The car industry is currently in the midst of a revolution. The old world of a combustion engine with pistons, cranks, pulleys, belts and hoses is dying fast. This is last century technology.
How will the electric vehicle reshape the world we live in and how can we leverage the knowledge of this change into money making strategies?
Here are 5 facts on the emerging electric vehicle (EV) technology which you can use to invest profitably over the coming decade.
Firstly, if your not sure how fast electric vehicles could come on-line, consider the fact that based on $3 USD/gallon gas the average American could save roughly $2,250/year by using a Nissan Leaf compared to a gas engine vehicle. There is a further $500/year savings in maintenance. That is roughly 10% of an American's income. However, this is based on $3 a gallon. We could see much higher savings in the future as the dollar weakens and oil prices surge. Do you know any Americans who would not mind pocketing an additional $2,750? How about $3,500 or $5,000 annually as gas prices increase?
Here are the above mentioned market changes you can expect as electric vehicles replace gasoline engines.
Fact 1: Electric vehicles don’t need a catalytic converter. Sell your Platinum and Palladium. Roughly 65% of platinum demand comes from catalytic converters with the other uses of platinum being jewelry, and electronics. Palladium also has the majority of its demand from catalytic converters. In addition to the collapse in new demand from carmakers, these metals can be salvaged from used catalytic converters. There may be new uses for these metals coming on-line but it’s doubtful that the new uses can replace the huge glut of demand that will be seen as electric vehicles replace gasoline engine vehicles. I would not short these metals, however, as supply is limited to Russia and South Africa. Potential supply issues combined with the fact the metals are priced in USD do not make it a good short play. Regardless, ten years from now I would not want to own something with such clear demand destruction taking place.
Fact 2: The Automotive Aftermarket could be decimated. A gasoline engine vehicle has roughly 400 part numbers. These parts are moving mechanical parts that wear down. The EV engine will have only 5 part numbers! There won’t be much maintenance for batteries either. Consumer Reports just tested a ten year old Toyota Prius and found the battery performance was identical to the new model. Instead of selling a full range of parts as they do today, automotive parts retailers may be downsized into selling only tires, brake pads, rotors, and some other hard chassis type parts. There will be new service parts to go along with EV vehicles such as a “helper pump” for the heating system. Yet most new parts need to be electronically calibrated with the entire EV system. This will give car makers greater control over aftersales. Today’s giant independent automotive aftermarket retailers have huge expensive retail structures which will be difficult to manage with declining revenues.
Fact 3: Electric vehicles will get cheaper. Do you know any electronic products that did not get cheaper as time went by? Hybrid vehicles today are more costly, however, the hybrid vehicle will not last. The hybrid is inherently expensive as it is running 2 propulsion systems. We have already seen the conversion of many vehicle systems from the last century mechanical systems to electric systems. Steering systems for instance were mechanical hydraulic systems for decades and decades. Then came a “Hybrid” system called EHPS or Electrical Hydraulic Power System and now finally only EPS or Electric Power Steering which is fully electric. The total vehicle is already on the final phase of converting to fully electric. Costs will come down as the technology develops and automakers focus only on full EV vehicles.
Fact 4: The U.S. government will utilize the Department of Energy to ensure the U.S. goes to electrical vehicles. Electric vehicles are subsidized by the government. The Department of Energy has provided a $1.6 billion loan to build a Nissan plant in Smyrna, Tennessee to produce 150,000 Leafs a year by end 2012. There are also major grants to GM, Ford, Telsa and others. Why are EV’s so important to the U.S.? Because calculations have been made that if only 20 million vehicles of the total vehicle population of 260 million vehicles become EV then the U.S. would reduce oil imports from 9m barrels a day to only 6.9m barrels per day. If only 50% of the U.S vehicle population can become EV, the U.S. will no longer become an oil importer. This brings us to our last fact which has geopolitical implications.
Fact 5: The Middle East is Toast …are Global Oil Majors as well? It was reported last week that OPEC will net $1 Trillion this year in oil revenues. If you think things are bad in the Middle East today, remove $1 Trillion in net income. Regarding the oil majors, consider that most major global oil companies profit from importing oil into the U.S. They have long ago lost their reserves to the state owned oil companies such as Saudi’s Aramco. The new global oil majors could be electrical companies fighting over coal reserves.
In summary, these trends are already happening today. However, similar to forecasting demographic trends, this conversion will not happen overnight. Due to peak oil we could see oil prices much much higher. We could also see platinum prices continue to skyrocket, and we could also see aftermarket retailers make great profits for a decade to come. However, the conversion to electric vehicles is now an entrenched process as it is the core strategy for automakers all over the world. The market changes brought on by the EV will not be stopped.
