by Benjamin Stein, Associate Analyst, Research 2.0
Everyone is jumping on the eco-friendly bandwagon with increased awareness of clean technologies and renewable energy. Today, huge SUVs are dÃ©classÃ© and fuel efficiency is the new black (along with surfing the web in your car). Â As gasoline consumption is becoming viewed with ire, you wonâ€™t want to be seen in public driving anything but a hybrid. You might be harassed by your neighbor because your Chevy Volt is only a series hybrid â€” a gas guzzler in comparison to his pure electric Tesla Model S â€” and the guy next doors scoffs at both of you because his Fisker Karma sports a sustainable interior of bamboo woven â€œleatherâ€ seats. The Karma owner didnâ€™t mention his car is a series hybrid too which utilizes a gas-powered generator to extend its range because he is part of the â€œEco-Chicâ€ â€“ the elitists of the green energy movement. There are many kinds of EVs, and for every class of EV there is a tree-hugging celebrity to serve as a poster boy or girl for the model.
The Hollywood Hunk with a Battery in the Trunk
George Clooney is relatively young and successful; ordinarily, a tough decision for him is whether or not to buy a BMW or Mercedes. Heâ€™s cool and has a poker face that would make any car salesman go running in the other direction. Although, in this case, salesmen shouldnâ€™t be worried since spending $49,900 isnâ€™t really an issue for people like George. Georgeâ€™s type doesnâ€™t care about the economics of EVs or whether there is any real value in electricity as an alternative to gasoline. George has a reputation to maintain â€“ no better way to do that than to buy the latest and greatest Model S from Tesla. The Model S conveys luxury and the driver derives a subdued sense of eco-satisfaction from this kind of vehicle. Clooney isnâ€™t so much buying the Tesla because heâ€™s trying to save the rain forest but more so because the Model S is a â€œgot to have itâ€ purchase. Tesla cemented their positioning as the “performance” EV with their roadster which graces the highways of Silicon Valley. For buyers like George who are “too sexy for their EV” the Tesla is likely to be the best fit until models from Ferrari and Maserati begin to appear in a few years.
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The PHEV Poser
Al Gore is part of â€œEco-Chicâ€ â€“ he represents the elitists and snobs of the global warming movement. Al will shout from the top of the mountain about how the polar ice caps are melting while he cranks up the air conditioning in his Belle Meade mansion. Goreâ€™s mansion in Nashville consumes energy at 20 times the national average. Fiskerâ€™s Karma is just the right kind EV for people like Al. In fact, Fisker coined the phrase â€œEco Chicâ€ and it represents a tier of interior specifications for their flagship EV. Buyers can choose to have the wood trim carved from sunken, rescued, or fallen timber and the vehicles glass is made from recycled sand, whatever that is. Fisker also uses a â€œ100% sustainable manufacturing strategyâ€ for the leather interior. On the surface Gore looks virtuous but we know he doesnâ€™t follow through. The Karma has a similar faÃ§ade in that the Karma is a series hybrid that relies on a range extender that isnâ€™t fully independent of fossil fuels. The $88,000 Karma is more of conversation piece than an actual solution for mass-produced, widely available electric vehicles.
The Green Collar Guy
Larry David, from the HBO series â€œCurb Your Enthusiasmâ€ is like many typical drivers who drive 40 or fewer miles to work every day. In fact, this is true for 90% of Americans and Larry doesnâ€™t have to go far to get to his Los Angeles area office. We all know Larry has driven a Prius in the past but heâ€™s trading in his malfunction prone vehicle before itâ€™s too late. Â He’s not likely to spring for a Tesla but Larry is willing to pay around $40,000 or less for models such as the Chevy Volt, Nissan Leaf, and BYD F3DM. For Larry and many drivers like him, cost will be a large part of their buying decision because the drivers in this segment usually spend between $22,000 and $32,000. Even with a $3,400 tax credit, justifying spending the extra cash is a stretch. If we do some quick math we can see an average driver of a gas-powered vehicle who drives 12,000 miles a year at 25mpg will spend $1200 in gasoline. The same driver in a series hybrid with an 8 gallon tank and a 16 kWh battery will pay $776 a year in fuel and electricity cost, a $424 savings. Larry might pay as much as $36,600 for a Chevy Volt after a federal tax rebate â€“ $10,600 more than a comparable fully gas powered vehicle just to be in the eco friendly club â€“ kind of a tough sell to the cost curbing crowd.
Cars, especially in America, are a very emotionally-charged and social purchase. Â Many investors fail to see the diversity of possibilities that electric car technology will offer. Â The Tesla roadster is certainly not a go-slow station car. Â At the same time city dwellers may gravitate toward more utility-style vehicles not even described here. Â Investors today are looking to play this trend with infrastructure suppliers like A123 Systems (AONE – $14.64) even if the economics of these companies are far from clear.
Although our Tesla report is available only on SharesPost other research on A123 Systems and BYD can be found in our online research library. Â (Membership required but free upon approval.)
[Disclosure: R2 covers both Tesla and A123 but neither is in the R2 Model Portfolio or owned by the author of this post.]