Will Electric Vehicles Now Go Mainstream?
Concern over where oil prices will head next varies, but I think it's safe to say they will go up over the long-term. It's almost certain that many American motorists have tired of rising and volatile gas prices. This sentiment has vindicated many early adopters of electric vehicles (EVs) and put many others on the path to considering one.
For the most part, however, EVs remain on the fringes. Jay Leno and Alyssa Milano apparently drive them. And Lance Armstrong endorses Nissan's (NSANY.PK) Leaf. The Hollywood attraction comes as no surprise considering the cult of celebrity that has embraced Toyota's (TM) Prius. While Hybrids appear to have caught on among the masses, EVs remain a favorite of the well-heeled and the ultra green-minded. This could change fast, however. Using tax incentives, the Federal Government helped fuel President Obama's goal of getting one million EVs on the road by 2015.
Maybe there's a perfect storm brewing: rising fuel prices coupled with celebrity appeal and tax credits. This synchronicity could be behind the growing association household name brands are forging with the EV world as well as the rapid and eventual emergence of much smaller players.
Electric Vehicle Charging Stations
One of the biggest issues facing wider acceptance of EVs is not their cost or range, but the availability of places to charge them. The research I have done reveals an electric vehicle charging market that's about to boom. Investors, however, have limited opportunities to play it for now.
NRG Energy (NRG) has kicked off an impressive, albeit narrow push through its wholly-owned subsidiary, eVgo. NRG includes "Electric Vehicle Development" as part of the company's business strategy in its latest annual report:
In 2009, NRG began development of a services business to support the large-scale deployment of electric vehicles, or EVs, in Texas. NRG's EV Services, LLC has already started offering a range of integrated products and services that enable both public and home charging of EVs in the Houston ecosystem and has announced the launch of its business offerings in the Dallas-Ft. Worth market.
On November 18, 2010, NRG announced the nation's first privately funded, comprehensive EV ecosystem in Houston, the start of a rollout across Texas in 2011. Under the brand name eVgo, NRG provides EV owners throughout the greater Houston area with convenient and affordable fueling packages. NRG plans to invest approximately $10 million in Houston's EV ecosystem, and will be the first company to equip an entire major market with the privately funded infrastructure needed for successful EV adoption and integration.
While NRG does not discuss the financial performance of this business unit, the company as a whole represents a relatively sound play in the electric utilities market, where most of its business lays.
AeroVironment (AVAV) does report financials for its Efficient Energy Systems (ESS) division separately. According to AeroVironment's latest quarterly report, "The EES segment consists primarily of the design, development, production and support of system solutions for the electric transportation markets." Total revenues attributable to ESS totaled more than $27.5 million for the nine months ended January 29, 2011, up from just over $18 million for the nine months ended January 30, 2010. AeroVironment most recently signed an $820,000 contract with the State of Hawaii to outfit the Islands with the company's EV charging stations at high-rise buildings, resorts, rental car offices.
A private firm, San Jose-based Coulomb Technologies, deals only in EV charging station infrastructure. It has deployed its ChargePoint network globally. In the U.S., the network spans from coast-to-coast with large concentrations of charging stations in the Pacific Northwest, Northern and Southern California, Texas, Central and South Florida, and New York City. In 2011 alone, Coulomb has inked deals to provide EV charging stations to 3M (MMM) world headquarters, a major franchisee of Buffalo Wild Wings (BWLD) restaurants in Central Florida, and Chevrolet (GM) dealerships nationwide.
Through one of its distributors, Coulomb made big news in 2009 when McDonald's (MCD) outfitted its first-ever "green" restaurant with ChargePoint stations. While that news didn't amount to much more than a one-time press release, McDonald's has sporadically done the same at other stores across the country, including a more recent deal with American Electric Power (AEP) to put EV charging stations at a Huntington, West Virginia, location. Multiple sources confirm that the fast food chain is in ongoing discussions with several companies to expand this initiative on a much larger scale.
McDonald's is not the only household name experimenting with EV charging stations. Massive drugstore chain Walgreens (WAG) linked up with NRG Energy last year on a plan to install their EV charging stations at 18 initial Walgreens' locations in Houston, as part of the above-mentioned NRG endeavor.
