Time to Bet Against Obama’s EVs?

I like the earth, and I want to keep it a happy place to live. Subsequently, I really like the idea of sustainable energy and less pollution. With that being said, it might surprise you to know that when it comes to investing in electric vehicles, I'm betting against our commander in chief. Here's why, and how it affects your pocketbook.

Time to rake up the leaves
I don't like waste. And I really, really don't like $1.4 billion in waste. Especially when I'm the one paying for it. That brings me to Nissan's (OTC: NSANY) Leaf. Fools, the Leaf might just be the most hideous car known to man. It's ugly. Look, I want to save the planet, but I don't want to look like a complete dingbat while doing it. Nor do I want to be stranded in the middle of Timbuktu.

One of the big problems with the Leaf is its limited range of 73 miles per charge. A 2011 study by Indian University School of Public and Environmental Affairs  found that of the 2,300 drivers surveyed, most were not interested in EVs because of their limited range. The results showed that consumer interest was a 2.67 on a scale of 10 -- 10 being the highest. But did Nissan listen? Nope. 

Nissan has admitted its "arrogance " when it comes to Leaf sales, as the prediction of 20,000 Leafs sold in the U.S. in 2012 actually turned out to be a whopping 9,819. That's up from 2011's 9,674, but not nearly the 39,000 annually Nissan predicted to get the $1.4 billion Department of Energy/Obama grant. 

Ford does it better?
In 2009, the government loaned Ford (NYSE: F  ) $5.9 billion to help with its development of EVs and hybrids, as well as to retool its factories to make them more compatible with building smaller, more energy-efficient vehicles . Well, congratulations, taxpayers. In 2011, Ford had a limited release of the Ford Focus Electric. Guess what? It goes a full 76 miles per charge ! Even better? It charges twice as fast as its competitors so you can hit the road with a fully charged battery after only... 4 hours. In case it's not clear, my enthusiasm is sarcastic.

The good news is the Focus Electric looks more like a car than a deranged ladybug, but there are some who criticize Ford's EV as being no more than a compliance car, one built solely to appease government regulations. This comes from the fact that the Focus Electric is only available in certain areas such as California, and that in 2012, Ford sold a staggering 685 Focus EVs -- again, sarcasm.  Ford argues that the Focus Electric is not a compliance car, and the slow sales are from Ford allowing demand for the EV to grow organically. Still, with a range of 76 miles per charge, high demand seems unlikely given consumers' range anxiety.

Government Motors to the rescue?
The news isn't much better for Government Motors, er, General Motors' (NYSE: GM  ) Chevy Volt. The Volt can go 35 miles per charge, but it has a backup system of gas that extends the range to 350 miles . That takes care of range anxiety. And as an added plus, the fear of looking like a dingbat is nonexistent as the Volt looks more like a sporty sedan. However, during the auto bailout, GM received roughly $49.5 billion from taxpayer funding, which left many harboring resentment against the company.

Additionally, GM hasn't been able to regain market share, and even after pumping over $1.2 billion into the Volt, sales have been slower than anticipated, even though they tripled in 2012 compared to 2011. What's worse, GM's market share has slipped to an 88-year low, and the future remains uncertain. That's bad news for the government, which still owns 500 million shares that it wants to sell back to GM. So long, tax dollars.

The beauty among the beasts
In 2009, Tesla Motors (NASDAQ: TSLA  ) received $465 million in low-interest loans from the Department of Energy to build an affordable EV -- $365 million of that was earmarked for the development of the Model S . Fools, of all the cars listed, this is the one I want to succeed. It's beautiful. And range? Not an issue for the Model S. For the 40-kwh battery, you can get a reported 160 miles per charge. For the higher-end 85-kwh battery, one charge will take you 300 miles. 

So what's the problem? Well, the base price for the Model S starts at $52,400. That's not exactly "affordable." As an underscore to this, according to Tesla's latest quarterly report released on Nov. 7, Tesla began manufacturing the Model S in June 2012, and as of Sept. 2012, it had produced 359 Model S vehicles and delivered 263. Tesla stated that it expected to deliver 2,5003 to 3,000 in its fourth quarter, but those results aren't out yet. When Tesla VP George Blankenship was asked about it at the Detroit Auto Show in Jan. 2013, he declined to answer. 

Furthermore, Tesla has admitted that since its inception, it's been plagued with massive losses, and has used approximately $651.1 million in operations through Sept. 2012. As of Sept. 30, 2012, it had $85.7 million in cash and cash equivalents, and had an operating free cash flow of -$233.11 million  -- not exactly the warm fuzzies for investors.

Tesla has said that to help with volume it plans to build a smaller vehicle that it thinks will sell for around $30,000. According to Tesla chief designer Franz von Holzhausen, however, the small car is "still a doodle on a napkin," and it'll be another three to four years before it appears.  Let's hope Tesla can hold out for that long because with it's "affordable" car starting at $52,400, I don't see it ramping up the volume, and thereby profits, anytime soon.

