Life is tough if you're a
short-seller. I should know -- I am one.
By all indications, Tesla has the pedal to the metal, and it's
presumably leaving all traditional carmakers in its dust and
nonexistent fumes. Tesla shares hit an all-time high weeks ago,
topping out at a market value of $33 billion shortly after
another market-thumping earnings report that saw the company
deliver a record 7,579 Model S electric vehicles in the second
quarter and earn $16 million in net income on an adjusted
Tesla Model S. Source: Tesla Motors.
Yet the buzz that provided the ultimate spark that pulled
Tesla to a new high last week was an upgrade from
to buy based on its view that the electric-vehicle manufacturer
would hit or exceed 1 million units in annual production by
This upgrade from Deutsche Bank got me wondering what the auto
landscape would look like if other electric vehicle manufacturers
were able to grow their production at a 32% compounded annual
growth rate as Deutsche Bank's projections have implied for
With that in mind, I attempted to calculate what percentage of
global market production would belong to EVs by 2025. The results
were a bit shocking.
This technological shift may not be as impressive as you
According to figures from IHS Automotive, global auto sales in
2013 hit 82.84 million, topping the 80 million mark for the first
time on record. This represented an increase of 4.2% over the
previous year and implies that middle-class consumers in
emerging-market economies, as well as in China, are beginning to
taste the luxury of owning their own vehicle for the first
Since 2010, global auto sales have grown by nearly 10 million,
but looking ahead, IHS anticipates that growth from the
developing BRIC nations -- Brazil, Russia, India, and China --
could push worldwide sales over the 100 million mark by 2018.
Assuming a global growth rate of 3% through 2025, and 100 million
global units sold in 2018, we'd be looking at 123 million autos
sold in 2025.
By comparison, global all-electric vehicles (not including
hybrids) saw unit sales rise to 111,718 in 2013 based on
from EVObesssion, including a 229% increase in the United
Tesla CEO Elon Musk. Source:
Assuming all existing electric-vehicle manufacturers (Tesla,
, and so on) grow production at the same compound annual rate
Deutsche Bank predicts Tesla will grow its production (i.e.,
32%), there would be approximately 3.1 million all-electric
vehicles being produced annually by 2025.
Another way to look at this is that just 2.5% of the world's
auto production is on pace to be 100% electric by 2025 if all
other automakers grow their production capacity in line with
Tesla's. Obviously, that's a nice improvement from the 0.13% of
the market that all-electric vehicles currently make up based on
EVObsession's data, but it's a far cry from the dominance that
Wall Street and alternative energy enthusiasts have been lauding
from this industry. California, for example, adopted a mandate
last year to have 15.4% of all vehicles on its roads by 2025 be
What's holding EVs back?
The way I see it, EVs have plenty of opportunity to gain market
share on traditional gas-powered autos but there are three
primary reasons why I suspect they'll only garner a small
percentage of global sales.
First, pricing is a big hurdle. Within the U.S. there are a
number of tax credits that EV car-buyers benefit from, which they
can claim on their tax returns at year's end and which
effectively reduce the price of their purchase. However, the
truth of the matter is that EVs may not be very affordable when
compared to traditional gas-burning vehicles. In many cases, the
cost-savings associated with purchasing an EV will only begin to
take effect after many years and tens of thousands of miles.
For example, UC Davis in California set up a website allowing
users to simulate their commute in an electric vehicle compared
to a gas-powered vehicle. This "
" project, as EcoWatch
noted this month
, shows that a 50-mile round-trip commute over the course of a
year could save a 2014 Chevy Volt owner about $1,000 in fuel
costs compared to driving a gasoline-powered 2014 Ford Focus.
However, the base model price for the 2014 Ford Focus is less
than $17,000, while the base model 2014 Chevy Volt will set
consumers back more than $34,000. In this hypothetical scenario,
it'd take the Volt owner more than 17 years to recoup the added
costs of buying an EV.
