At Green Alpha ® Advisors we believe and our investment approach reflects that the emerging green economy already exists and will continue to rapidly grow in all industries, sectors, and places. While green energy is certainly the cornerstone of this new world, it is far from the only story and represents just one area to seek prudent investments. So, as the first in a series covering various sectors, here's our roundup of the trends in green transportation.
Passenger Cars
First, the topic we're hearing the most about: electric cars. In our view, these are both critical and inevitable, not only to help curb carbon dioxide, but to save the economy (see Why the Economy Can't (and Won't) Really Stabilize as Long as We're Dependent on Oil). The three first mass-market electric vehicles (EVs), the Nissan Leaf, Ford Focus Electric and the Chevy Volt, are, particularly for first editions, being very well received, winning multiple 'car-of-the-year' type accolades, and, more importantly, performing their function just as well as a gas burner for 90 percent of consumers. We're further encouraged that pretty much every major car brand has promised an EV by model year 2015. How fast will the EV market grow? If the early-adopter rate is any indication, we think that 15 or 20 years hence if you're still driving a gas-burner you'll be feeling a little like an anachronism.
However, in investment terms, the picture, so far, is a little more difficult. China's BYD and Silicon Valley's Tesla are for the moment the only two publicly traded 'pure plays,' in that neither makes a gas-burning model at all. We think each company makes an attractive investment opportunity [disclosure: as of this writing, Green alpha Advisors holds Tesla (TSLA), but not BYD]. Tesla, of course is the maker of the super sport EV Tesla Roadster. At $100,000 and up, this car is not for everyone and by itself will never make Tesla profitable. But, the Roadster is critical in that, with a range of up to 350 miles per charge and 0-60 acceleration times under four seconds, it is the first to undermine the myths of EV performance and range limitations. Faster than any Porsche, the Tesla Roadster went a long way towards 'de-wimpifying' EVs' reputations. So, as a loss leader, we think it remains invaluable. What will make Tesla profitable however is its access to massive distribution via the Tesla-Toyota partnership wherein Tesla will provide the electric drive train for many Toyota and Lexus EVs. Further, Tesla has partnerships with Panasonic to source batteries (Panasonic and Tesla say that the batteries in Tesla's drivetrains cost one-third of those used by GM and Nissan) and Daimler, to potentially provide a drivetrain to a future Mercedes EV. Also, the new Tesla Model S, a family sedan-type EV priced closer to $50,000 should get more market penetration than the Roadster.
BYD benefits from Beijing's unwavering support for its national cleantech companies, cheaper means of production, a ready market, and its simple point A to point B approach featuring more basic, less expensive EVs. And, BYD is bringing its inexpensive EVs to the US. Look for them in showrooms by the first quarter of 2012.
Medium-term, in addition to watching Tesla, BYD and other as-yet private firms grow, we're looking forward to seeing which of the major car manufacturers takes the lead in EV production, and longer-term, which will be the first to make the transition completely away from gas-burners. For those looking really long term, we speculate that future EVs may become more and more autonomous, producing gains in efficiency and lessening congestion.
The charging infrastructure these EVs require is coming along quickly enough to meet the needs of an EV passenger fleet, and in itself presents additional investment opportunity. For example, Swiss electrical engineering company ABB (which is a constituent of our Green Alpha Next Economy Index) has recently invested $10 million in charging station infrastructure company ECOtality, just one of many examples of large (Siemens, GE, Eaton) and startup (Better Place, Coulomb Technologies) companies entering the space.
Lastly on this topic, I'll address the EV criticism that electricity still comes from carbon producing sources. This is true for the most part, but even so, carbon dioxide emissions from EVs are far less than those from typical gas-burners, mostly because electric motors are much more efficient than gasoline engines. The Energy Information Administration has calculated that over a 60 mile drive, a gasoline burning car getting 30 mpg releases 36 pounds of carbon dioxide, and a 15 mpg SUV releases 72 pounds. Meanwhile, an EV comparable in size to the 30 mpg gasoline powered car uses about 6 kwh over 60 miles. Using the average mix of generating sources on the US grid, this produces 8 pounds of carbon dioxide, less than one quarter of the comparable gas vehicle. And, of course, as the grid becomes more and more powered by renewables, the carbon output of the EV gets lower and lower. Folks with solar panels on their houses and EVs can get their driving emissions essentially to zero already.
