally written at the end of November to correspond with a short position in TSLA. Unfortunately I failed to make the trade and now TSLA has swooned big time. It will definitely be followed for future entry points on the short side. The news of the Russian billionaire entering the market just further highlights the competition for a sexy market similar to airlines even when the leading independent company is far from profitable.
While most of America is enamored with the supposed benefits of lower emissions of electric cars, the real beneficiaries appear to be utilities and coal and natural gas producers. Lots of people debate whether electric cars reduce emissions. After all, power plants that use coal fuel electric cars. People seem to assume that batteries get charged by fairy dust.
The Washington Post had a great article a few weeks back detailing why utilities are both thrilled and worried about electric cars. Something about utilities being thrilled that concerns me, but the fact they are also worried should be doubly troubling.
Anybody following the progress of electric cars probably already realizes that one of the major hurdles with them are the ability to charge the cars. Apparently the charging process is alot more challenging then even I thought.
The average new electric vehicle like the Chevy Volt and the Nissian Leaf uses 3300 watts to charge which is more then the average home. Place a couple cars like that in one neighborhood and boom the transformer might blow. What immediately sets my alarms off is that since an electric vehicle is similar to the electricity requirements of a small home then why aren't the purchases planned through the utility? If my neighbors bought electric vehicles and I lost power because the neighborhood transformer wasn't expanded, that would be rather upsetting. In fact, it seems awfully irresponsible of the automakers to not plan better.
Another disturbing issue is that the costs of upgrading transformers might be passed along to all customers of a particular utility. Now that doesn't seem right. Why aren't they recouping costs from customers that are using more energy? Utilities should even consider implementing higher rates for high usage customers. If the electric car is the one causing the $7-9K added expense for an upgraded transformer, shouldn't they be paying for it?
The Houston Chronicle had an article about the emissions of electric cars. Every argument for electric vehicles is that is produces zero emissions if your talking to somebody clueless about the energy source to half efficient from somebody with knowledge on the subject. I've actually read studies where the emissions where higher because of using a coal based system.
Since I can't seem to find those articles, we'll just discuss the information dug up by the Chronicle. According to them, an NRG Energy study found that even a plug-in hybrid electric vehicle charged with electricity from a coal plant would result in 25 percent less carbon dioxide emissions. Great, but is that the goal? Its possible that emissions will be much lower if you can argue that wind power will power those vehicles, but it seems irresponsible to assume such. Any additional power requirements will require the use of coal and natural gas. That wind power could have gone to power houses and businesses already hooked up to the grid. If anything, electric vehicles will just transfer the benefits to them instead of lower existing emissions.
What the study found was that compressed natural gas was the real clean option. Electric vehicles are cleaner, but they won't truly be clean unless coal power is drastically reduced. That won't happen so long as new electric vehicles strain existing systems and completely overwhelm any renewable additions. So why aren't we moving forward with an CNG/LNG option where the transferred car leads to immediate emissions reductions and no impact to power requirements in neighborhoods?
Another concern is that the increased power requirements causes the input costs to surge. More demand for coal and nat gas could strain the system and push prices higher. So while electric vehicles claim savings versus gas that might quickly change as demand increases. Theoretically when the market reaches a tipping point, gasoline will decline as demand decreases and electricity rates will soar as demand climbs. In 5-10 years, it might just become cheaper to use gas instead of electricity.
This all leads us to believe that Tesla Motors (TSLA) is the biggest overhyped stock today. Not only is the future of electric vehicles cloudy, but the market has become crowded. Over 50 electric vehicles were at the LA Auto Show. So while TSLA won't even get a massed produced car to market until 2012 that it will cost $57K, the competition will be fierce and benefits seem very minimal. Not to mention that they are losing over $30M a quarter until they can launch that car. '
Sure sounds like the internet bubble when losing money was acceptable. Be careful with that stock though as it continues to ramp ever higher on the backs of the successful GM IPO and the hype surrounding electric cars.
Via Washington Post:
Plugged into a socket, an electric car can draw as much power as a small house. The surge in demand could knock out power to a home, or even a neighborhood. That has utilities in parts of California, Texas and North Carolina scrambling to upgrade transformers and other equipment in neighborhoods where the Nissan Leaf and Chevrolet Volt are expected to be in high demand.
Not since air conditioning spread across the country in the 1950s and 1960s has the power industry faced such a growth opportunity. Last year, Americans spent $325 billion on gasoline, and utilities would love even a small piece of that market.
Driving 10,000 miles on electricity will use about 2,500 kilowatt-hours, or 20 percent more than the average annual consumption of U.S. homes. At an average utility rate of 11 cents per kilowatt-hour, that's $275 for a year of fuel, equivalent to about 70 cents per gallon of gasoline.
Via Houston Chronicle:
"Even in the worst-case scenario where 100 percent of that generation is from coal, there is still a net positive emissions trade-off," Stancil said. A 2007 study found that a plug-in hybrid electric vehicle charged with electricity from a coal plant would result in 25 percent less carbon dioxide emissions than a conventional gasoline vehicle, he said.