The Tesla Model-S EV: "Zero Emissions" (Really?)
It's clear the U.S. needs to transition its car and truck fleet away from gasoline in order to:
- Reduce the financial drain due to foreign oil imports
- Give Americans some financial relief at the pump
- Reduce CO2 and toxic particulate emissions
- Reduce the national security threat posed by its reliance on foreign oil
- Usher in a new era of economic and environmental prosperity based on cleaner, cheaper, and domestic fuels.
There are two primary alternatives: electric vehicles (EVs) and natural gas vehicles (NGVs). Today we will take a look at two companies in the alternative vehicle market: Tesla Motors (TSLA) and Clean Energy Fuels Corp. (CLNE). Which company is winning and which company can realistically address the bullet list above in order to solve the problems America (and the world) faces as a result of its addiction to gasoline for personal transport?
From a stock investment perspective, Tesla has been a resounding success. The stock has almost tripled since its IPO back in June of 2010.
That said, TSLA is bleeding red ink. According to 2012 year-end results and although total revenues doubled year-over-year, Tesla lost $3.69/share versus $2.53/share in 2011. At year-end 2012, cash shrank YOY from $255.27 million to 201.89 million while long-term debt soared from $276.25 million to $452.34 million. Despite these disturbing trends, investors cheered and the stock is up 50% year-to-date.
April sales of the popular Model-S exceeded 4,750 units versus the prior outlook of 4,500 units. As a result, Tesla has updated its Q1 guidance to "full profitability." The fully electric Model-S is Motor Trend's 2013 Car of The Year. It is the first vehicle based on a non internal combustion engine to win the award.
Tesla offers two lithium-ion battery packs for the Model S: 60-kW-hr and 85-kW-hr. They are claimed to provide ranges of 200 and 265 miles, respectively. The base 85-kW-hr powertrain delivers 362 hp and 325 lb-ft of torque, while the performance version makes 416 hp and 443 lb-ft. The battery packs are assembled at Tesla's plant in Fremont, California using Panasonic (PC) cells with nickel-cobalt-aluminum cathodes.
A fully loaded 85-kW-hr Signature Performance series, like the $106,900 (before a $7500 federal tax credit) car Tesla co-founder Elon Musk drives, is priced right inline with BMW M5 and the Mercedes CLS63 AMG -- cars of similar performance. According to Motor Trend, the Model S costs about 6 cents a mile to run, based on California's 13 cents per kW-hr average electric rate.
The so-called "Supercharger" recharging stations deliver DC energy directly into the battery pack at rates up to 80 kW. The Supercharger bypasses the on-board 10-kW (or optional 20-kW) AC/DC inverter, and will add 150 to 160 miles in range in approximately 30 minutes. But if you are at home, Tesla's website quotes the following range and charging times:
- 110V/12A plug: 5 miles/hr
- 240V/40A plug: 31 miles/hr
Elon Musk, the co-founder and CEO of Tesla, is a bona-fide rockstar with celebrity status. Musk co-founded Paypal and is CEO/CTO of Space Exploration Technologies (SpaceX).
Clean Energy Fuels Corp.
Clean Energy Fuels is well known for its pragmatic founder T. Boone Pickens. The company's business plan is to enable the adoption of natural gas transportation in the long-haul trucking sector by building an infrastructure of natural gas refueling stations on "America's Natural Gas Highway." At some point in the future, it will be easy enough to add CNG pumps for ordinary Americans' cars and trucks.
America's Natural Gas Highway Natural Gas Refueling: Coast-to-Coast and Border-to-Border
As a stock investment, Clean Energy has been a dud: it has gone nowhere in 5 years. Like TSLA, CLNE has been losing money for years. Also like TSLA, CLNE has been making good operational progress: gallons delivered in 2012 were up 25%. Yet for 2012, revenue totaled $334.0 million, which is up from $292.7 million a year ago. For 2012, adjusted EBITDA was $(12.3) million, compared with $3.1 million for 2011. Per share net losses for 2012 were $1.16 versus $0.68 in 2011.
Tesla is Winning
It's clear Wall Street and individual investors foresee a better future for Tesla as compared to Clean Energy. And why not? Despite both the EU and China adopting strategic natural gas transportation policies in 2012, the U.S. government has yet to do so. The so-called "Nat Gas Act" remains moth-balled in Congress despite domestic nat gas prices being up to 3 times less expensive than in the EU and China. At the same time, the U.S. government has been pouring billions into EV manufacturers, battery makers, and solar power companies. These investments have usually ending up in bankruptcies: Solyndra and battery company A123 being two of the most spectacular examples.
EVs: Anything But "Zero Emissions"
Tesla's homepage declares the Model-S has "Zero Emissions" and it would appear from the comments left to some of my previous articles, so-called "environmentalists" are in full agreement. But of course they conveniently forget that coal is still the largest fuel source used for electrical power generation in the U.S. at around 40% of total capacity. And as we all know, coal is the absolute dirtiest fossil fuel, not only in terms of CO2 emissions, but more importantly the toxic particulate emissions, which if not vented into the atmosphere, end up in "fly-ash" storage ponds such as the one that spilled into Tennessee River tributaries at the TVA's Kingston power plant, one of the worst environmental disasters in U.S. history. Over 1 billions pounds of fly-ash, containing the toxic heavy metals arsenic, copper, barium, cadmium, chromium, lead, mercury, nickel, and thallium were released into the Emory and Clinch rivers. And there are literally hundreds of these fly-ash storage ponds all over America.
In addition, most environmentalist do not include the energy required to manufacture the large battery packs included in EVs. Seeking Alpha contributor John Peterson wrote a fantastic article on the total cradle-to-grave energy considerations with respect to current battery technology: "Why Batteries Are Too Valuable To Waste On Solar Power Integration and Electric Vehicles".
