Listening, reading, and procuring the overall electric vehicle (EV) market, it could be ascertained that EVs will overtake fossil fuel vehicles in the near future. While the EV future is bright, and has nowhere to go but up, the wise investor should be cautious, avoiding investment without proper due diligence.
Elon Musk is a billionaire genius, and Tesla's cars are spectacular, but Tesla and his other ventures (Solar City) are burning through investment funds and failing to make a profit. Tesla, the leading EV carmaker is a well-known and even sexy investment, but cash flow remains a key issue with Tesla and the larger EV market. Further infrastructure developments are required for EVs to thrive and they are still not growing at the same rate as non-EVs.
If EVs are to grow at the torrid pace that Bloomberg New Energy Finance expects and with far-reaching ramifications, then private companies and governments will have to invest untold billions - even trillions in overall infrastructure needs - for these vehicles to take a significant portion of the market. Electrical use will surge, and for the United States' (U.S.) antiquated, failing electrical grid, how this will play out is an unknown factor that isn't being discussed publicly when contemplating EV investments.
The U.S. has the worst performing electrical grid in the developed world. If EVs reach their projected mark of millions being sold every year in the U.S. and worldwide, then the emerging and developing world will need to begin investing in large-scale grids, micro-grids, or some other type of power delivery mechanism for the surge of electrical use that is expected with EVs explosive growth.
If millions need a reliable grid to charge their EVs, and with hotter summers and colder winters taxing the U.S. grid, then what happens when spikes in unreliability reach higher levels? Additionally, when you take into account that even a country such as Norway - which has extremely generous taxpayer subsidies for EVs - still has high oil use, and projects to go higher, what occurs when these subsides are withdrawn? Norway is mulling that option currently. Related: Big Break Through For Small Scale LNG
EVs will grow, and flourish in the coming future, but with 90 million barrels per day of crude oil consumed worldwide; it seems a giant leap to believe EVs will do away with, or significantly reduce the oil and gas industry. More than likely, the smart money will find a middle ground where EVs and crude oil grow exponentially together. Fossil fuel growth for decades to come in places such as China, India, most of Asia and Africa are a foregone conclusion, but the U.S. and Europe will be the drivers of EV growth. While China has ratified the Paris Climate Agreement, and pledges EV growth, their actions don't back up their words on the environmental stewardship.
EVs are a smart move for developed countries, but energy-starved nations will choose the cheaper, more abundant, and reliable option that the combustible engine provides. According to the Breakthrough Institute, the number one driver of growth to alleviate poverty and bring nations into solid economic growth is low-cost, resilient energy sources. Renewables and EVs aren't currently providing that option, and the electrical surges each produces harm electrical grids. Grid security will be a looming negative for EV growth until this issue is resolved.
Until low-cost batteries and energy storage on a mass-scale can be invented, produced, and sold at reasonable prices for middle class citizens, EVs will not sell in a way that shows significant reductions in fossil fuel use, emission reductions, and possible climate change alleviation. California has promised all of these, but so far hasn't been able to come close to the EV results they predicted. Related: Natural Gas Prices To Spike In Europe After Supply Disruptions Here
With so many possible negatives in the near future for EV investments, the reasoned investor may want to look to lithium mining in areas like Clayton Valley, Nevada, methane hydrates called "fire ice,", and car companies with solid financial outlooks and clean balance sheets.
Ford Motors would be a company to cautiously stay away from until their stock recovers, but considering BMW, Mercedes, Toyota, Nissan and closely watching Tesla are all smart plays for EV investors. Each company has a strong EV division, but Tesla has numerous hurdles to overcome.
The final question to consider for EV's and the associated infrastructure they require is how world events will affect growth in this hot sector of the car business. For EVs to overtake non-EVs, crude oil will need to rise, and stay at the $100 a barrel level for an extended period, changing consumer behavior. U.S. car buyers are still in love with pickups and SUVs, and are on track for record sales in 2016. Investing in both EVs and fossil fuel vehicles and industries seems the more reasoned approach in ever-changing times, instead of choosing one over the other.
By Todd Royal for Oilprice.com
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Todd Royal is an independent strategic consultant, researcher and author on energy matters based in southern California. More
Comments
I seriously doubt any smart money will be wagered on the premise that both EVs and crude oil grow exponentially.
..."For EVs to overtake non-EVs, crude oil will need to rise, and stay at the $100 a barrel level for an extended period, changing consumer behavior."
There have been plenty of articles detailing the huge cuts in exploration budgets and the anemic replacement rate, which are setting us up for another spike in crude prices in a few years. If this happens, the new crop of Electric Vehicles will be ready and waiting for consumers willing to get rid of their gas guzzlers.
What about GM? You know, the world's second largest car maker, that is a couple of months away from releasing the Chevy Bolt, which could potentially revolutionize the electric car industry? Talk about ignoring the elephant in the room.
People avoid electric cars today because gasoline is still such a bargain. And gasoline cars are cheaper to purchase, and travel over twice as far before needing refueling, as electric vehicles can.
Should auto manufacturers be able to produce millions of electric vehicles during the coming decade, the US electric grid could become a major problem. The extra load when millions of commuters get home from work, and plug in the car with the home air conditioner running, might necessitate spending trillions upgrading the electric grid. Charging the big batteries in millions of automobiles will consume a vast amount of electric power. You can't save that much electricity by changing to LED light bulbs. I hope the utility companies are planning for it, because repeated failure of the electric grid would wreck the economy. Civilization, as we know it today, can't continue without reliable electric power. Shut down the grid, and the vast majority of us would be dead in less than two months. (Quit eating and see what shape you're in after 3 weeks. Electric motors run virtually everything. I have at least 15 of them in my home.)
Someone asked Elon Musk why he risked his fortune on something as dangerous as establishing an electric car company. He answered that if we didn't develop an electric alternative to oil, the economy would collapse when the oil ran out. It looks like he has succeeded in his goal, even if Tesla doesn't make it. He made the big boys get going with their own hybrid and electric cars. Ditto with reusable rockets.
We need 50 million EVs just to add 1% to power demand. This will take about a decade to accomplish. Meanwhile, adding 50 million EVs will avoid about 2 mb/d in demand for oil. The grids of the world can easily accommodate a 1% incremental growth in demand over one decade, but the 2% loss of potential oil demand over the same time could have an impact on the oil industry. Um, and you can forget about natural gas power burn for EVs making up the difference.