I get quite a few emails from readers inquiring about the electric vehicle (EV) space. Most tend to contain three components: (1) Intrigue with EVs, (2) the attendant belief that "someday" they'll be big and (3) the notion that they're "not a good option as a primary vehicle for most." This tendency of opinion got me thinking. While it's an interesting space for investors to consider, I recognize that it's replete with uncertainty.
First, I fully and unabashedly admit that I do not pay much attention to the battery technology hysteria that surrounds EVs. Yes, I know what "range anxiety" is. And, today, it's a real problem in some cases. But realize that these instances represent isolated occurrences.
I view concerns over battery cost and life as akin to anxiety over the transition from cassette to compact disc or Y2K. Certainly, some level of legitimacy exists in most displays of anxiety. While I am not a believer that technology will solve all of the world's problems, I believe it will - if it has not already - in relation to EVs and range.
Consider the forthcoming Model S from Tesla Motors (NASDAQ:TSLA).
Without a doubt, you'll pay a premium to get the best range an EV has to offer these days. I have no problem, however, with the industry being one that focuses on a customer base that can afford to and will pay a premium. It's basically the Apple (NASDAQ:AAPL) model. I think it's a fantastic strategy as word spreads and the kinks not only work themselves out, but get worked on by engineers and such.
Nissan's (OTCPK:NSANY) Leaf provides a lower price tag, but much less attractive range. With a Leaf, you get 100 miles, give or take about 40 miles on either end. Simply put, most people actually can get by just fine with an EV. This is most definitely the case if they wait for the Model S to come out and can afford one.
Every once in a while my urban planning background comes in handy. When most people speak of travel behavior, assumptions (and misconceptions) run rampant. Despite America's penchant for suburban land use patterns, most vehicle trips Americans take are quite short. Consider these numbers as well as related and equally as relevant statistics.
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In relation to EV adoption, there's a bit of a conflict in this data. On one hand, most vehicle trips come in at less than 10 miles. On the other, a decent chunk of daily vehicle miles traveled come in the form of relatively long trips. That said, trips of 20 miles or less still comprise more than 45% of all household-based vehicle miles traveled.
Let's include two other variables in the analysis. First, the number of private vehicles in the average American household. And then, the average commute Americans face. I realize that this data comes from the 2000 Census. The government has not yet released this level of detail from the 2010 Census. Having spent quite a bit of time with Census and related data over the years, I am quite confident that we will see a continuation of the trends, which you can see by following this source link, we have experienced over the last 40 to 50 years.
Vehicles per Household
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Average Commute Time
A more recent survey of Georgia state workers reports an average commute of 22 miles (33 minutes each way). Given that Georgia contains one of the nation's most congested metropolitan areas (Atlanta), I consider it a pretty good gauge for the purpose of this article.
The American Community Survey provides sample estimates from 2009 that pretty much line up with the above-mentioned numbers. The ACS puts the mean travel time to work for the nation at just over 25 minutes and notes that nearly 75% of households have two or more vehicles available.
Here's what I take away from all of this information. While most vehicle trips are short, Americans often travel long distances. Some travel long distances twice a day as part of their ride to and from work. That said, EVs like the Model S - and even the Leaf - can handle most work commutes, particularly as EV
charging stations saturate work places, parking garages, city streets (pictured to the right in Santa Monica), retail establishments, and residences. EV charging stations are proliferating so quickly it's next to impossible to keep up with the action. Furthermore, for the households where EVs cannot realistically serve as the primary vehicle, there's no reason why one cannot be the vehicle that makes the short, non-work, non-vacation trips, while starring as the second or third car.
From an investment perspective, pure EV companies and companies that touch the space do not need mass adoption. Clearly, every household floats in their own circumstances and will not see an EV purchase as a good fit. Like hybrids, however, EVs have the potential to fill a sizable niche that can generate revenue for some companies in the space.
Here's what I think holds back most Americans that can reasonably adopt an EV from making the move and, in turn, keeps investors skeptical of the space: A lack of will to change behavior.
Shortly after moving to San Francisco in 1999, I paid about $3,000 to get out of an auto lease. I have not owned a car since. And that includes life in low-density, car-cultured Orange County, the Los Feliz/Hollywood section of Los Angeles, and now in more San Francisco-like Santa Monica, California. While in suburban Orange County, I walked and biked everywhere, using Zipcar (ZIP) only for trips into LA. I often used regional public transit to make that journey.
I once thought I deserved a medal for living a car-free lifestyle. Looking back, I was so pious and sanctimonious I could make myself vomit. The bottom line is simple: I made a choice. It was important to me to shed the car. I did not do it for environmental reasons. I did it for financial reasons (I made up the $3,000 payment to break the lease in less than a year) and health reasons. My story carries relevance to the EV narrative for two inter-related reasons:
- Just as most Americans can make the choice to be car-free, they can make the choice to buy an EV as a first or second car. It takes some will, some sacrifice, and patience riding the learning curve. It's no different than making the shift from car culture to being a pedestrian, cyclist, or transit rider.
