The day after the November 8th U.S. presidential election, the stock prices for electric car maker Tesla plunged 5 percent. Solar and wind stocks also fell, while the share prices for coal and oil companies surged. Peabody Energy, for example, the world’s largest private sector coal producer, saw its stock skyrocket by more than 40 percent on speculation that the Trump administration could breathe new life into the dying sector.
The energy industry, in other words, could be substantially altered by a change in government policy, with clean energy in danger of being left behind while fossil fuels rebound. But the solar and wind industries have made enormous strides in bringing costs down, which will probably insulate them from a more antagonistic White House. Scrapping government support might slow growth rates, but the clean energy train has likely left the station.
But the market for electric vehicles is much smaller and less mature than solar and wind. EVs still depend on generous federal tax credits and, even then, sales have been slow in a world of cheap gasoline. Automakers are still confident in the longer-term – a carbon constrained world and volatile crude oil prices almost certainly means that EVs have a bright future. But the short-term could be rocky.
Automakers are set to roll out some 19 new EV models over the next few years, adding choice, supply and momentum to the EV industry. GM will release its all-electric Bolt in the coming weeks, a mass market vehicle with a 238-mile range and a sticker price around $37k. Tesla will follow that up with its Model 3 next year, a 215-mile EV that will be slightly cheaper. Then there are the plug-in hybrids that have a combination of electric and gasoline, which gives motorists greater peace of mind in regards to recharging. The Chevy Volt will have an all-electric range of over 50 miles before gasoline kicks in, and costs roughly $33k-$34k. The cheaper alternative, Toyota’s new Prius Prime, will have a shorter range of 25 miles, but will cost just $27k. All of these cars will benefit from federal tax credits that run as high as $7,500. Related: Trump Considers Oil Tycoon Harold Hamm for Energy Dept.
Sales remain at low levels – EVs will capture less than 1 percent of the global car market this year. But sales in the U.S. are up 26 percent in the first 10 months of 2016 compared to the same period a year earlier. And U.S. EV sales could rise fourfold by 2020 to 320,000 annually, according to the WSJ.
But the industry does have some headwinds. Lithium-ion battery costs have declined by 65 percent since 2010, which have helped automakers close the gap on sale prices with convention vehicles. Also, the range of EVs have extended, as the figures mentioned above associated with new models indicate. More EV models will satisfy a range of consumer needs.
Moreover, refueling infrastructure, one of the most critical pieces of the puzzle, continues to improve as well. The number of EV refueling stations have surged by 89 percent over the last three years.
The Obama administration recently announced a new effort to expand the refueling infrastructure even further. The White House said on November 3 that it would launch a new plan to build out a national network of recharging stations, establishing 48 national EV charging corridors along existing highways. They would install signs every 50 miles or so along these corridors, alerting drivers to recharging stations, similar to the way that current highway signs point to gasoline stations. Related: Expert Commentary: 5 Reasons To Be Bullish On Oil
There are some 150,000 retail gasoline stations in the U.S.; while EV recharging stations lag, there are an estimated 16,000 EV stations across the country, a figure that is rising quickly. Meanwhile, 24 state and local governments have committed to expand their government vehicle fleets with EVs.
It is unclear if this program can survive in the Trump era. In fact, even the $7,500 federal tax credit could become a target by the new oil-friendly administration. An unnamed member of Trump’s transition team told UtilityDive that Trump’s team will probably let the tax credit survive. The fact that the provision expires for automakers once each surpasses 200,000 EVs sold could actually help the tax credit from getting axed – since it will expire on its own at some point in the next two or three years, the Trump administration may not feel urgency in killing it. But, like so much with the new government, much remains to be seen.
By Nick Cunningham of Oilprice.com
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The huge exception to compliance cars is Tesla. Tesla pulls no punches on building cars that a truly desirable and fully functional. They are no afraid to compete with the best gas powered products on the market. Consequently with the release of the Model X, Tesla's YTD US unit sales, 35.6k are up 76% y/y. This represent the bulk of the growth in the US EV market.
Note that this is robust to cheap gas prices. Most Tesla drivers could care less what the price of gasoline is. It's just not relevant to buying a high end auto.
Tesla drivers do about 95% of their charging at home. So apart from the Supercharger network that Tesla funds and operates, government and utility sponsored charging infrastructure is irrelevant. What is unique about the Supercharge network is that it can charge at 6 miles of range per minute or higher, up to 130 kW. None of the compliance cars can even accept such high powered charging. Consequently most of the chagrining infrastructure out there is super slow, less than 25 kW. This is so painfully slow that most Tesla drivers simply avoid using it if at all possible.
Finally, it is irrelevant to Tesla whether the $7500 federal tax credit is eliminated. This program with limited to about 200k US vehicles per automaker and steps down quickly once that limit is hit. Because Tesla has been aggressive at building its business, it is close to hitting this limit. It could hit it late 2017 or early 2018. So this could be eliminated to impact 2018 tax year at the earliest, but it would have no impact on Tesla. Ironically besides Tesla and Nissan, all other automakers have been dragging their feet on using these credits. So if the program were suspended is would only hurt the laggards, given Tesla yet another advantage.
In sum, Trump can impede the EV compliance car market, but this will have only limited impact on Tesla and other automakers that truly want to compete in this space. Moreover, dismantling all sorts of environmental laws will likely push green consumers to be even more emphatic about buying EVs. So consumer choice could re-emerge as a solid driver of EV growth. This will make the Tesla Model 3, which will start at $35k (excluding tax credit), a very compelling purchase. And it won't hurt that it is a super cool looking, high performance, self-driving car.
Tesla may well continue to grow at 76% pa in spite of Trump. Moreover, this will eat the lunch of all other automakers, picking off the cream of the auto market. So eventually they will have to compete to preserve profitable market share. So this is the sort of break out growth that oil investors need to watch out for. Once EV makers shed their compliance car mindset and really compete to bring the best products to market, it will be all over for gas powered vehicles. Gas cars will then be perceived as second rate and obsolete, and the market will turn fiercely against them. Indeed, anyone who has driven a Tesla already knows that gas cars are just as obsolete as an old flip phone. Perhaps the best thing Trump could do for the EV market is clear out the lame compliance cars, so that the truly great EVs can redefine consumer expectations.