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The Year of the Electric Car

How to Profit in 2011

Posted June 11, 2010

Yesterday, I got in touch with this cute, red-headed girl I used to know back in my salad days.

I hadn't seen her for awhile, so I was ecstatic and chipper when we met to have lunch at one of those sidewalk cafés that have sprouted up in Baltimore in recent years.

She wore a floral print sundress that relieved her freckled shoulders. The sun cast soft shadows through a tulip tree, and it was surprisingly pleasant for a day in June in Maryland. The talk was of old times, family, and long lost friends.

After laughter and the usual recalled memories of antics from another time, the conversion turned to more serious matters...

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Death in the family

It seems that her father had recently died after a long fight with cancer. She said it was more of a relief to her at this point...

She and her mother and had had enough of hospital rooms and suffering. And due to wise investment many years ago, she was able to quit her job and was now thinking about opening a boutique or an antique shop.

Here's where it gets interesting...

She had one of those legendary stories you hear about in the stock market. You see, over forty years ago, her father bought some shares in a small upstart Asian car company.

He never sold and after all the stock splits, the adjusted entry price was for less than a dollar a share. Well, it turns out that investment of her father's was now worth several million dollars. And he was able to leave it to her.

The name of that company was Toyota Motors (NYSE: TM). Back in the 1970s — when “Made in Japan” was a joke to most investors and consumers alike — this company started selling cars in the U.S.

As you know, in spite of its recent problems, Toyota is now the largest car company in the world.

And get this...

My friend just sold some of her shares in Toyota and bought another small, Asian upstart car company. But there's a twist which I'll tell you more about in a minute....

In 2011, the auto world goes electric

Right now, there is a massive buildout of charging stations in anticipation of three major electric car roll-outs: the Nissan LEAF, the Chevy Volt, and the Ford Focus EV; as well as four smaller ones: the Coda, the Fisker Karma, SmartCar 2, and the Think City.

Let's face it... The biggest inhibitor for driving electric cars has always been the range. The industry terms this “range anxiety.” The Volt has cured this by using two engines. The LEAF will let you go 80 to 100 miles on a charge. The Tesla Roadster claims a 245 mile range.

One way to solve range anxiety is to have charging stations at work and at gas stations. Jeff Siegel, resident green guru at Angel Publishing, told me that architects who are drawing up new parking garages all have charging stations built into these plans.

4,600 free chargers

But it gets better. In anticipation of the year of the electric car, a private company called Coulomb Technologies is giving away 4600 charging stations suitable for public gas stations or home charging — free of charge, at no cost to you...

EV charger

This largess is being funded by $37 million in grants and will be offered in nine U.S. Cities: Austin, Detroit, Los Angeles, New York, Orlando, Sacramento and the San Jose/San Francisco Bay area, Redmond, and Washington, D.C.

This buildout could be a game-changer.

People's worries of running out of juice before they get home will be allayed... If you are out of power, just plug it in and go to lunch!

The sad part of this tale is that Coulomb Technologies is a private company. You can't invest in it.

AeroVironment (AVAV)

There is another company called AeroVironment (NASDAQ: AVAV) that is installing 100 electric-car charging stations in South Carolina. These stations will be up and running by December 1st.

AeroVironment, despite its ridiculous name, has a fairly decent valuation. The company has a (YOY) quarterly earnings growth of 43.50 percent. They have a forward P/E of 21.24, $119 million in cash and no debt.

I haven't done extensive DD on this one yet, but it seems reasonable on the surface. I'll have to dig deeper and see if I can find and red flags. I'll tell you what I find next Friday.

But there is one thing I do know...

 avav

The real growth will be in China

As part of China's new five-year plan — which coincides with the release of electric cars — they will put half a million electric cars on the road by 2012.

The reason is simple: China is the largest and fastest growing car market on earth. And they simply can't afford to import all that oil for gasoline.

JBC Energy estimates China's passenger fleet will be 9% electric by 2020. If the auto fleet were to increase to 15% electric, they say this will reduce China's petroleum demand by 200,000 barrels/day (7.5%).

Much like the United States government, the Chinese government is offering $8,800 subsidy for every EV car sold. They have set aside 5 billion yuan for this program; they are also spending another 1 billion yuan on research and development.

They like it

In China, electric cars don't have an "uncool" factor like they do in the U.S. Recent polls state that 60 percent of Chinese would consider buying a plug in or hybrid electric car. That's a positive opinion that leads the world.

And get this: Not only does China have the lion's share of the world's lithium (a key component in electric vehicles); but they also lead the world in battery technology in terms of developing a battery that produces a lot of energy in a small package, at a low weight and a good price.

Right now only two out of every 100 Chinese people own a car. But you'd better believe the other 98 want one...

If car ownership rose to just a fraction of the 68% it is in Germany, and all of these people bought gas powered cars... The cost of gas would skyrocket and there simply wouldn't be any oil left.

One of my bets is that a large portion of Chinese (Indian, Brazilian, etc...) will want to own gas-powered cars, which is why I'm long on Mongolian oil.

But another obvious bet is that a large number of people in China will want to own the cheaper-to-run eclectic car.

Here's how to profit...

There is one company in China which makes the best battery in the world. It's top secret, but the company calls it a Lithium Fe and claims its cars will get 205 miles between charges.

There are many skeptics to this claim, but one thing we do know it that it's the fastest growing car company in China (61% YOY). It also has great potential... So much potential that Warren Buffett bought 10% of its shares, and Daimler AG teamed up with them to produce a Mercedes-Benz model.

I like this company a lot.

If you were going to make a 40-year bet on one company like my friend's father did, this is the company. Heck, if you were going to make a six-month bet on the roll-out of electric cars and infrastructure both in China and the U.S. — this is the company you want to own.

Did I mention this company is setting up shop in Los Angeles and are hiring 2,000 people?

And last but not least, this company is as cheap as it will ever be. Due to the recent sell-off of the Shanghai exchange, it is 30% off its highs and $0.80 above major resistance. The downside is limited and the upside legendary.

Act now. You won't regret it.

And your children will love you for it.

Sincerely,

chris sig

Christian DeHaemer
Editor, Energy & Capital

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