More Expensive, Less Convenient?

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Perhaps not the best slogan for an advertising campaign, but may reflect the current, and perhaps near term, status of electric vehicles (EVs) compared to internal combustion engines (ICE).  This may continue to be an issue as the world’s vehicle industry begins to roll out a significant number of new EVs.  Initial demand, based on orders, looks solid, but once the early adopters and flippers are done, will projected volumes be sustainable?  Up to now, sales of EVs have been supported by generous regulatory subsidies, which may prove to be unsustainable.

I spent many years covering the auto industry first as an equity analyst for non-public companies at the National Bank of Detroit, and then as a securities analyst for Paine Webber and UBS.  I watched many transportation industry concepts (Wankle Rotary engine comes to mind) come and go and this informs my viewpoints.

Currently, the high cost of batteries, limited range and a dearth of convenient, rapid charging stations, makes it difficult for most consumers to rationalize the purchase of an EV.  Over time, most industry observers expect the cost of batteries to decline, (although rising metals prices makes that less certain) range to increase and charging times to come down.  In fact, the world’s vehicle industry is making a very big bet that EVs will become the vehicle of choice because of superior performance and attractive pricing.

With the world’s vehicle industry in the process of a massive product line shift, the opportunities and risks for investors are increasing.  In addition to potential changes in market leadership, the problem of profit margins and the risks facing numerous newcomers, the industry and investors are going to have to consider the availability and cost of electricity.

There is also the problem of regulatory mandates, which require manufacturers to sell certain percentages of EVs, regardless of customer demand.  

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA

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