Owner-Oriented Investment Research and Commentary - Have a private comment or question? Email us at commonstocksense@gmail.com

Friday, August 28, 2009

Competition for BYD and Divergent Views on "Green" Cars - EVs versus Hybrids

More and more headlines are surfacing about hybrid automobiles and electric vehicles (EVs). For example, Forbes published "Nissan's Plug-In Gamble" on 8/05/09 (link here) and, on 8/20/09, The New York Times published "Toyota, Hybrid Innovator, Holds Back in Race to Go Electric" (link here). we even noticed last week end that the NYTs article was the headline story on Yahoo!'s (YHOO) main page last weekend (at least for a little while - Yahoo! link). Finally, Norwegian upstart automaker Think has a new financial plan and a grand vision of ultimately selling 60,000 EVs per year (see this story).

Before sharing more details, here's our quick conclusion: lots of competition for BYD and investor Berkshire Hathaway (BRK-A, BRK-B). As a reminder, we questioned Berkshire Hathaway's investment in BYD on 7/23/09. One of our observations was as follows: "incumbent players are not going to close up shop and go home. BYD will need to work overtime to achieve the quality and reliability for which Toyota (TM) and Honda (HMC) are well known."

Some highlights from the Nissan article:
  • With the help of government loans in the U.S. and elsewhere, Nissan Motor plans to invest several billion dollars over the next three years to construct factories for advanced batteries and retool assembly plants that could produce 300,000 to 400,000 electric vehicles a year on three continents.
  • .... no manufacturer so far matches Nissan's ambition to create a mass market for all-electric vehicles. GM is looking to sell "tens of thousands" of its plug-in Chevy Volt, due in November 2010. Late this year Toyota Motor will start testing a few hundred plug-in versions of its Prius hybrid. But both have backup gasoline engines. Tesla has a pure-electric sports car, but it costs $101,000. Japan's number four automaker, Mitsubishi, launched its electrici-MiEV in June. At $48,000 it's not likely to sell in huge numbers, either. Subaru and BMW's Mini is testing the market for battery-operated cars but in low volumes. Toyota, Ford Motor and Chrysler say they'll have an electric car in a few years but appear behind Nissan in revving up to high-volume sales.
  • Toyota sold 159,000 Prius hybrids in 2008, compared with Nissan's 8,800 Altima hybrids, which use Toyota's technology.
  • The first of the company's new electric models, the Nissan Leaf, was unveiled in early August in Japan. It's a five-passenger hatchback with a 24-kilowatt-hour battery in the floor that can go 100 miles between charges. Production begins late next year in Japan, with a starting volume of 50,000 units a year. It'll be available in a dozen U.S. cities starting in late 2010. It is expected to sell for around $30,000 [before $7,500 U.S. government tax credit].
  • By 2012 Nissan will have a lithium-ion battery plant and a retooled electric-vehicle assembly line in place in Tennessee, funded in part by a $1.6 billion loan from the U.S. Energy Department. Nissan plans to build 150,000 EVs and 200,000 batteries a year in the U.S. and announced similar plans for battery factories in Great Britain and Portugal.
  • Nissan has been developing lithium-ion batteries in-house for 17 years. Last year Nissan locked up its future supply by purchasing a controlling interest in its battery manufacturing joint venture with Japan's NEC.
Now, some interesting, alternate viewpoints from the Toyota article:
  • ....Toyota does not plan to introduce an all-electric car until 2012. Instead, later this year, it plans to introduce a plug-in electric-gasoline hybrid, and only a few hundred initially.
  • [Why wait?] "The time is not here," Masatami Takimoto, Toyota's executive vice president, said during a factory tour this year. Electric cars "face many challenges," he said, adding that "to commercialize pure E.V.'s, we need a battery that far exceeds the current technology."
  • ....Toyota, which started developing hybrids in the early 1990s, did not make a profit on the cars until 2001, said Takeshi Uchiyamada, the chief engineer of the first-generation Prius.
  • "At first, electric cars will all be small, making profit margins small also," said Maho Inoue, an automobile analyst at the Daiwa Institute of Research, a research group in Tokyo.
  • Toyota executives rattle off reasons to be skeptical of electric cars: They do not travel far enough on a charge; their batteries are expensive and not reliable; the electrical infrastructure is not in place to recharge them.
  • It remains unclear how soon there will be a mass market for expensive cars with limited range, Toyota says.
  • Even when electric cars are sold widely, the company says, they will be suitable only for short trips and serve a decidedly niche market. Toyota is instead building on its hybrid technology, bringing out a plug-in, gasoline-electric hybrid vehicle later this year that runs a short distance on batteries before the hybrid system kicks in.
  • Some experts predict that the auto market will soon be divided among competing technologies. "Small electric cars will be used for short distances within cities, with hydrogen cells powering big buses," the Development Bank of Japan forecast in 2008.
Related to the Nissan article, Forbes Editor, William Baldwin, raises good questions about EV economics while also pointing to the virtues of natural gas (link here):
  • ... let's look at a bad way to reduce atmospheric carbon: subsidizing electric cars. The federal government will chip in $7,500 to the cost of a Nissan Leaf or a General Motors Volt. A Leaf will displace a little sedan burning maybe 5,000 gallons of gas over its 150,000-mile life span. That much gasoline produces not even 50 tons of carbon dioxide. Don't believe that the electric is an "emission-free" vehicle; the juice comes from somewhere, and today the incremental source of electric power is going to be a fossil-fueled plant. You'd be generous to the electric car industry in assuming that the car, the power plant and the charger in your garage are, taken together, four times as efficient as a gasoline car engine. The math is simple. Using a Leaf to reduce carbon dioxide costs taxpayers $200 a ton. Throw in the subsidy for the charger and the price goes to $250.
* "Simple" math: we assume Mr. Baldwin includes some emissions for EV production and power, as well as a potential shorter useful life for the average displaced auto (i.e. not a150,000-mile life span referenced above), leading to net carbon savings of approximately 38 tons, or $7,500 credit divided by $200/ton = 37.5 tons.

Mr. Baldwin's idea for reducing emissions:
  • You want to get carbon out of the atmosphere? There's an easy way to do it. Pay an electric utility to throttle back one of its older coal-fueled plants and fire up an efficient turbine burning clean natural gas. Gas is more expensive than coal (per unit of energy) but spits out not much more than half the carbon. The higher fuel cost translates into something in the neighborhood of $20 per ton of avoided co2, according to calculations from the Electric Power Research Institute.
Thus, much to consider amidst an always dynamic economic, environmental, political, and technological landscape. One thing is for sure: BYD is not alone in its quest to become the world's largest automaker by selling electric cars. We plan to keep an eye on developments and results.

Happy investing,

Jeffrey Walkenhorst
CommonStock$ense

Disclosure: long BRK-B, YHOO.

© 2009 Jeffrey Walkenhorst
Please see important Risk Factors & Disclaimer

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.