In other words, unless you plan to hold on to the vehicle for
period of time, an EV may not make sense.
More along the same lines, even if an electric-vehicle buyer
hits the point at which the costs to charge their vehicle versus
filling up at the pump sways in favor of buying an EV, the costs
to replace a battery cell in today's EVs often runs in the
thousands of dollars.
2015 Nissan Leaf. Source: Nissan.
Nissan, for instance, suggests that owners of its Leaf will
have about 80% of their battery capacity left after five years
and 70% after 10 years. The cost to replace the battery
core, and retrofit a previous-model Leaf when that time comes, is
about $5,500, the same cost as replacing an engine in a number of
comparable gas-powered small cars.. Of course, I'd be misleading
you if I didn't mention that things like oil and fluid changes in
a traditional engine cost money, too; though few repairs appear
ready to wallop consumers in one lump sum as much as an EV
battery cell replacement.
Driving radius constraints
Secondly, it's an issue of driving radius. With improved gas- and
diesel-engine technology, it's not uncommon for gas- or
diesel-powered vehicles to get upward of 30, 40, or close to 50
MPG. By comparison, electric vehicles achieve an MPG-equivalent
of between 76 and 121 based on EPA fuel economy estimates found
on the Department of Energy's website. However, EVs rarely have
the capability to go too far outside of a given mileage
The Tesla Model S is the benchmark for driving range, with its
85 kWH pack allowing the user on a full charge to drive 265
miles, according to EPA ratings. This is one of the primary
reasons the Model S has sold well despite its
blistering $70,000-plus price tag
. Other all-EV automakers boast considerably weaker driving
ranges, just 62 miles in the case of the Mitsubishi
i-MiEV and 84 miles for the Nissan Leaf, which make them
practical only for city-limit driving. That is, of course, unless
EV infrastructure becomes widespread enough to make any talk of
mileage ranges obsolete.
Where's the EV infrastructure?
Finally, EV infrastructure
is a big problem
. The world today caters to gas-powered vehicles. Rolling out
charging stations and making plug-ins accessible outside a
person's home is an enormous expense to undertake. We're slowly
seeing it occur in some of the most advanced countries of the
world, such as the U.S. and throughout Western Europe. However,
emerging market economies, where auto growth is expected to soar
in the coming decade, aren't as equipped to implement EV
Tesla supercharger network as of Aug. 17, 2014. Source: Tesla
Even within the United States, the infrastructure to support
EVs is thin. Tesla is trying to change this by building a
nationwide Supercharger network that'd allow an owner to get half
a charge on their battery pack within 20 minutes. The other
option is merely a battery swap for a price that'd be similar to
that of filling up your car with a tank of fuel at the gas
station. But as of mid-August, just 106 of these stations existed
throughout the entire U.S. Not to mention, plug-ins can be
difficult to come by for people who live in apartments or condos,
effectively removing these consumers as potential buyers.
Reality, meet perception
I'd suggest the lesson both for investors looking to take
advantage of the coming EV boom and for consumers who expect
alternative-energy vehicles to rule the road sooner rather than
later is to keep your expectations well in check. Until we see
marked improvements in battery capacity to increase driving
range, battery production to make EVs more cost-competitive with
gasoline-powered cars, and more geographically diverse EV
infrastructure, the likelihood of EVs representing more than a
small fraction of the global auto market over the next decade is
slim at best.
This is Warren Buffett's worst auto nightmare (hint:
It's not Tesla)
A major technological shift is happening in the automotive
industry. Most people are skeptical about its impact. Warren
Buffett isn't one of them. He recently called it a "real
threat" to one of his favorite businesses. An executive at
called the technology "fantastic." The beauty for investors is
that there is an
easy way to ride
to access our exclusive report on this stock.
Why Electric Vehicles Won't Dominate Gas Over the
originally appeared on Fool.com.
is short shares of Tesla Motors, but has no
material interest in any other companies mentioned in this
article. You can follow him on CAPS under the screen
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