Foolish wrap
To be fair, EV sales have improved over the past few years. In fact, in 2012, the electric-car market share made up 3.38%. That's up from 2011's market share of 2.23%, but when you compare that to 2007's market share of 2.99%, the numbers aren't exactly impressive. I get that Mr. Obama wants to get more EVs on the road, and that's an admirable goal, but consumers are less than enthused about the electric vehicles currently available, and the money the government invested doesn't seem to be paying off. Consequently, I'm not ready to throw my investing dollars into EVs just yet.


Read/Post Comments (14) | Recommend This Article (13)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 18, 2013, at 11:29 PM, FrugalTwo wrote:

    A product without a market.... not the first time this will happen. The discouraging word is that we funded much of this with tax mula. Why am I always on the wrong end of the handout?

  • Report this Comment On January 19, 2013, at 12:05 AM, SuntanIronMan wrote:

    Obama's EVs? Government Motors? I had to check the date on this article, because I thought it might have been a write-up from 2010 or '11, haha.

    And beauty is in the eye of the beholder. While I'm not saying the Nissan Leaf is the best looking car ever, it isn't an awful looking car either. It looks like... a hatchback. I'm not the biggest fan of the headlight area, but it looks pretty much like any other hatchback. Hatchbacks aren't the most popular car type in America (more of a European thing), but they are becoming more popular in the US. If you like hatchbacks, then this is a hatchback. If you don't like hatchbacks, then you probably don't like the look of the Leaf.

  • Report this Comment On January 19, 2013, at 12:12 AM, SuntanIronMan wrote:

    *Not the biggest fan of the headlights area, but they are like that for a practical reason. The car (being electric) runs so quiet that air passing over the car would be extremely loud by comparison without those weird headlight deflecting wind away from the car.

  • Report this Comment On January 19, 2013, at 2:40 AM, BiggMcK wrote:

    With the cool (cold?) reception of the Volt & Leaf why did Ford build an all electric car? Their hybrid Fusion competes w/ the most successful hybrid, the Prius. Why then do we have the Electric Focus?

  • Report this Comment On January 19, 2013, at 2:47 AM, seattle1115 wrote:

    Whether it's electric cars, or mobile phones, or a Boeing 787 smoldering on the runway, batteries are consistently a problem. There's a ridiculously huge market out there for the person who can design a significantly better battery.

  • Report this Comment On January 19, 2013, at 3:41 AM, SuntanIronMan wrote:

    "With the cool (cold?) reception of the Volt & Leaf why did Ford build an all electric car? Their hybrid Fusion competes w/ the most successful hybrid, the Prius. Why then do we have the Electric Focus?"

    The article already addresses that. The Focus Electric is a compliance vehicle; an electric vehicle built specifically to meet various state government requirements. While the Chevy Volt and the Nissan Leaf were built from the ground up to be the cars they are, Ford just used the existing Focus platform to make a compliance vehicle. Nothing wrong with the car. Seems perfectly fine car for those looking for an electric vehicle. But that's why (not the official reason why, but...).

  • Report this Comment On January 19, 2013, at 8:47 AM, ranss12 wrote:

    I worked at Kodak until 2006 when, after 25 years there, my services were no longer needed. Sometime around the year 2000, I read somewhere that a child born in 2000 would never buy a roll of film. I didn't believe it at the time, but in hindsight the writer was, if anything, too conservative.

    I have a Nissan LEAF, and after driving it for 15,000 miles over the last 9 months cannot imagine going back to a gasoline fueled auto. My experience is typical of the 20,000 LEAF owners in the US. Furthermore, I'll go out on a limb and predict that any child born today will never drive a gasoline fueled car.

  • Report this Comment On January 19, 2013, at 5:45 PM, jm7700229 wrote:

    I think you mean consequently, not subsequently.

  • Report this Comment On January 19, 2013, at 7:01 PM, bobbleheadguru wrote:

    Respectfully, there is lots of misinformation in this article.

    Consider the following facts to counterpoise the politically charged talking points in this article:

    1. The "George W Bush $7500 EV Tax Credit" was signed in 2007... a full FOUR YEARS before the national launch of the Chevy Volt (11.01.2011)... and signed by a president from a different party.

    Meanwhile, taxpayers fully support $30B/year in corporate welfare to Big Oil in the form of tax credits, military protection, infrastructure spending and oil spill cleanups.

    The math for electric cars would be BETTER if we did NOT give "pennies" to EVs and "$100 Bills" to Big Oil.

    2. Thanks to Norquist pledge, the GOP and EV owners are on the same side of this issue. They GOP is contractually obligated to never remove this "job creating" tax break. In Grover We Trust!

    3. Obama did say he would like to buy a Chevy Volt, but he would be the SECOND president to do so. George H W Bush has already purchased one. The Volt is not a political candidate. In fact, it is appreciated by presidents of BOTH parties.

