"Powering" the Future of Transportation

David Fessler
by David Fessler, Energy & Infrastructure Strategist, The Oxford Club

"Powering" the Future of Transportation

by David Fessler, Investment U Senior Analyst

Tuesday, January 17, 2012: Issue #1688

If you poll 100 people and ask them, "What fuel did the first cars run on?" An overwhelming percentage of them would naturally pick gasoline.

But they'd be wrong.

Over 100 years ago, most cars ran on electricity. It's a little-known fact. Alas, drivers quickly wanted more range than the electric vehicle (EV) batteries could deliver. Thomas Edison, actively involved in the nascent EV industry, began working on improved battery designs.

But out in Detroit, Michigan's Henry Ford had other ideas.

In 1908, his Ford Motor Company drove the nail into the EV coffin, when it introduced the $250 Model T. All of a sudden, gasoline-powered cars were available to the masses. But the real killer was they could travel 10 times farther than their electric counterparts.

Ford ultimately sold over 15 million "Tin Lizzie's," as the car was colloquially known. At the time, that was more cars than all other manufacturers combined. And the world has been running on gasoline and diesel ever since.

But that simply can't continue.

The Automotive Industry Comes Full Circle

Crude oil is a finite resource, and some industry experts believe we may have already reached the peak of world production. I'm not going to debate that here. Much sooner than anyone is anticipating, another means to power automobiles will have to be found.

The automotive industry is doing just that. It's come full circle, and it's reintroducing EVs.

Let's face it, if you could buy a car that:

  • Had no engine, gas tank, or tailpipe...

  • Never had to visit a gas station...

  • Cost the equivalent of $1.20 a gallon to fill the "tank"...

  • Could go 100,000 miles between brake jobs...

  • Never required an oil and filter change...

  • Never needed a tune-up...

You'd buy one in a heartbeat, wouldn't you? Of course you would. So would a lot of other Americans, Chinese, Indians and just about anyone else who's experienced "pain at the pump." Not to mention the endless auto repair bills and maintenance costs.

Well, you can purchase EVs today that meets those specs. So why aren't people rushing out and buying them in droves?

Range Bound: The EV Show Stopper

There's just one glaring problem: Most EVs travel 100 miles or less between charges. That's fine for errand running, but forget long-distance commuting and weekend outings.

That's the state of EVs today. It's led to "range anxiety" among potential customers, who fear they might be left in the lurch somewhere without a really long extension cord. It's the biggest stumbling block in the way of widespread adoption of electric vehicles.

I've decided to purchase a Nissan Leaf. Since I work mainly from home, most of my driving is local. Some days, I don't drive at all. I'm not getting rid of my other vehicle, though. It's a truck, and I'll just use that for when I really need the utility of it.

But for millions of Americans, especially long-distance commuters, 100 miles on a charge just won't cut it. A recent survey done by the U.S. Census Bureau estimates that of the 231 counties with populations greater than 250,000, the average commuter spends between 30 and 40 minutes driving each way to work.

Almost 6% of Americans who live near Baltimore and New York City spend 90 minutes or more getting to the office. EVs have been a non-starter for this group. But what if EVs could go 500 miles between charges?

Battery Technology Marches On

In a few years, if the research IBM (NYSE: IBM) has been conducting pans out, they'll be doing just that. After three years of research, IBM's developed what it thinks will make EV range anxiety evaporate: lithium-air batteries.

In theory, lithium-air batteries can store 1,000 times more energy than batteries made using current lithium-ion battery technology.

Checkout IBM's diagram below, and you can get an idea as to how it works:

How Lithium Batteries Work

That three orders-of-magnitude jump in energy density could quintuple my LEAF's range to 500 miles. Or if you're lucky enough to have a Tesla Roadster, imagine being able to go 125 MPH for over 600 miles.

Now we're talking. Who needs gasoline and gas stations when you've got that kind of range?

The reason these batteries aren't in the LEAF I'm taking delivery of next month is that they're chemically unstable. Right now, frequent charges destroy the battery in short order.

But IBM scientists believe they've found solutions that will fix both of those problems. They think they can have a working prototype by next year and commercial versions by 2020 or earlier.

Talk about a black-swan event. If IBM can pull this technology off, it could turn the automotive world upside down, and ultimately have gasoline and diesel vehicles headed the way of the Dodo bird.

And who wouldn't enjoy the longer battery life in their cellphone and laptop computer, too?

Good investing,

David Fessler

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Leading "The Charge" With V2G

In today's issue, Dave talks about IBM's advances in electric vehicle (EV) battery technology. It's big news since one of the main caveats to electric vehicles - even in the early days of automobiles - has been the limitations of battery storage.

But one thing Dave has also been tracking is another breakthrough in EV battery technology that could help power plants cut costs and smooth out peaks and valleys in their service. It's called vehicle-to-grid, or simply V2G. There are two companies that are leading "the charge" with V2G technology: NRG Energy (NYSE: NRG) and General Electric (NYSE: GE).

Although investing in GE will leave you with very little exposure to its EV and V2G efforts, as Dave told his Oxford Club members in the November Communiqué, "GE is a major player in the industrial power generation sector, so if they see an opportunity, the rest of us need to sit up and pay attention."

However, NRG is an intriguing buy-low candidate offering a diversified play on the growing EV trend. They're a well-diversified energy company that dabbles in just about every type of energy generation, including fossil-fuels and nuclear. But NRG has been dabbling in the EV market and it owns a large network of electrical charging stations in Texas. It looks relatively cheap with a P/E around 15 and its hovering around its 52-week low.

Here's what Dave said about NRG, GE and V2G back in November:

"The electrical power grid - and the generation plants that support it - runs at top efficiency when fluctuation events are minimized or offset.

"That's easier said than done. Right now, utilities have to fire up quick-starting "peaking plants," powered by natural gas, during times of extreme demand. In terms of electrical power, the stuff coming from these plants is some of the most expensive per kilowatt to produce. But as more electric vehicles take to the road, a cheaper solution - and investment opportunity - is on the horizon. It's a technology called vehicle-to-grid, or V2G.

"Think of V2G this way... A Nissan Leaf isn't just an electric vehicle (EV). When it's plugged in, passively topping off its onboard 24 kW lithium- ion battery, it's an electricity-storage device.

What if a power utility could tap into thousands of those electricity-storage devices to temporarily smooth out spikes in power demand - and pay the vehicle owners for the privilege?

"Vehicle to grid has been part of the EV-buying sales pitch for a long time. But the reality is that - as of today - no EV has such "two way" capability. But that's likely to change sooner than you think.

"NRG Energy just announced a venture called eV2g to commercialize the technology. NRG Energy teamed up with the University of Delaware for the project. And why did the company choose UD as its partner? Because that's where Professor Willett Kempton conceived and developed the idea of V2G. The joint venture will use fleet vehicles as the testing ground for commercializing V2G technology.

"General Electric is partnering with Nissan to look at meshing EVs, like the Leaf, with local and regional power networks. The two companies envision a "smart home" concept in which power flows between a parked and plugged in EV, the home and the power grid, helping all three service their electricity needs."

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