- People tend not to make these types of choices because they lack the will to do so. What bicycle or EV detractors, for example, call "obstacles" to adoption, I call "excuses" to not adopt.
When considering pure or indirect EV plays, investors need to ask themselves the following question: Will a large enough niche of Americans make the choice to change their behavior? The shift from regular old car to EV represents a bolder and more meaningful move than one from regular old car to hybrid, so it's a serious psychological challenge.
Before I realized the absurdity of it all, I was a bit of a bike activist. I opined that practically everybody should ride a bike as transportation and for exercise. I branded those who chose not to "lazy" and "clueless." As I experienced a bit more about my own and other people's behavior, I came to understand that it's not quite so simple. People make decisions that work for them. While you could argue that their decisions are bad, either for themselves and/or society, it means nothing because it's not your decision. Whether somebody rides a bike or buys an EV is up to them; it's not up to what I think or what I want them to do.
That said, as psychologists often remind us, people do not always end up with a rational view of the situation before they make this and other types of decisions. As University of Virginia Professor Timothy Wilson argues, often they "end up" with "dysfunctional narratives."
Whether an investment in EV-related companies pays off or not has less to do with batteries, quality cars and charging stations than it does with psychology. It's all about the story that forms in people's heads. Because EVs strike a somewhat political chord, the information the public receives lacks purity. The input they receive that informs a decision (Should I buy an EV? Should I even consider one?) does not always represent objective reality. Like anything else, its skewed by the outside world and their own internal biases.
Two largely social-psychological variables will tell the story. First, it's up to the EV industry and the players who associate themselves with it to do a better job of educating the public than the naysayers do. Second, it's about the power of word of mouth.
While I think Nissan and others continue to make good faith efforts to further EV adoption, I'm not sure they have as much at stake as, say, Tesla does. Tesla's retail strategy focuses on two main things - getting people hands-on facetime with EVs and educating them in a comfortable Apple-like environment. Tesla will not waste time in low-end markets; rather they'll go to places, as they have and are, where high-end customers live.
The more people I speak with and the more I read, the more I believe that Best Buy (NYSE:BBY) will play a key role educating the general population. Consider Best Buy Marketing Executive Chad Bell's inclusion on AutoWeek's "Electrifying 100" list.
Not only will Best Buy take care of the residential chargers, but my conversations with the company indicate that it will position the Geek Squad as a team that attempts to educate the public on the facts regarding what EVs are and how to make them work as a part of an everyday routine. The ways Best Buy can do this, and generate revenue in the process, exist far beyond the home charger deals.
Bell's quote says it all: Best Buy intends to enter the EV space for the long run. I know they're talking to start ups as well as long-established companies. This story holds amazing promise, but it's in its infancy.
Word of Mouth
You can also call word of mouth "Shared Experience." Nissan's DIrector of Product Planning says it best:
I left the last sentence in because it helps drive home my contention that EV charging infrastructure is quickly becoming a non-issue with regard to adoption in many parts of the country. As for Perry's thoughts on word of mouth and "shared experience," I saw it happen with hybrids in San Francisco and Southern California. I am seeing it happen here in Santa Monica with EVs. When a Tesla Roadster, Nissan Leaf or Chevy (NYSE:GM) Volt drives by, people do a double-take. Conversations start. Seeds get planted.
As that interest is born in places where you might expect early EV adoption, it will be up to traditional automakers, Tesla, smaller players and companies such as Best Buy to turn that interest into action.
While I have put my money where my mouth is, I would be lying if I did not admit that I have my doubts. I'm dollar-cost-averaging into TSLA. I own probably way too many shares of a development stage company, EVCARCO (EVCA.OB). And I intend to get into Ford (NYSE:F) as an indirect, long-term play on EVs and possibly other pure- or close-to-pure EV stocks over the next several months.
I don't doubt the industry. I don't doubt the technology. I don't doubt the need, on several counts, to make the shift to EVs. What I doubt are attempts to intervene and dictate human behavior. Naturally, most people have difficulty doing something radically different. As I noted, hybrid adoption was relatively easy. EV adoption is not.
I look back on my last transportation-related conviction - cycling as transportation. How did that work out? The American Community Survey tells me that just 0.6% of the working population, age 16 and older, bikes to work. In real numbers, however, that's not too bad. Of the 138,591,804 that make up that population, the government estimates that about 831,551 bike to work. If EVs can double the bike number over the next few years, that would put them past President Obama's goal of 1.5 million EVs on the road by 2015.
Disclosure: I am long TSLA.
Additional disclosure: I hold a long position in EVCA.OB. I may initiate a long position in F over the next 72 hours. I may initiate a long or short position in AAPL at any time.