    4. The Chevy Volt in its first full year (2012), generated $1,000,000,000 in revenue for GM (9 zeros, no typo). That is much higher than Toyota Prius Year 1. Toyota is now the #3 nameplate worldwide and a cash cow for Toyota. A very smart template to follow.

    5. Every major automaker now has an EV offering in the pipeline. GM has extended derivative Volt technology called eAssist, boosting large Chevy and Buick MPG by over 35%.

    Automakers have a strategy that is 180 degrees different than this article.

    Just a small piece of advice

    Be careful submitting propaganda based articles that are not rooted in facts. We now live in an age where we can "Google" anything. Some of these "talking points" may look silly even months from now.

  • Report this Comment On January 20, 2013, at 9:00 AM, nonqual wrote:

    "I really like the idea of sustainable energy and less pollution"

    Then start looking more carefully at the energy consumed and pollutants released in the extraction and refining of the elements and compounds used in the manufacturing of electric vehicles.

    From: http://www.cmu.edu/news/stories/archives/2011/september/sept...

    "While larger battery packs allow plug-in vehicles to drive longer distances on electric power instead of gasoline, they are also expensive and heavy, they are underutilized when the battery capacity is larger than needed for a typical trip, they require more charging infrastructure and they produce more emissions during manufacturing."

    Politicians don't get it.

  • Report this Comment On January 21, 2013, at 2:24 PM, pritish wrote:

    I am driving a CMax Energi and I can tell you that I am thoroughly enjoying it. The ride is smoother than some of the luxury vehicles out there. The technology is also very good. Most of my friends are squarely in middle class and all of them want their next car to be an EV. So as the CMU article calls, the CMax is just enough to take me to work, recharge the car and come back home. Knowing that gasoline energy efficiency is somewhere between 25% to 30% and knowing that electric efficiency is around 90% and electricity generation is 95% efficient, EVs are more than 3x efficient than gasoline in converting fossil fuel into "work".

    http://en.wikipedia.org/wiki/Gasoline_gallon_equivalent#Effi...

    I would actually vote opposite to your thought processes.

  • Report this Comment On January 22, 2013, at 10:10 AM, Cencio wrote:

    Respectfully, as a long-term Motley Fool subscriber, I am shocked by the poor quality of this analysis, and thus the disservice that it does to its investor-readers. A casual perusal of the teslamotorsclub.com owner's forum will reveal that virtually every point made about Tesla is wrong, factually.

    Motley Fool has a newsletter called "Rule Breakers", to which my wife subscribes. How a company and investment advisor that purports to guide investors toward innovation and the leading edge of new businesses can fail so badly with EV's is disappointing. Innovation does not happen in a few years. Thomas Watson, the founder of IBM, infamously said that he did not see why anyone would need a personal computer. Of course his own company helped launch that revolution, and now Apple (and competitors) is putting one in every POCKET. And by so doing becoming the most economically celebrated company of all time.

    Mark my words, TSLA will be one of the best multi-bag investments of the 21st century, and Obama will look brilliant for supporting it with a tiny LOAN.

  • Report this Comment On January 22, 2013, at 10:29 PM, TulipSpeculator1 wrote:

    With all due respect, the portrayal of EVs as socialist and the existing model as the free market is a distortion of the facts. While the $465 million Tesla got (as a loan) seems massive to the ordinary person, it is tiny in comparison to the billions given to oil companies as tax breaks, corporate welfare, and the further billions spent to defend that oil, not to mention the unpaid (and growing) bill of environmental damage.

    Tesla is paying their loan back, with interest, and is creating thousands of American jobs, developing American innovation, and creating vehicles in demand by those here and abroad. I am confident this investment in America's fourth automaker will prove to be one of the best Uncle Sam has ever made.

    Furthermore, anyone who criticizes electric cars as inferior should be required to disclose whether they have ever driven one. I love my Volt and reading the other reviews, the vast majority of other owners do to. I have not yet had the pleasure of driving a Model S but nearly every review of the vehicle gives it a positive rating. Nobody wins Motor Trend's Car of the Year by putting a piece of garbage on wheels.

    Waiting for the article exposing the oil handouts,

    TulipSpeculator1

  • Report this Comment On January 24, 2013, at 6:51 PM, DanF1908 wrote:

    @nonqual

    Did you read the entire CMU study and analyze it? or did you just quote one part?

    There's alot of issues with that specific study. If you look specifically at the battery. I believe the CMU study is cited 35 K, with a 20 K replacement after 6 years for a car that goes 240 km.

    In the base model S, the estimated battery costs are roughly $78 per km, not $131 as cited in the CMU study.

    There's alot of odd assumptions used also that for anyone relatively knowledgeable with mechanics or engineering would scratch their head

    Keep in mind, they also used ~ $2.75/gallon gas in the study and they cut the mileage off at 100,000 miles (that's the low end).

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