Yesterday, we looked at the advent of alternative energy (solar and wind energy) and wondered whether the incoming Trump administration might be a threat to your alternative energy portfolio (here).
Well, after the poor guidance from First Solar (NASDAQ:FSLR), it doesn't seem that the incoming Trump administration is the biggest threat to alternative energy, but this is a simple solar glut, a more familiar beast (as we explained here).
But there is another, crucial sector that might become in the cross hairs of the new administration, and that's energy storage, more specifically battery technology.
Both wind and solar energy are intermittent, they only produce electricity when the sun shines or the wind blows. Both would benefit greatly from cheaper energy storage, which is therefore basically the holy grail of alternative energy.
The above graph showed that the cost of battery technology has declined at the same, or even faster pace as the cost of solar and wind energy.
Lithium-ion batteries have gotten 65% cheaper since 2010, a similar fall in cost compared to wind and solar energy. One of the main drivers for this has been the development of electric vehicles (EV cars).
While Tesla (NASDAQ:TSLA) has been at the forefront with its gigafactory, other car companies are following suit. Over the next few years, there are some 19 EV models coming online, like the GM Bolt, costing around $37k with a 238-mile range.
So there is considerable momentum behind EVs from car manufacturers, one should not forget that EVs are considerably cheaper to make (from Wolf Street, emphasis ours):
EVs are much easier and cheaper to build than vehicles with internal combustion engines. Instead of engines, engine control systems, emission control systems, cooling systems, air-intake systems, starters, transmissions with clutches or torque-converters, or transaxles, fuel systems, exhaust systems with catalytic converters, the computers, sensors, and regulators to tie it all together, and the like, EVs have electric motors, a battery, and some wiring and controllers to make it all work.
And they have other advantages (from Oilprice.com, emphasis ours):
EVs will beat the internal-combustion engine on many more fronts than just emissions. As Liebreich writes, EVs "drive more smoothly yet accelerate better, they can be charged at home or at the office, they require much less maintenance, they help solve air quality problems, they improve the energy autonomy of oil-importing countries." EVs also are "vastly superior" to fossil fuel-powered vehicles when it comes to autonomous driving, infotainment, and other features. "[I]t simply makes no sense to have an inherently analogue power unit - vibrating, volatile-liquid-consuming, hot-polluting-exhaust-producing - at the heart of a fully digital, sensor-pervaded, solid-state-electronics-controlled system," Liebreich argues.
And last but certainly not least (From Forbes, our emphasis):
As electric cars continue to improve, so do the efficiencies - or the ability to input a unit of energy and to realize more output. In fact, traditional cars running on an internal combustion engine have a 30 percent efficiency. The rest is lost to heat, sound and energy. Just refining a gallon of gasoline takes 7 kilowatts-hours per gallon, says Thor Hinckley, a electric vehicle and renewable energy expert with CLEAResult, a consulting specializing in energy efficiency. But vehicles that run on electricity have an 80 percent efficiency rate, or they convert 80 percent of those Btus to energy, he explains. The efficiencies are greater because of the superiority of the electric motor over that of the internal combustion engine - not because one unit of energy is better than another.
We provide considerable details here because we fear some might not be all that familiar with the inherent superiority of EVs. The perception seems to be that EVs are hobbled by these expensive batteries.
While that is true, EVs also have inherent advantages and battery cost is falling rapidly.
So what are the chances that this will be derailed by the incoming Trump administration's shift towards fossil fuels? In principle, there is some reason to worry as the EV sector is less entrenched compared to the solar and wind sectors.
What kind of public assistance does the EV sector depend on? Well, there are:
- A $2,500-$7,500 Federal tax credit, depending on the model of the car and the capacity of the battery.
- Additional incentives from the state, city or even utility level, depending where you live.
- The Fast Act (December 2015), supporting and coordinating charging infrastructure and designating national EV vehicle charging corridors.
- There are some 24 states and local governments that have committed to expand their government vehicle fleets with EVs.
When can we expect that EVs can compete on price alone? This is perhaps the most fundamental question as it gives us a rough idea until when we can expect these subsidies to be important drivers of market acceptance of EVs. Here is Forbes again (our emphasis):
Bloomberg New Energy Finance is predicting that electric cars will be just as cost effective as traditional vehicles by 2022. The firm's analysis assumes the price per barrel of oil is between $50-$70 a barrel. By 2040, it expects electric vehicles to make up 35 percent of the transportation market. According to the Energy Information Administration, electric vehicles are now 1.6 percent of the overall car market. But that could increase in 2025 to 6 percent.
These expectations are based on unchanged policy. Some of this depends on what undoubtedly is the boldest actor in the space, Tesla's Elon Musk. Batteries are estimated to cost a third to one-half of the mass market Model 3.
Here is Quartz's Steve Levine (from MIT Technology Review, emphasis ours):
Levine cites a battery market investment analyst who says that the Model 3's anodes could contain up to 10 percent silicon, which battery experts say would be a "serious breakthrough." Serious enough, in fact, that it might allow Tesla to bring the cost of its batteries down from an estimated $300 per kilowatt-hour in 2014 to $200 by 2017. That would get us much closer to $150, the point at which some experts have predicted there could be a "paradigm shift" away from internal combustion cars.
So we're not that far off already - any cut in subsidies like the Federal tax credit might slow the uptake a bit, but not for all that long. What happens on the technology front is ultimately much more important. Besides (from Oilprice.com):
The fact that the provision expires for automakers once each surpasses 200,000 EVs sold could actually help the tax credit from getting axed.
We also think with some 19 new EV models coming on the market in the next year or two, the car industry is not going to take subsidy cuts lying down.
What about the infrastructure subsidies, could these slow the build-out of the necessary recharging stations? Perhaps a bit, but there is really impressive momentum behind that already, growing by 89% in the last three years.
What could be in danger is some of this though (From The Telegraph):
The US Energy Department is funding 75 projects developing electricity storage, mobilizing teams of scientists at Harvard, MIT, Stanford, and the elite Lawrence Livermore and Oak Ridge labs in a bid for what it calls the 'Holy Grail' of energy policy.
That would be a real pity, but mainly for the US itself. The genie is already well and truly out of the bottle (from EETimes):
A group of eight Korean industry heavyweights, including carmaker Hyundai (OTC:HYMPY), technology conglomerate Samsung (OTC:SSNLF) and LG Electronics have aired plans to massively invest into the development of electric vehicles, batteries and related information technology.
Even Toyota (NYSE:TM) is now fully embarking on pure EVs, after having led with its revolutionary hybrid the Prius.
So the world isn't waiting for Trump, or the US for that matter. It is waiting for Elon Musk and Tesla to deliver though.
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