The problem, however, with placing EV charging stations at locations where drivers don't spend significant amounts of time, such as a fast food restaurant or drug store, is that, as Coulomb Founder and former CEO Richard Lowenthal notes, "In general, the cars take hours to charge, so stations are needed where cars are parked... In the U.S. there are 250 million cars and only 50 million garages. We're busy putting them elsewhere, like the workplace." This explains part of Coulomb's focus on inking deals with municipalities and companies to locate charging stations curbside like parking meters, in parking garages, and for employee use.
It's pertinent to note that Lowenthal made these comments in a Bloomberg Businessweek article where the publication named Coulomb one of the "20 Small Businesses of the Future." While I have heard nothing official, it would make sense for investors to keep their eyes open for an IPO down the line.
Deploying Electric Vehicles
Efforts on the part of the major automakers to bring EVs to market have been well-publicized. Nissan has the Leaf, Chevy has the Volt, and the other big names have or are about to introduce their own electric models. Seeking Alpha contributor Arthur Porcari recently wrote an article, focused on Kandi Technologies (KNDI), where he called KNDI, Tesla Motors (TSLA), and ZAP (ZAAP.OB) the only existing pure U.S. speculative plays on the EV market.
I wouldn't call KNDI a pure U.S. play, given its China location and its likelihood for greater success in the Chinese market than the U.S. KNDI develops, manufactures, and sells smaller EVs, such as ATVs, go-karts, and mini-vehicles. And while based in Northern California, ZAP's focus seems to be set on the Chinese market as well.
Palo Alto-Based Tesla has already made a major splash with U.S. investors. While the company has yet to turn a profit -- and likely won't for several years -- it trades with a market cap of over $2 billion. From its late 2010 perch of $36.42, TSLA has come down to earth a bit, trading at $22.70, as of intraday Friday. While I would normally shy away from a company with so many negatives on its balance sheet, Tesla is probably the best-positioned U.S. company to benefit from a surge in EV sales. It's models aren't cheap, however, making it geared toward higher-end buyers. If you look at Tesla's most recent list of dealerships, it tends to locate in places where affluent prospects reside.
Part of Tesla's attraction is that it only deals in EVs. At this stage, the average car buyer lacks a large-scale option for walking into a dealership that only sells EVs. While some consumers will feel more comfortable buying an EV from a well-known automaker, others might opt for the perception of expertise and better sales and service at a dealer that only sells alternative fuel vehicles.
I can't help but think that CarMax (KMX) or AutoNation (AN) has this thought in the back of their mind. Looking through each company's most recent SEC filings, I found no mention of electric vehicles or even hybrids. This doesn't mean that they are not working on at least a side project to cater to a market that has a real chance of opening up over the next several years.
Already viewed as an alternative to what is often perceived as the high-pressure environment of the standard car dealer, CarMax or AutoNation would seem more than able to do one of two things: Devote a clear and significant portion of their existing stores to new and pre-owned hybrids and EVs or open up brand new stores that concentrate on the EV market. This could even involve a partnership with Tesla.
In this regard, I add another speculative play to Porcari's list. Evcarco (EVCA.OB) is a development stage company based in Fort Worth, Texas. Evarco appears on the cusp of being finally prepared to roll out dealerships nationwide that sell only alternative fuel vehicles, particularly EVs and pre-owned hybrids, using a franchise model. The company recently hired Richard Griffiths as its Chief Communications Officer and inked a deal to sell Foton (600166.SS) CNG trucks at its dealerships. Griffiths was instrumental in getting New York City to go electric with it taxi cabs and the Foton deal could give Evarco a foothold on commercial and government sales.
If a company like Evarco or another player that comes along can be successful selling only green vehicles, it makes sense that CarMax, AutoNation, or one of the major automakers would look twice and move to buy them out. At the end of the day, the risk is low, particularly when franchisees share the financial burden, while the upside is high if EVs ever really make their way into the mainstream.
Disclosure: Author holds a long position in EVCA.OB
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