Electric vehicles are slated to be the environmentally friendly, low emission solution to the world’s global warming problem. While these cars certainly have the potential to provide significant environmental benefits, there are a few points that need to be clarified. The London based research group ‘Union of Concerned Scientists’ have performed a study comparing the environmental impact of electric vehicles compared to fuel-combustion vehicles and have found that it depends strongly on where the vehicle is being driven. Let me explain…
Instead of coming from a fuel tank full of petrol, the energy to power an electric vehicle (EV) essential comes from the power plants that generate the electricity for the city that the EV operates in. In a country heavily supplied by low emission energy (solar, wind etc.), EV’s provide a significant benefit over petrol or diesel powered vehicles. On the other hand, in countries that produce much of their electricity from coal, the benefits of EV’s are much smaller. Specifically, a country like France, which produces much of its energy from nuclear and renewables, the benefit from EV’s is significant while in China or Australia, which still rely heavily on coal power, that benefit shrinks to as little as 15% according to the Union of Concerned Scientists report.
Of course, over time it is hoped that national power generation will shift more and more towards renewables and therefore the overall environmental impact of EV’s will reduce too. Improving efficiency of petrol engines will ensure that the gap doesn’t blow out as much as might be expected however.
EV’s still have some issues that could prevent widespread adoption. Vehicle range, together with recharging times, are major stumbling blocks for these cars. Even with a range of 500km, consumers will not like having to wait upwards of 30 minutes to recharge the car. This could prove to be a major inconvenience for longer journeys. Furthermore, one issue that is rarely mentioned is the fact that the lithium batteries used in these cars degrade with time and the number of recharge cycles. Companies like Tesla Motors Inc (NASDAQ:TSLA) have worked hard to reduce this degradation as much as possible but it still remains an inevitable fact that lithium batteries degrade. What this means in practical terms is that the range of an EV will decrease over time. Eventually, the entire battery pack in a car would have to be replaced. While the cost of this will vary significantly between different models, it is certain to be a costly exercise.
Only time will tell how EV technology proceeds and how widespread the adoption of EV’s becomes. The current valuation for Tesla, however, gives the impression that the company is priced as though these cars will soon be as widespread as the iPhone. EV’s are certainly a step forward in the search for low environmental impact vehicles but I am doubtful they are the final solution on this issue.
This article was written by William O'Loughlin - Local Investment Analyst, Rivkin Securities