Electric Car Growth Investment Opportunities

Jeff Siegel

Written By Jeff Siegel

Posted August 7, 2013

$1.18 per gallon.

This, my friends, is how much it now costs to fuel an electric vehicle with electrons. Not bad, huh?

Of course, most electric cars will cost you a lot more than a conventional internal combustion vehicle.

So, does the fuel savings really add up to much? According to the Electrification Coalition, the answer to that question is yes.

But how objective can this advocacy group’s analysis really be? After all, they clearly have something to gain from positive news on electric cars.

So let’s take a closer look to see if there really is an economic advantage to owning an electric car — and, if so, how that economic advantage stands up over the life of the vehicle…

Three Magic Words

Two weeks ago, the Electrification Coalition told reporters that when you assume five years of ownership with roughly 14,000 miles driven annually, short-range plug-in hybrid electric vehicles are already cost competitive with internal combustion vehicles.

As reported in the LA Times, which was one of the first to pick up on this story:

The coalition teamed with professional services firm PricewaterhouseCoopers to calculate expected costs of several types of compact cars, pitting battery-electric against internal combustion engines, plug-in hybrids and hybrid vehicles. Including cost of purchase, fuel, maintenance, federal tax credits and residuals, the data show the cost of owning gas-powered vehicles continuing to rise through 2024 as costs for hybrids, plug-in hybrids and pure electric cars decline dramatically.

After reviewing the data myself, I found the coalition’s analysis to be sound.

However, there are three magic words in that analysis that cannot be overlooked: federal tax credits.

Today, those who purchase electric cars can receive a tax credit worth up to $7,500. And there are also some generous state tax credits in place. California, for example, offers $2,500 per vehicle. In Hawaii, it’s as high as $4,500.

But these tax credits won’t always be around. The way it’s set up now, electric car tax credits are capped at 200,000 units per manufacturer. That may not seem like a big deal… but based on how quickly consumers are taking to electric cars, don’t be surprised to see many of these tax credits phased out within the next five to seven years.

Crushing It on Growth

Back in May, while the knuckle-draggers were on the Internet message boards talking about how no one wants electric cars, the 100,000th plug-in electric car was sold in the United States.

Of course, this was no surprise to us. In fact, you may remember back in 2011, when I wrote the following:

This first round of electric vehicle sales is proving to be quite successful. Especially considering that this is really the first year that we’ve had the opportunity to even purchase a mass-produced electric vehicle delivered by a major auto manufacturer.

Take the all-electric Nissan LEAF, for example.

So far, Nissan has sold about 8,500 LEAFs in the U.S.

How does that number stack up against previous disruptive vehicle technologies?

Well, when Toyota first launched the Prius Hybrid in 1997, the Japanese automaker sold only 3,000 units.

So in its first year, Nissan has sold about 5,500 more units of an all-electric vehicle. Not too shabby. Especially considering that the LEAF carries with it the burden of range anxiety. Something that Prius owners have never had to deal with.

The bottom line is that electric vehicle sales not only continue to impress, but market growth is absolutely crushing what we saw with the development of conventional hybrids.

Just take a look this chart, which compares electric vehicle sales to conventional hybrid sales based on the most recent sales data from the DOE:


Will the Trend Continue?

Of course, the question still remains… When the electric vehicle tax credits finally expire, will this trend continue?

I’m not entirely convinced that in absence of the tax credit, the price of electric vehicles will be competitive with comparable internal combustion vehicles (in most states, not including Hawaii and California), until around 2020. So from around 2017 to 2020, we could see a slight drop off, followed by steady growth thereafter.

That being said, I see no evidence that the electric vehicle market is in any danger of going gently into that good night, and I suspect the leaders in this space will be Tesla (NASDAQ: TSLA), Nissan (PINK SHEETS: NSANY), and GM (NYSE: GM).

The demand for electric vehicle charging will also continue to grow with companies like GE (NYSE: GE) and Siemens (NYSE: SI) taking the lead. Unless, of course, Tesla’s aggressive battery charging agenda delivers a sneak attack on the industry, which isn’t necessarily out of the question…

In fact, just last week, Tesla’s CTO JB Straubel said he thinks the company will be able to juice up electric cars in just five minutes. This is unlikely to happen any time within the next year or so, but clearly this is the direction in which we are heading.

So get ready.

Because in about seven years, not only will you be able to purchase a competitively-priced electric car without a tax credit, but you’ll also be able to charge it up in about the same time it takes you to fill your tank now.

The only difference is the electrons you’ll be using won’t cost you anywhere near the $7 to $8 you’ll have to shell out for a gallon of 87 Octane…

To a new way of life and a new generation of wealth…

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Jeff Siegel

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Jeff is the founder and managing editor of Green Chip Stocks. For more on Jeff, go to his editor’s page.

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