One of the most-hyped investor favorites is none other than Tesla (Nasdaq: TSLA). Its visionary head, Elon Musk, has converted many into believing the company will dominate the market for electric vehicles.
I do wonder whether investors in Tesla are even aware of the rich history of the electric car.
A brief history lesson on the electric car before we look towards the future…
Electric Car History
Credit for what we would consider an electric car goes to Scottish inventor Robert Anderson who invented the first crude electric carriage back in 1832.
However, it wasn’t until the late 1800s that the development of electric vehicles really gathered pace.
William Morrison of Des Moines, Iowa, built the first successful electric automobile in the United States in 1891.
That set off a scramble among literally hundreds of small firms to tap into this exciting new technology, which was gaining rapidly in popularity among average Americans.
The first electric taxis hit the streets of New York City in 1897, built by a Connecticut firm called Pope Manufacturing.
It became the first large-scale American electric car manufacturer, manufacturing 500 such vehicles by 1899.
By 1900, the U.S. electric automobile industry is in its heyday. That was due to its superiority over steam-powered vehicles and the early gasoline autos. The numbers vary, but it is believed that anywhere from 28% to 38% of the U.S. vehicle market in 1900 was comprised of electric vehicles!
Like today with Elon Musk, geniuses like Thomas Edison and Nikola Tesla were drawn to the electric car sector.
In 1899, Thomas Edison began his quest to create a powerful, long-lasting battery for automobiles. But while he made some strides, Edison abandoned his quest a decade later.
Then in 1931, eccentric genius Nikola Tesla built an electric car without an engine and battery.
Tesla believed electricity could be transmitted through the air – today’s scientists are still working to catch up to Tesla’s brilliance on that idea. So his modified Pierce-Arrow had an AC motor and an ordinary 12-volt storage battery under the hood.
The car supposedly worked. But that is disputed as was Tesla’s idea of wireless transmission of electricity.
Electric Car Obstacles
Let’s now dispense with history and look at the electric vehicle market today.
We don’t have the nearly countless number of contenders as we did at the start of the 20th century. But we do have Tesla, the major existing automobile companies in the U.S. and Europe, along with a number of contenders in Asia. China is especially a hot market since the government there is mandating a move toward electric vehicles.
Government mandates are apparently what’s needed to keep the electric car market moving forward at the moment. For example, as soon as subsidies were removed in places like Denmark and Hong Kong, Tesla’s sales cratered to near zero.
Proponents of electric vehicles point to Norway as a shining example. It is the world leader, with about 35% of new cars sold there coming with a plug. But again the government there has skewed things. It imposes heavy purchase taxes on anyone buying regular cars. Meanwhile, a Tesla buyer pays no purchase tax and no 25% value-added tax (VAT). Electric cars are not charged tolls on Norway’s many toll roads either.
Let’s even ignore whether electric vehicles can compete on a level playing field. There are other basic obstacles to it becoming mass-market, such as the range of these vehicles on one charge.
But the main obstacle in my view is infrastructure. The greatest electric car in the world is worthless without access to charging stations. We need them to become as common as gas stations. A related problem is whether the world’s electric utilities are ready to supply the necessary power for all the needed charging stations.
Tesla: Number One?
Despite my hesitation about electric vehicles currently, I do believe they will become common in the future. Sales were up 42% in 2016, about eight times faster than overall vehicle sales globally. The first quarter of 2017 saw sales rise 40%.
And it caught my attention when Chinese-owned Volvo recently announced it was phasing out all internal combustion engines vehicles by 2019.
U.S. investors have made Tesla their choice largely because of Elon Musk, giving the company a $50 billion valuation. Even though the company has lost money every year since its IPO in 2010, has no current profits, has negative cash flow in all but one of 34 quarters, has burned through $7 billion of cash along the way and misses delivery targets as often as Musk changes shirts.
The mass-market Model 3 is supposed to be THE solution for Tesla. But estimates are it won’t hit the one million mark in annual sales until 2028.
Of course, there are others components to Tesla such as battery manufacturing (Gigafactory), which is done for them by Panasonic (OTC: PCRFY) for now.
I have strong doubts though whether Tesla will be able to get the necessary raw materials – lithium, cobalt, and graphite – for its batteries.
The major producers have existing contracts with large consumers of those materials.
Not to mention both China and South Korea are building gigafactories that will dwarf Tesla’s. And already many environmentalists are griping about how “dirty” it is to produce those necessary minerals.
How to Play Electric Cars
How should you play the eventual move to electric cars?
It’s a very tough call at the moment.
Tesla has awoken a number of competitors including General Motors (NYSE: GM) and Nissan (OTC: NSANY) and BMW (OTC: BMWYY), which some say has the best current technology.
Let’s not sleep on the Chinese companies like BYD (OTC: BYDYY), which is both a major battery producer and automaker.
And Warren Buffett owns 10% of it along with Korean tech giant Samsung which owns another 2%. China recently restricted the number of participants in the market, favoring the big players like BYD.
At the moment, I would either sit it out or spread your bets beyond the richly-valued Tesla.
I suspect there is a lot of weeding out about to happen in the sector.
But if you insist on putting some money to work in the sector, consider Delphi Automotive PLC (NYSE: DLPH).
It is creating two publicly-traded companies out of itself.
Delphi will execute a tax-free spinoff of its powertrain systems segment. That’s expected to happen in March 2018, according to Delphi.
That will leave the more valuable, I believe, advanced connectivity, autonomy and mobility segment of Delphi as a standalone business. This tech part of Delphi will likely be valued highly by Wall Street since it plays not only into electric cars but also self-driving vehicles.
But wouldn’t it be poetic justice if Ford (NYSE: F) became a key force here after Henry Ford and the Model-T assembly line ended the electric car’s initial rise to supremacy in the vehicle market?
Whether electric cars fully take over the roads, become just another option for drivers, or perennially remain the next big breakthrough is something I’m watching intently as part of my own investment research. This is an exciting time to be invested in the sector.
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Source: Investors Alley