valuebeacon

The future of the auto industry is here (and it’s electric)

In Technology on July 28, 2009 at 8:47 pm

Making predictions about the future of technology is a high risk activity. It’s easy to be wrong and make costly mistakes as a result. However, there is so much talk about electric vehicles that I am willing to go out on a limb on this one. I believe that electric vehicles – vehicles powered by an electric motor rather than an internal combustion engine – will replace our current vehicles. And this will start happening in short order.

Electric vehicles are powered by electric motors that use batteries as a source of power. The vehicles can literally be plugged into your household power outlet to recharge them. There are also hybrids, a variation on the strictly electric design that can also use gasoline when needed.

I first learned about electric vehicles in a documentary called Who Killed the Electric Car? made a few years back (2006) about the Chevrolet EV1. The film described a wildly successful electric car trial that was conducted by General Motors in California during the 1990s. Despite its success, this plug-in electric vehicle was quietly shelved by GM. The film did not give reasons but implied that short-term profit motives may have been the cause; GM made better margins and spent less on R&D selling its SUVs.

Just recently, I came across a series of articles in April’s Fortune magazine about the electric car and battery technology. Those articles are Buffett’s Electric Car, Andy Grove on Battery Power, Recharching Detroit and Car Wars: Asia versus the U.S. If you are interested in this topic, I encourage you to read these articles.

Based on the sources above, the factors that make an electric car superior to the ones we drive now are straightforward:

Operating Cost

The average annual fuel cost for a typical vehicle (Chevy Impala) is about $1200 USD per year assuming you drive 12,000 miles. The power cost for a comparable electric car is only $400. That’s the kind of savings that gets me excited! This assumes gas costs $2 per gallon and electricity costs 12 cents per kilowatt.

Maintenance

Electric vehicles have a simpler design. There is no transmission, muffler, air filer, spark plugs and many other parts. Early evidence shows that this results in fewer breakdowns. This means less time in the shop for your car and lower maintenance bills for you.

Environmental impact

Electric vehicles produce lower carbon dioxide emissions – possibly as low as ¼ those of gas powered cars. This is because it is more efficient to produce power centrally using a coal or nuclear plant and then use it in an electrical motor. The alternative that we currently use it to find, produce, refine and distribute petroleum and then burn it in an internal combustion engine. Also, the leading technology for electric vehicle batteries uses a non-toxic battery fluid that makes it more environmentally friendly than conventional batteries.

National security

America’s huge reliance on foreign oil is generally considered a weakness in its national security. Using American coal and nuclear power to fuel vehicles makes more strategic sense than depending upon imported oil.

So if electric vehicles do replace gas ones, what will be the impact? And why am I writing about this in a blog about value investing? Well, if the shift to electric vehicles happens, it will have a dramatic effect on business and economics worldwide. It would be hard to overstate the consequences. A few areas that would be affected:

Automakers

Batteries are the most important and expensive components of electric cars. Making a safe, reliable, quick-charging and affordable battery is a huge challenge. Asian companies currently have a large lead in battery technology. This may result in an unsurprising shift in auto manufacturing from North America to Asia. Apart from batteries, manufacturing of all products from electronics to household goods has been shifting to Asia for many years due to the cost advantage. It seems logical that the most expensive manufactured consumer product – the automobile – should also be made strictly in Asia rather than in America by expensive unionized labor.

Demand for oil

Currently the majority of petroleum used worldwide is for automotive fuel.  A shift to electric cars would lead to a large reduction in demand for oil. The most obvious consequence would be a decline in the fortunes of oil producing regions and companies.

Every major automaker on the planet is working on electric vehicles. Some are hybrids and others are pure electric vehicles. The 3rd generation Toyota Prius hybrid is available now. The Chevy Volt hybrid will be released in late 2010. Chinese automaker BYD’s F3DM hybrid is now available in China and BYD’s electric e6 will be released in 2009. Electric motors may operate quietly but there is no doubt that that this technology will have a big impact on the auto industry.

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  1. […] it’s awesome: the 2011 Chevy Volt In Technology on January 13, 2011 at 1:33 am In an earlier blog post, I talked about the future of the auto industry being electric cars. Well, folks, it’s here […]

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