Electric Car Investment Ideas

The long-awaited arrival of practical electric cars may finally be on the horizon. Technological improvements, especially in batteries, have allowed for the development of electric cars that are currently on US roads. Although cost remains high, we appear to have reached a point where costs will be reduced to allow for mass production within a few years.

When millions of electric cars are being driven every day, the use of electricity will increase substantially.

A recent news report notes expected electricity use for the new Chevy Volt car to be produced by GM; http://www.usatoday.com/money/autos/2008-07-21-gm-electric-car-power-companies_N.htm

The Volt likely will need about 8 kilowatt-hours of energy to recharge, Gross said. The average U.S. utility charges about 10 cents per kilowatt-hour, so it would cost the consumer about 80 cents to go the 40 miles, she said.

Based on this Volt useage (8 kilowatt-hours for 40 miles), each electric car would use 200 kilowatt-hours (kwh) for every 1,000 miles. At a rate of 12,000 miles per year, each car would use 2,400 kwh per year or 2.4 megawatt-hours (mwh). For each million cars, this amounts to 2.4 million mwh per year.

In 2006, total US generation of electricity was 4,065 million megawatt-hours. http://www.eia.doe.gov/cneaf/electricity/epa/epa_sum.html.

There are currently more than 200 million passenger vehicles (cars + light trucks) in the US. If 1 out of 10 cars (10%) run on electricity, annual electric use would be roughly 50 million mwh, or about 1.2 percent of total electric generation. This is significant considering that the average annual growth rate was 1.8% since 1995 and growth was only 0.2 percent in 2006 http://www.eia.doe.gov/cneaf/electricity/esr/esr_sum.html.

If the US embarked on a major long term conversion of the entire car fleet to electric power, generation would have to increase by 12 percent, based on use for the Volt.

Factors that should be favorable for electric cars are; (1) Densely populated suburban areas with short commuting distances, (2) Flat land areas without energy-draining hills, and (3) High income and wealth, which makes it easier to buy an electric car for commuting.

Utility stocks in general are of course inversely related to interest rates, which many advisers expect to start rising again next year. However, this expectation may already be at least partially discounted. Selected stocks are discussed below, with basic statistics from S&P.

Market cap: $20,700 million
Recent price: (8-29-08): $40.77
PE ratio (TTM) : 14
Beta: 0.82
Dividend Yield: 3.16%

Public Service Enterprise Group serves 2.1 million electric customers in New Jersey, one of the most densely populated areas of the nation and is usually at or near the top of the list of states for income. Almost all of the service area is very flat.

New Jersey has a proven history of being friendly towards alternative energy. Thomas Edison maintained his famous lab in New Jersey where he worked on electric cars. State government is likely to encourage use of electric cars through tax incentives and infrastructure improvements.

From a price of 20 in 2004, the stock climbed steadily to a recent high of 52 in early January 2008.

Market cap: $24,500 million
Recent price: (8-29-08): $59.92
PE ratio (TTM) : 20
Beta: 0.69
Dividend Yield: 2.97%

The Florida Power & Light Company subsidiary of FPL Group serves Florida, which is one of the best areas for electric cars. Growing metro areas such as Orlando and Tampa are densely populated with high-income car owners. The entire state is essentially flat.

The stock grew from 40 in mid-2006 to over 70 near the end of 2008 and has since been down, though less than market averages.