How Green is Green?
In the case of electric vehicles (EVs), it depends.
Governments have become increasingly aggressive in encouraging the purchase of EVs, with subsidies, both at the manufacturing and consumer level, and through fuel economy mandates. But is this really a good idea and will it reduce emissions?
Bernstein Research, which studied the car market in Hong Kong, where they are based, has concluded that, because Hong Kong and China’s production of electricity is carbon intensive, mainly from coal, EVs are increasing rather than decreasing pollution.
Germany has recently announced a plan to subsidize EVs and plug-in-hybrids. German electric generation is nearly 50% coal based, a percentage that may actually increase due to a planned phase out of the country’s nuclear generating capacity.
Clearly, the environmental value of EVs is dependent on how the electricity they use is generated.
Norway is Tesla’s best European market – despite its small size – due to very generous subsidies. Norway’s electric generating capacity is essentially 100% hydro. However, the Norwegians enjoy a very comfortable life style due to significant sales of oil from the North Sea.
Investors should be prepared to look beyond superficial and anecdotal evidence. Over time, markets tend to reflect actual economics rather than temporary subsidized results.
All comments and suggestions are welcome.
Walter Kirchberger, CFA®
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