We live in a country of petrol heads. Nearly 400,000 petrol or diesel-powered cars choke our roads and lungs and guarantee long commutes, ever more asphalt and a shortened lifespan. If you happened to be a keen cyclist like me you’d know what it means to pedal uphill from Santi or Binġemma behind a soot-belching lorry.
As we are all keen to live longer and to earn good money from nature-loving tourists it would be a smart move to start planning for all-electric transport solutions. Besides, we are bottom of the league when it comes to facing up to our carbon emission obligations under the Paris Agreement – largely due to our dirty car stock.
A masterplan for phasing out combustion engines and rolling out ride-sharing schemes for our isles is certainly asked for. In the meantime we retail investors should consider how the global transport revolution taking place in the rest of the world may affect our investment portfolio.
Is it really a good idea to invest in big oil, when the Saudis try to sell their Aramco oil behemoth to the world, and the Norway Sovereign Wealth Fund decided to shed its fossil fuel investments? Is it smart to invest in ride-hailing companies like Uber, or car companies like Tesla which created so much buzz with its fast and long-range e-limousines?
Should we invest alongside Warren Buffet in Chinese carmaker BYD, which announced in September last year that “all our vehicles will be electrified by 2030”? Should we all buy Volvo shares, because they declared that “every Volvo will have an electrical engine by 2020”? Should we invest in Zipcar/Avis, the ridesharing enterprise? Is it smart to invest in self-driving car technology? Are traditional car manufacturers hopelessly trailing behind the ideas and investments of tech-companies like Alphabet?
I beg to caution. It is one thing to recognise the success of new technologies. Without doubt we will see, in the coming years, driverless HGVs trucking in close columns along the highways and robot cars replacing human taxi services in the cities. It is not difficult to predict that smarter batteries will soon enable electrically driven cars to drive cheaper and further than the most efficient combustion engines. We will see electrically powered ships and planes even. We will experience in our lifetime traffic with far fewer casualties and we will breathe fresher air and fewer pollutants.
But it is quite another thing to identify the winners. The invention of the car was ground-breaking, yet thousands of car makers have gone bust since Carl Benz invented the modern car in the 19th century, and only very few still thrive today. Many railway investments ended in Ponzi-schemes and we all remember the bursting of the internet bubble. The technology was ground-breaking, yet so many failed.
The success of electrically powered cars (EV) depends on many factors like these:
It is one thing to recognise the success of new technologies. But it is quite another to identify the winners
1) E-cars are still not cheap. Without public subsidies only few of us would be willing buyers. Batteries, the main cost-factor, are getting increasingly cheaper though. Only seven years ago, lithium-ion batteries were three times dearer and their price is predicted to decline progressively. In the meantime, EVs will sell in countries with governments prepared to heavily subsidise cleaner air and CO2 reductions. In wealthy Norway, 30 per cent of all cars are already electrically powered, followed by the Netherlands (6.4 per cent) and Sweden (3.4 per cent). In 2016, two million EVs were on the road globally; a modest quantity when compared with a stock of 1.2 billion petrol and diesel cars. The International Energy Agency estimates that by 2025 the EV stock will have increased to 70 million. Little surprise then, that Saudi Arabia’s oil minister is not panicking yet. Car companies that go electric only will risk putting too many eggs into one basket.
2) Buyers have ‘range anxiety’. Many models cover hardly more than 100km before they have to be recharged. The Nissan Leaf for instance, a best-selling e-car, has a range of approximately 120km. This looks less of a handicap now with the arrival of Tesla’s Model S. Depending on the size of the chosen battery capacity it can drive 380 to 510km – much more than most of us will drive in a day. Cars with more mileage per charge will do better than those that stop halfway home.
3) Most owners of EVs will choose to plug in their cars at home, with 230V, which will be way cheaper than the 400V-power-charging at charging points and much cheaper per km than petrol. Yet not everybody has a driveway or will have a plug where the car is parked, which will make the roll-out of accommodating infrastructure essential, if electric cars were ever meant to sell in bigger numbers. Car companies that are willing to partner with energy companies and government will be winners.
4) Power-charging (up to 80 per cent of battery capacity) still takes a minimum of 30 minutes. Technology will shorten charging times over the next years, but it will still be necessary that planning authorities force the proliferation of charging outlets. Estonia is the only country so far with nationwide charging coverage. Car companies selling in such progressive countries will fare better than others.
5) Today, every major car producer plans for EV growth: GM, VW, BMW, Toyota, Renault; announcements of going totally electrical will soon be the norm. Yet most car dealers have little experience and even fewer incentives to sell e-cars. My prediction is that the company manufacturing the most reliable, best manufactured car at competitive prices will succeed, but only if it also manages to sell well. The chances are that companies like Mercedes Benz will fare better than newcomers.
6) Individual driving is in decline, as is car ownership. Young people can ill-afford to own a car these days. Companies that focus on fleet management, transport solutions and ride sharing will fare better than those that don’t. Worries about parking, road taxes, battery depreciation, resale value, breakdowns, cost of spares, or service intervals are hardly purchase stimulants. Companies that offer fixed-price subscriptions for cars will do better than those that wait for buyers.
6) The discussion whether EVs are truly green has so far focused on the ‘long tailpipe’: EVs can never reduce emissions if electricity generation in itself is dirty. Power stations fired with lignite take the soot from the exhaust to the chimney. Soon the focus will be on the car companies themselves. How green is their production? Are cars manufactured with solar or conventional power? How environmentally sustainable is their supply chain? How deep is their recycling commitment? How honest is the accounting of their carbon footprint?
Remembering ‘Dieselgate’, my guess would be that predicting winners will be difficult – and identifying losers early on impossible. Just think how well big tobacco is still doing, when we all thought they will go under any time soon. It is therefore of paramount importance to resist the temptation of hype and focus on the quality of convincingly good management.
My next car will be without doubt an e-car. I am not yet sure which brand, but I am very sure that if I like the experience I will consider investing in the company too.
Andreas Weitzer is an independent journalist based in Malta. He reports on the economy, politics and finance. The purpose of his column is to broaden readers’ general financial knowledge. It should not be interpreted as presenting investment advice or advice on the buying and selling of financial products.
Please send in any suggestions for discussion in this column to: editor@timesofmalta.com – Subject: Sunday Times Personal Finance.