Electric Vehicle Distortion: Don't Let the Facts Get in the Way of a Good Story

by: SA Editor Rocco Pendola

Wading through the daily muck and mire of misinformation qualifies as a key part of an investor's job description. The 24-hour audio, video and virtual news cycles produce a steady flow of data, much of which gets spun so loosely that it's intellectually dishonest at best and a pack of downright lies at worst. Even if you only invest or trade as a hobby, you have to analyze every piece of analysis before you let it inform your opinion of a particular stock or industry.

For the 20 or so years I have been paying attention to the stock market, I do not think I have seen an area where some pundits take a more irresponsible approach than in the electric vehicle (EV) space. Unfortunately, you cannot separate politics from investing. As such, EVs, a political lightning rod, become ripe for rampant distortion and out-and-out fairy tale.

I use the Seeking Alpha Market Currents section not only to keep up on breaking news, but to find stories I likely would not have come across on my own. Market Currents run along the sidebar of the Seeking Alpha homepage. If you see something of interest, you can click the link and comment on the story with other members.

On Monday, I came across a story, written by Bill Frezza of RealClearMarkets. In it, Frezza does something novel - he rags on the State of California. At day's end, I could care less about that part. I live in one of the greatest cities in the world. And it's in California - the exporter of produce, technology and entertainment to the rest of the nation. As much as I love Boston, I would put Santa Monica or San Francisco, my former home, up against it and any place else any day of the week, fiscal issues and all.

It does not even bother me much that Frezza dislikes California's proposed EV mandate. Though I do not agree, I can at least see his, albeit, flawed argument. I can let other areas Frezza struck out to pass as well. He fails to mention that we have been down this road before, complete with the attendant partisan rhetoric. He also fails to note how far EVs have come since then. But, his job was not to promote or even give a fair shake to EVs. He took his opportunity to take a shot at California and talk down attempts to get the nation off of oil.

My issue with Frezza's article is that it's just one of the many bits of misinformation that can mislead investors considering the EV space. Frezza writes:

So-called zero emissions vehicles, which could more accurately be labeled coal burning cars given the source of most of our nation's electricity, are part of a troika of green fetishes that have captured the fevered imaginations of central planners. Not content with the incentives provided by a $7,500 federal tax rebate attached to cars like Government Motors' Chevy Volt, California is proposing a rule that would fine auto makers $5,000 per vehicle if at least 5.5% of the new cars they sell in the state are not electric ...

Nevermind that the charging infrastructure to support that many electric cars doesn't exist and can only be conjured up with massive taxpayer subsidies ... Nevermind that the only way switching to an electric fleet could reduce carbon emissions would be by ripping out every fossil fuel power plant in the state while covering the countryside with taxpayer subsidized windmills and solar plants - presumably the next stage of some master plan ...

A little research is all it takes. So, let's go over the facts. The first problem with Frezza's presentation is that he hammers California as a unique embarrassment to the rest of the country, yet fails to discuss the ways the state differs from many other parts of the U.S. First, Frezza says we should refer to EVs as "coal burning cars" because coal provides "most of our nation's electricity." Wrong. As the following chart shows, sources other than coal provide more than half of our nation's electricity:

Click to enlarge

Frezza was close nationally, but he fails to accept that California is just different from the rest of the country. You really cannot use national statistics and automatically apply them to California, as the following data proves:

Coal accounts for just 8.1% of the "California Power Mix."

Frezza could have found even more detailed information. It's all publicly available. Finding it takes little more than a Google search. A recent review of the Nissan (OTCPK:NSANY) Leaf contained the following statistics:

As much as I am on board with the conclusions that came out of the Leaf test drive, I had to go and confirm the veracity of the report. Here's what I found. I looked at the three major generators of electricity in the State of California, as of 2007 - Southern California Edison, Pacific Gas and Electric (PG&E) and the Los Angeles Department of Power and Water (DPW). I wanted to see what sources they use to produce electricity, considering they serve two major EV markets - Northern and Southern California. Doing this absolutely discredits Frezza's slick use of the term "coal burning cars."
Because of how Southern California Edison sets up its website, it's difficult to clearly show you the main power sources it uses to generate electricity. You can, however, follow this link and review that information. You will see that coal is not the main character. The following screen captures from the PG&E and DPW websites provide the same rebuke of Frezza's sloppy reporting:

Frezza goes on to rant about a "charging infrastructure" that "doesn't exist" and the need for - a set of overused political buzzwords - "massive taxpayers subsidies" that we apparently would need to provide that infrastructure and move away from fossil-fuel power plants. Again, Frezza could have Googled. As the Leaf review notes, hardly enough EV charging stations exist, but they're growing like wildfire. Here's an excerpt from a recent article I wrote on the subject:

In that article, I detail the efforts of several companies - American Electric Company (NYSE:AEP), AeroVironment (NASDAQ:AVAV), Ecotality (ECTY) and NRG Energy (NYSE:NRG) - to build out the EV charging station infrastructure. Some of these initiatives, particularly in Ecotality's case, come from government contracts, but, again, Frezza makes nothing more than a baseless attempt to drum up hysterical and politically-charged anger. Though I am not sure about Frezza, it's telling when anti-EV critics show no outrage at the "massive taxpayer subsidies" given to the traditional auto industry, yet they balk at plans to publicly fund a bicycle lane or EV initiative.

Sadly, Frezza did not focus his ill-advised assault on California, EV charging infrastructure and the issue of taxes, he pulled a sliver of truth regarding EV sales statistics out of the ether.

First, Frezza fails to mention that the Chevy (NYSE:GM) Volt is not a pure EV. You can read about it at Chevy's website. Even more irresponsibly, he does not even tell half of the story regarding the Leaf.

Production issues have hurt the Leaf's initial run. It's simply an issue of supply, not demand. The earthquake and tsunami that devastated Japan also hurt Nissan's ability to crank out Leafs. It's not that people do not want them. In fact, Nissan will set a record for the number of Leafs sold this month, as the company aims to deliver 10,000 to 12,000 Leafs this year to satisfy a waiting list of about 11,000. (The Leaf waiting list started at about 20,000, but shrank to 11,000 firm orders). And, of course, Frezza makes no mention of Tesla's (NASDAQ:TSLA) success with the Roadster and the forthcoming Model S. Discussion of Ford's (NYSE:F) EV initiatives and optimism must have hit the cutting room floor as well, yet a specious mention of a Ford car from 1960, the Edsel, somehow warranted inclusion.

When most investors conduct due diligence they likely use Google or another search engine to facilitate at least some of the research. It makes logical sense that an investor would execute a search that contains the words "California" and "electric vehicle," among other terms. If you hit it just right - or you searched on Seeking Alpha - you might come up with Frezza's article. I am not saying it should not be out there. I don't blame Seeking Alpha for including it in Market Currents. Rather, I encourage investors to take the next step when evaluating a particular stock or sector. I use Frezza as just one example of the irresponsible reporting that distorts reality not only in the EV space, but in other industries investors might look to put their money into.

Disclosure: I am long TSLA.