Yoshikami: Turning Electric Vehicles Into Profits
With gasoline prices rising and more people around the world moving to cities, there is a concerted push for the automotive industry to reinvent itself as consumers look for alternatives to the internal combustion engine.
Investors and manufacturers such as California-based electric carmaker Fisker Automotive, Tesla Motors and Better Place, are betting that innovation in battery technology will make electric cars the transport of the future.
However, the extent of the disruption caused by new electric and hybrid-powered car technologies in the auto industry remains to be seen. It is still debatable if consumers are willing to pay a premium price to be green.
Boston Consulting Group cut its U.S. electric vehicle penetration estimate by two-fifths to just 3 percent by 2020. Research conducted by Bloomberg, New Energy Finance suggests that price, at least in the short term, will be the most important factor for plug-in vehicle sales.
Bloomberg's study shows that plug-in vehicles have the potential to capture 9 percent of new car sales by 2020 and up to 22 percent by 2030, but achieving growth of that magnitude will only come if battery costs dip and fuel prices rise.
Between July 2009 and June 2010, autos sold in the U.S. averaged $21,800. The 2011 Nissan leaf comes with a price tag of $32,780 ($25,280 after federal tax credits) while GM’s 2011 Chevy Volt is around $40,000 ($33,500 after federal tax credits).
The study estimates that the Volt’s “addressable market” or possible buyers who have the financial means to buy such a vehicle, as well as travel within the range constraints of a typical battery-powered auto or have access to a charging system, is only 7 percent of new car buyers.
Manufacturers are finding it a struggle to create mass demand. The issue is how to make electric vehicles cost-efficient, convenient and appealing to consumers.
These vehicles lack driving range, require long recharging times and often feature performance compromises (e.g., inability to hold a charge in cold climates, lack of power over mountainous/hilly terrain). Moreover, there is a substantial lack of infrastructure to support widespread electric vehicle recharging.
A growing world population means more carbon emissions, more pollution and more global warming. Governments and manufacturers need to find a way to make environment friendly vehicles more affordable and practical. It must be a concerted, dedicated effort, or the status quo will prevail with huge long-term consequences.
Michael Yoshikami, Ph.D., CFP®, is CEO, Founder and Chairman of YCMNET's Investment Committee at YCMNET Advisors. Founded in 1986, YCMNET is a San Francisco Bay Area-based independent money management firm that provides fee-based wealth management services to institutional investors and individual investors. The firm works with clients around the world. Michael was named by Barron's as one of the Top 100 Independent Financial Advisors for 2009 and 2010. He oversees all investment and research activities of the firm and is actively engaged on a daily basis in the firm's securities analysis activities and determines the macro tactical asset allocation weightings for client portfolios. He works with YCMNET's investment team in integrating behavioral investing strategies with the firm's core fundamental perspective. Michael holds a Ph.D. in education, other advanced degrees, and holds the Certified Financial Planner® (CFP) designation.