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Plug-in Vehicles; Waist Deep In The Big Muddy

John Petersen

Generation specific cultural references can be treacherous ground for bloggers because the flashback effect is usually limited to readers with long and vivid memories. In this case, however, the lessons of history are so relevant that I'll accept the risk and offer some context for younger readers.

In my youth a war wrapped in the liberal ideology of the Kennedy and Johnson administrations and fueled by an underlying concern over who would control oil and gas resources in the Gulf of Tonkin was fought in the jungles of Vietnam, Laos and Cambodia. By current standards, the toll of 47,424 battle deaths was staggering. By the late '60s opposition to the War was widespread and a galvanizing force behind the antiwar movement was music, including an iconic folksong from Pete Seeger, Waist Deep in the Big Muddy.



While my use of an antiwar anthem to make a point about plug-in vehicles is certain to draw howls of outrage from advocates and true believers, I think the analogy is apt because the ideologically inspired road to disaster we trod during the late '60s is frighteningly similar to the path we're on today with plug-in vehicles where the prevailing attitude seems to be "damn the facts, push on."

Our fundamental energy problems are easy to identify – increasing oil prices and increasing reliance on imports. Both numbers have been climbing steadily for decades and consumers have been stubbornly reluctant to change their behavior in response to prices. The burden on the economy becomes heavier with each passing year and if you're willing to extend the current price channel out for another decade, oil price expectations in the $150 to $180 per barrel range don't seem all that far fetched.

WTI Price.png

For as long as automakers have been proposing plug-in electric vehicles, skeptics like me have been noting that fuel savings are unlikely to give consumers a cash-on-cash payback of their incremental cost over the life of the vehicle, much less the three to five year window that consumers typically expect. There are countless vague promises about  economies of scale driving down costs as the industry matures, but at least in the battery sector where raw materials and plant automation are the primary cost drivers and labor is almost a rounding error, I have a hard time banking on a fairy godmother to restrain commodity prices and equipment costs. While the following graph of long-term industrial and precious metal prices from Credit Suisse is a little dated, it certainly has the same general shape and slope as the most recent decade on the oil price chart.

Metals Prices.png

"We were knee deep in the Big Muddy, the big fool said to push on."

For several years realists like Vinod Khosla and others have noted that since the U.S. gets roughly 50% of its electricity from coal and will likely do so for decades to come, the environmental benefits of plugging an electric vehicle into a lump of coal will be few and far between. Last week, I offered a simple comparison of plug-in vehicles with conventional HEV technology (without plugs) that proves plug-ins are about one-quarter as effective at reducing oil imports as cheaper HEVs that can point to a decade of performance under real world conditions.

"We were waist deep in the Big Muddy, the big fool said to push on."

The real flies in the ointment are that plug-in vehicles don't significantly change the energy balance, they're far too resource constrained to make a dent in oil imports, and the fundamental economic premise only works if you are willing to assume that historically moderate trends in retail electricity prices will continue forever.

From an overall energy balance perspective, plug-ins don't change the amount of energy needed to move a vehicle down the road. Instead, they merely move the conversion of fuel to energy from under the hood to a local power station while increasing vehicle cost by 50% to 100%.

Likewise, the batteries that will be used in plug-ins are made from raw materials that are orders of magnitude less abundant than oil. The resource constraint issues go far beyond lithium availability and extend to every component in batteries and battery packs. Those materials all have alternative uses in high value products and from a resource availability standpoint, using batteries to conserve oil is a lot like using gold to conserve copper.

Finally, it's almost impossible to find a newspaper or magazine that doesn't have several articles on the evolution of the electric grid. We're seeing massive investments in wind and solar power installations and the estimated cost of the coming smart grid runs to trillions of dollars. Since the one certainty is that private capital will not finance alternative energy or the smart grid without expecting both a return of capital and a return on capital, it's patently absurd to believe that electricity price increases will remain as benign in the future as they have been in the past.

"We were neck deep in the Big Muddy, the big fool said to push on."

When I was but a lad one of my mother's favorite quips was "use your head for something besides a hat rack." It was her way of teaching me to look beyond my immediate circumstances, consider the factors that led me to a decision-point and reflect carefully on the likely consequences of my actions. When it comes to plug-in vehicles, investors and the general public have been little more than hat racks for too long. Instead of thinking things through and questioning assumptions, they've been placated by "wouldn't it be great if ...?" sound bites. Instead of asking whether crossing the big muddy is possible or the effort worthwhile, they've allowed themselves to be led down the garden path by politicians and activists who vainly promise gain without pain and reward without risk.

If it weren't so damned expensive, I'd describe vehicle electrification beyond the HEV stage as a zero sum game. Given the immense costs that are becoming increasingly clear with each passing day, I'd characterize it as a game where we can't reasonably hope to break even.

Disclosure: No stocks mentioned because we all know who they are.



was posted on AltEnergyStocks.com.


       

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Comments

John,

You say:
"From an overall energy balance perspective, plug-ins don't change the amount of energy needed to move a vehicle down the road. Instead, they merely move the conversion of fuel to energy from under the hood to a local power station while increasing vehicle cost by 50% to 100%."

Once again, you have exactly and correctly analyzed the problem. I do not think that the public understands this point. I sincerely believe that the average Joe thinks we will use less energy with EVs than with ICEs. Once the coal fired LED goes on in Joe's brain he may reconsider his position.

John,

As usual you hit the nail on the head. Unfortunately your preaching to the choir. The average Joe hears all the hype about all electric cars and buys into it. The lithium battery upstarts are just fleecing the tax payers while lining their pockets.

Today in the WSJ GM says that they will return to a profit by selling more big pickups! No mention of the Volt.

Us American's are putting on the blinders and charging full on into the abyss.

The bigger question is "how do I make a buck" off of this EV/lithium battery joke?

Most of the lithium-ion companies trade at pretty lofty values, but I learned ages ago that the market can stay irrational longer than many can stay solvent. So I continue to believe the best opportunities are in companies that trade at objectively low multiples and have solid business prospects. Sooner or later things will reach equilibrium and for that to happen the underdogs need to make up a lot of ground.

"From an overall energy balance perspective, plug-ins don't change the amount of energy needed to move a vehicle down the road."

Given the huge difference between batteries (any) and gasoline in terms of specific energy is it not likely that plug-ins would actually require more energy (given the extra weight of the battery being carried around compared with a tank of gasoline) to move down the road than an ICE vehicle?

This is not to criticise your argument (I have been following your blog for a long time and agree with your main thrust) but rather to reinforce the view that the rush to plug-ins is illconceived. The Boston Consulting Group report, Batteries for Electric Cars, just published,(http://www.bcg.com/documents/file36615.pdf) concludes that there will be significant challenges in reducing costs of lithium-ion batteries to an acceptable level before 2020.

In the meantime viable alternatives such as micro, mild and full-hybrids appear to be getting rather less attention than should be warranted.

A detailed analysis of weight differentials is way beyond my abilities. Since a man's got to understand his own limitations, I'll just stick with larger concepts and praise efficiency while condemning waste.

Now that I've pretty much exhausted the plug-in discussion, I plan to focus more closely on regular guy solutions that can make a real difference, like micro, mild and full hybrids.

Apparently the industry agrees that battery supplies will be constrained for the next decade.

http://green.autoblog.com/2010/01/18/got-cells-battery-supplier-ceo-warns-of-limited-battery-supply/

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