Innovations
such as improved design, weight reductions, and in some cases
turbocharger technology allow gas-powered vehicles to achieve fuel
efficiency not far from the Toyota (
TM) Prius
hybrid's 48 mpg highway rating. For the most part, auto manufacturing
is a no-moat business, which can be seen by the growing number of
entrants into the hybrid space, challenging Prius' leading position in
the segment. Diesel power is another way to gain improved fuel economy
without going electric. The 140-horsepower Volkswagen Jetta with a clean
diesel TDI engine has 30 mpg city and 42 highway, and gives consumers
far more performance than the 98-horsepower egg-shaped Prius.
Although an affordable, quick-charging, zero-emissions EV with no
range anxiety is ideal, we do not see this goal being realized anytime
soon. Batteries still make up about half of the manufacturing cost for
an electric vehicle, which means automakers likely lose money on every
EV they make. There are major infrastructure problems that are slowly
being addressed, such as public charging stations and the fact that very
long recharging times can limit a driver's travel flexibility. On its
website, Nissan gives estimated LEAF recharging times of about 30
minutes to get to an 80% charge at a 480-volt quick-charge station
(which are far less abundant than traditional gas stations), about seven
hours for a full charge on a 220/240-volt station, and about 20 hours
on a standard 120-volt station. On the LEAF website, Nissan says home
installation of the 240-volt charging station will cost about $2,000
before any tax breaks. We find these extra financial and nonfinancial
costs to be unattractive except to the EV enthusiast.
The above-mentioned cost and logistical constraints, as well as a
variety of choices for consumers, means EV adoption will be gradual, in
our opinion. Data from the U.S. Energy Information Administration (EIA)
shows gas/electric vehicles will be about 10% of the U.S. vehicle fleet
by 2030. It also believes plug-in and pure electric vehicles will be
only about 500,000 units of annual sales by 2035. One reason for slow
adoption is economics; even at $6 per gallon gas, the lifetime fuel
savings of a PHEV do not make up the price premium of a vehicle such as
the 2011 Volt (lowest MSRP after the tax credit is $32,780, according to
the Volt website). For example, the Volt's all-electric range of 25-50
miles equates to, at best, about $6,100 in fuel savings at $6 per gallon
gas. Compared to an internal combustion 2011 Chevrolet Cruze compact at
an MSRP of $16,525, a Volt consumer pays an extra $16,255
($32,780-$16,525) to get this $6,100 in fuel savings even after tax
credits. This math does not support mass adoption of electric vehicles,
in our opinion.
JCI Should Be a Winner, No Matter What
Although
EVs are likely to remain a very low volume product for many years,
there is still tremendous change underway in automotive powertrains. We
think the battery group of Johnson Controls (JCI)
(called power solutions) offers excellent growth potential. JCI has 36%
of the global auto battery market (original-equipment manufacturers and
aftermarket), and its growth prospects in advanced lead-acid batteries
such as absorbent glass-mat (AGM), as well as in new areas such as
lithium-ion, are very attractive.