Clearly Tesla's EVs are not "zero emitters" as claimed when one considers the entire infrastructure needed to build and operate them.
NGVs: An Economic and Environmental No Brainer
Meantime, natural gas transportation is proving to be a superior solution all the way around: it is abundant the world over, cheap, and has 50% less CO2 emissions than coal, 30% less than gasoline and diesel, and 100% less of the toxic particulate emissions of either coal or gasoline. NGVs have been around for over 100 years, are reliable, have adequate range, have enough power to tow a trailer, and have been adopted all over the world. A transition of the U.S. car and truck fleet to natural gas could realistically reduce foreign oil imports by 4 million barrels a day within 5 years. Natural gas is the only domestic fuel that can be scaled up to achieve such a significant reduction in oil consumption.
Consider the CO2 savings if we replaced 4 million barrels of oil a day by adopting natural gas transportation:
(4 million oil barrels/day) * (2/3 gasoline barrels/oil barrel) * 42 gallons gasoline/barrels) = 76.4 million gallons gasoline/day.
Since each gallon of gasoline emits 19 lbs of CO2, 76.4 million gallons equate to 1.45 billion lbs of CO2 emissions per day. Natural gas transportation would reduce that amount by 30% or a whopping 435 million pounds of CO2 per day. Since natural gas has "ZERO" toxic particulate emissions, the environmental benefits are using natural gas as a transportation fuel are simply phenomenal. Using natural gas transportation will not expand the size of American's toxic coal fly-ash storage ponds as driving an EV will do.
EVs: Environmental Benefits Are Negligible in the Big Picture
Even if we ignore the coal recharge and battery pack manufacturing issues, the truth is this: there simply are not enough EVs to move the needle. BYD has struggled mightily in its effort to sell EVs in China, with it latest quarterly profits plunging 94%. Despite Tesla's success in selling upscale EVs, there are only 180,000 electric vehicles worldwide, or 0.02% of the total worldwide car fleet.
To those who say EVs can be recharged by solar power, this is obviously true. But how many middle class Americans, already hammered by high unemployment, a housing crisis, high inflation rates (regardless of what the Feds reports...) can afford a luxury Tesla vehicle to begin with, let alone a complete solar power system to recharge it? Truth is in the numbers, and the numbers simply aren't there for a luxury EV such as the Model-S. Whose is going to continue to buy them after the wealthy people already own one?
EVs have simply been yet another in a long line of distractions designed to keep Americans (and environmentalists...) addicted to oil (i.e., gasoline). Similar to "clean coal" (an oxymoron if ever there was one) and the ethanol mandates, government support of EVs is simply another vehicle (pun intended) in which SuperPAC control of Congress keeps the status quo (oil, gasoline, and coal) firmly in place and to keep natural gas transportation at bay. It's ironic that so-called "environmentalists" are often the best friends these vested interests have in maintaining the status quo.
NGVs: Growth Is Booming
However, despite the lack of U.S. government support we have seen in the EU and China, NGVs are booming. The economic, environmental, and national security benefits are just too powerful to ignore. According to NGV America, there are now over 15.2 million NGVs on the road worldwide: 84 times the number of EVs.
The More Things Change, The More They Stay The Same
Ever since near $150/barrel oil and $5/gallon gasoline, very little has changed to the status quo: the vast majority of Americans still require gasoline and have little to no realistic alternative. Despite the recent increase in oil and gas production in the U.S. as a result of improvements in fracking technology, 2012's average gasoline price of $3.60/gal was the highest ever, eclipsing 2011's average of $3.51. Ordinary Americans, have been wracked by housing and stock market "corrections," high unemployment rates, and inflation at the grocery and gas stations. Meanwhile foreign oil imports continue to force the Federal Reserve to print money to "pay" for them. In 2012, foreign oil imports totaled $434 billion. And the Earth keeps getting hotter. And the Pentagon budget keeps increasing. Change? What change?
The Natural Gas/Electric Hybrid Vehicle: The Best Engine Architecture In The World
The best engine architecture for solving the world's most imminent energy and environmental problems, bar none, is actually a cross between EVs and NGVs: the natural gas/electric hybrid first unveiled by Toyota (TM) with its Camry concept vehicle way back in 2008:
This vehicle is basically a Toyota Prius design with the modification that it runs on natural gas instead of gasoline. For the ordinary American, this type of vehicle has a host of advantages over both EVs and NGVs:
- Its 8 gas gallon equivalent (GGE) fuel tanks give the car a range of 250 miles.
- The car emits zero toxic particulates as opposed to the Prius or an EV (once its 40% charge by coal is factored in).
- It has a small, proven, battery pack -- no need for coal based recharging. No plug needed.
- The car is affordable.
- The car runs on an abundant, clean, and cheap domestic fuel source: natural gas.
Imagine U.S. automakers offering a car like this bundled with a home natural gas refueling appliance. Foreign oil addiction? Problem solved!
Natural gas is unfashionable today and rock stars like Elon Musk have captured the imagination of "environmentalists" with claims of "zero emissions" vehicles. Yet worldwide it is natural gas transportation that is winning today, and it will win the race in the long run as well. If your goal is to flaunt your green credentials, then buy an all-electric Leaf or a Tesla Model-S and accept the range, cost, and battery reliability issues. Meanwhile, NGVs and companies like CNLE will continue to make the greater contributions towards energy independence, economic prosperity, and a healthier planet.
Additional disclosure: I am an engineer, not a CFA. Please do your own research and contact your investment adviser. I am not responsible for investment decisions you make. Thanks for reading and good luck!