Can the Electric Car Save the Global Economy?

by Abby Joseph
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Submitted by Abby Joseph at Profit Confidential as part of our contributors program.

By Mitchell Clark, B.Comm. for Profit Confidential

It’s a very interesting concept: I absolutely believe that energy innovation will help the U.S. economy tremendously over the coming years.

Under that vast umbrella of energy innovation, alternative energy has the potential to become a genuine economic engine that can revolutionize personal transportation and the economic landscape.

There is excitement surrounding automaker Tesla Motors, Inc. (NASDAQ/TSLA). This company just doubled on the stock market in a little over a month.

I haven’t driven any of Tesla’s vehicles, but the company’s new four-door sedan looks fantastic, and the quality of the paint job really stands out.

I definitely see more “Chevrolet Volts” around. According to General Motors Company (NYSE/GM), it delivered 5,550 Volts in the first quarter of 2013, up 3.2% comparatively. The company is likely employing new sales incentives.

Virtually every automaker is getting in on the electric vehicle action. Even Porsche has a new electric “supercar.” The company is bringing to market the “918 Spyder,” which has a 4.6 liter V8 engine and two electric motors. The two electric motors provide an additional 218 horsepower on top of the more than 500-horsepower V8. The car can operate on its batteries alone, but I suspect the range would be extremely short.

Trucks and SUVs are bread-and-butter for domestic automakers. But the migration to electric vehicle production (a loss leader right now) is all about range and economies of scale. A $40,000 compact Chevy sedan is a misnomer.

While insider ownership with a company like Tesla is high and its valuation is extreme, the company would be an attractive takeover candidate for a successful automaker. The illusion can become real. BMW AG (XETRA/BMW) perhaps?

Range, costs, and availability of charging stations are obvious barriers for electric automakers.

But there’s been a sea of change with Tesla after so many electric vehicle and alternative energy failures. (See “Why These Old Economy Stocks Aare Absolutely Crucial.”) The company just raised another $1.0 billion from new shares and debt, and it has cashed in on the stock market’s renewed interest.

A close friend of mine who has in-depth knowledge of domestic automakers thinks the whole electric vehicle trend is a bust. Without question, the business case for it is not profitable at this time. (Tesla is even selling its California zero-emission tax credits to other automakers to boost its bottom line.)

But that doesn’t mean that innovation within the industry is not worthy of pursuit—not at all.

There is the issue regarding utility consumption. If electric vehicles become more prevalent, the demand for electricity will go up. The consumer is always on the short end of the stick.

But this build out, if it proves to be a successful business model for automakers, does have real potential to energize the industry.

Energy innovation, in all its forms, is a great opportunity.

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