It's a seismic shift, it'll touch millions of Americans over the next 10 years, and it involves a whole new technology and a whole new approach to a series of old problems.
What is it? The electrification of the automobile.
It's hard not to think of past technological shifts like the dot-com boom when one thinks of the coming mass production of electric vehicles. While internal combustion engines will be with us for a long time yet, they will increasingly be augmented -- and replaced -- by electric motors powered by lithium-ion batteries, a whole new technology that is coming to market in a big way over the next couple of years.
You'd think there'd be some way for investors to profit from that, wouldn't you? How?
It's not such a simple question
There are certainly plenty of startups and a few early stage public companies hoping to become big players in this space. But while entrepreneurs like Tesla Motors (Nasdaq: TSLA ) CEO Elon Musk make much hay out of the idea that Silicon Valley will out-think and out-innovate Detroit, it seems more likely to me that the long-term winners in this space -- at least at the automaking level -- will be the familiar names that have the deep reserves of automotive development experience and resources.
It's possible that Musk himself realizes the same thing behind the bluster -- witness Tesla's recent alliance with Toyota (NYSE: TM ) , almost certainly one of those big-name winners -- but Toyota and other global auto giants like Ford (NYSE: F ) and Hyundai are hardly pure electric-vehicle plays. Tesla is, but it faces some big-time challenges as it seeks to make the transition from cash-burning start-up to sustainably profitable carmaker.
Suppliers might be a better choice
Those big-name carmakers do business with lots of different suppliers, and that's a group that might yield better opportunities. Both Johnson Controls (NYSE: JCI ) and A123 Systems (Nasdaq: AONE ) have opened brand-spanking-new electric-car-battery plants in Michigan in the last couple of weeks. These two factories, the first of a wave of EV-related projects aided by a $2.4 billion stimulus program overseen by the Energy Department, were hailed by President Obama -- who called the A123 plant during its opening ceremonies on Monday -- as "the birth of an entire new industry".
That stimulus program provided financing to a total of 48 different companies, many of which are either ventures of much larger, diversified companies -- a Dow Chemical (NYSE: DOW ) joint venture, Honeywell (NYSE: HON ) , and General Motors among them -- or startups that aren't (yet) public. Likewise, Johnson Controls -- a "Tier 1" auto supplier with a $19-billion-plus market cap and several non-auto-related lines of business -- is hardly an EV-focused firm.
But A123 is, and this is a firm that warrants closer attention from investors looking for a way to ride the EV boom. A123 is burning cash at a furious rate, as Fool Anders Bylund noted recently, but -- as Anders also noted -- that's not necessarily a bad thing: The company is furiously building production capacity. A123 plans to open a second Michigan factory next year, funded in part -- like the one it opened this week -- by the $249 million grant it received under the stimulus program.
A123's technology is well-regarded, but the company has lost out on opportunities because of a perceived lack of production capacity -- put another way, it's hard for an automaker to take a cash-torching start-up seriously when the alternative is an established big-league supplier like Johnson Controls. A123 has hustled to make up that credibility gap in a big way, with a little help from the government, and its business should accelerate accordingly.
A fast-moving set of targets
The trend toward electrified cars continues to move quickly -- on Monday, a senior Toyota engineer said that the company would introduce 6 new hybrid models by 2012. That's not counting new versions of existing hybrids like the Prius, which is expected to become a "plug-in" hybrid -- meaning that its batteries can be charged without using the engine, making it possible to operate as a purely electric vehicle over short distances -- within the next few years.
Expect more announcements like that in coming weeks. Automakers use the winter show season to present new models and concepts, and I expect this year's shows to yield a bumper crop of EVs and hybrids, including some surprises. Toyota has already said that it will show an all-electric version of its RAV-4 SUV that was developed jointly with Tesla at the Los Angeles auto show later this year. I expect it to have plenty of company -- which should bring further opportunities for investors. Watch this space.
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