Aviation
Just a couple quick points to make here. Yes, we have seen amazing advances in small, light electric aircraft recently. But the fact is that batteries still are nowhere near as energy dense as aviation fuel and it will be a long time before we can reasonably expect to see anything approaching an electric commercial airliner. We're glad the research is underway and making breakthroughs, but for now, planes are going to need fuel. So, this is one of the few places where we actually support the use of (the greenest, least carbon-intensive, non food-crop derived) biofuels. Virgin Atlantic, Air New Zealand, Japan Airlines, Continental and the US Navy (Admiral Mike Mullen is a proponent, see my post Energy Security Far More Precarious Than Most People Realize) have all successfully either completed tests or actual routes with some mix of biofuels. So the investments in green aviation are limited for now, but a smart, creative aviation biofuels maker could get our attention.
Trans Oceanic Shipping
This is a little discussed 800-pound gorilla. Shipping accounts for 90 percent of all material trade. Large container ships can use 380 tons of fuel per day, there are 90,000 of them in service together burning 400 million tons of fuel per year, and what's worse they burn very dirty, low grade bunker fuel containing 2,000 times the sulfur of auto diesel fuel. Sulfur is emitted as particulates very detrimental to human and animal health. In terms of carbon dioxide emissions, the UN has calculated that these monsters put 1.12 billion tons into the atmosphere each year, almost 5 percent of all produced by human activity.
Obviously this can't continue, and not just because of warming and noxious pollutants; trade and economies suffer when oil prices climb and shipping becomes unaffordable. So what are the alternatives? There are a lot of ideas out there right now, most in their infancy, and it seems likely that some combination of most of them will be required to keep shipping affordable and minimize its carbon emissions. GE has noticed that while container ships are too massive to be moved by electric power alone, port-owned tugboats that pull them the last few miles are not, and the company is therefore developing a line of hybrid tugs. German company Skysails is showing that towing-kite propulsion can greatly reduce large-ship fuel requirements. Auriga Leader, a Japanese cargo vessel that ships cars for Toyota, features an onboard solar plant. It provides less than 1 percent of the ship's propulsion energy requirement, but it's a start. Liquid natural gas, often cited as a 'bridge-fuel' on the path to true renewables for all sorts of industries, an idea we generally do not subscribe to, may have its best use here since it is orders of magnitude cleaner than bunker fuel. Additionally, as with aviation, the appropriate type of biofuels mix could help. And, like it or not, converting the largest of these container carriers to nuclear propulsion would have a dramatic effect on oil demand and carbon emissions. As yet, Green Alpha does not have positions in any of these companies or approaches, with the possible exceptions of solar cell manufacturers that may have sold panels for the Auriga Leader, and biotech holdings that may provide catalysts to biofuels producers.
High Speed Rail
High speed rail (HSR) is politically very difficult in the United States. This is unfortunate for a number of reasons. The US is the perfect place for it: we have large distances between cities now connected by increasingly congested and expensive roads, building HSR would create jobs, HSR is much less fuel intensive per passenger than alternatives like planes and cars, and quick, efficient transport infrastructure is critical to future economic competitiveness in an increasingly competitive world. As with so many other green technologies, heel dragging in the US has given China the go-ahead opportunity, and they have grabbed it. China now has the world's largest and fastest HSR network, with nearly 5,000 miles of HSR in place and 11,000 more miles under construction. China's fastest train, the technologically advanced Shanghai Maglev Train, is capable of travel at 269 MPH. Subsequently, departments of transportation the globe over are now clamoring for China's expertise, further boosting China's economic growth. The government directly builds these rails and trains, so our investment here has focused on the component, materials, and general widget makers supplying the critical pieces of Chinese HSR. Magnets, rare earth oxides, basic materials, and research all play critical roles in HSR and make for interesting investment opportunities here.
Overall, you can see that our approach to next economy transport is all about our macroeconomic thesis that civilization has to replace oil everywhere that it's commercially feasible to do so, both to prevent economic stalls when oil becomes very expensive and to minimize carbon dioxide related warming, which could prove economically catastrophic. We believe that the emerging and rapidly growing mass recognition of these realities will drive capital to the best solutions and therefore investment return to those whose capital is part of that wave. Next economy, investing redefined.
Thanks for reading. Please come back later this week for my post "Is the Global Economy an Ecological System?" where I'll discuss one of our other major macro theses, namely that the world economy and earth's environment must be made to balance. Because in the end they're just different ways of viewing the same thing: earth's resources.
Garvin Jabusch is the cofounder of Green Alpha Advisors, LLC and manages The Sierra Club Green Alpha Portfolio -- a unique blend of Green Alpha Advisors' Next Economy universe and the Sierra Club's proprietary green-investment guidelines.
More info on China and HSR: http://www.economist.com/node/17965601
Posted by: Garvin Jabusch | 01/26/2011 at 07:14 PM