Oasis Charger Corporation: EV Market Update 050418

Release Date: 05/11/18

VW announced on May 3rd that it had awarded battery purchase contracts worth $48 million, double its announcement several weeks ago.  VW’s Chief Executive, Herbert Diess, also announced that it plans on selling 3 million all-electric cars per year by 2025.  Tesla has had the EV market largely to itself so far, but the traditional car makers are pushing aggressively into the market, harnessing their experience in mass-production, engineering and financial fire-power; VW makes more cars in 4 days than Tesla makes in a year.  VW alone plans to launch 25 new all-electric models in the next 24 months, highlighting the manufacturing woes and scale issues that Tesla has faced, especially with the Model 3. Fortune ( VW Just Ordered $48 Billion in Electric Car Batteries. That's About What Tesla Is Worth Right Now.)  As Fortune points out, VW’s battery order is roughly the same size as Tesla’s entire market capitalization.  Elon Musk has stated that he started Tesla to spark a conversion to all-electric cars within a decade.  That wish is starting to catch up with him.
 
In previous newsletters, we have commented on the EPA’s proposal to roll back fuel efficiency standards established under the Obama administration.  Given the flimsy rationale for these changes and the conflict with California’s own standards, it was likely that these proposals would be tied up in court for years.  Indeed, last week, California along with 16 other states and the District of Columbia filed suit against the EPA over its proposed rollback.  Green Car Reports (California and 16 states sue EPA over emissions rules.)
 
In addition, the Trump administration recently lost a key court decision in a related case.  Under the Corporate Average Fuel Economy (CAFE) standards, automakers pay penalties for every car sold that does not meet those standards. Some luxury car makers have chosen to pay the fines rather than incur the cost to re-engineer their fleet to meet those efficiency standards. NHTSA, which administers the program, was set to raise the fines from $55 to $140 per car/per mpg under a Congressional requirement to reflect inflation (the fines were originally established in the mid-70’s).  Last July, however, the Trump administration announced it would cancel the increase, leading to a challenge from New York, California and Vermont. The New York federal court blocked the Trump administration from delaying the imposition of the higher fines.  Bloomberg.com (Court Blocks Trump Effort to Delay Boost in ‘Gas Guzzler’ Fines.)  Automakers are starting to fall behind the CAFE standards especially as they phase out diesel engines, which they have relied on to meet the CAFE standards, increasing the pressure to bring out more fuel-efficient engines and electric vehicles (EV’s).
 
The recent news story that Walmart, Target, Alltown, Casey’s General Stores and Sheetz gas station and travel centers are planning on installing EV chargers at 600 sites is a further indication of the main-streaming of EV cars. Funding is coming from the $2bn settlement fund from the VW diesel settlement—Electrify America.  The number of chargers being developed under the program is relatively small in relation to the 600,000 additional non-residential chargers that the DOT estimates are necessary to support EV sales with over half targeted in California—to put this in context, Walmart and Target alone have over 7,000 stores.  Green Car Reports (“Really fast electric-car charging stations coming to a Walmart near you”.)  It is, however, an important signal that EV cars are emerging from a niche/early-adopter product into the mass market.  It is also an indication that convenience stores, which are generally heavily tied to gas stations, are starting to consider the challenge posed to the gas station model by EV’s, where “fuel” delivery occurs in the home, office, hotel or shopping and entertainment centers.
 
With the caveat that economists are notoriously inaccurate, an oil hedge fund manager recently tweeted that EV’s could result in oil prices hitting $300 a barrel.  He believes that the growth of the EV market is limiting investment in oil projects with long lead times.  Clean Technica (“Electric Car Jitters May Drive Oil To $300 A Barrel”.)  If true, this could set off a virtual cycle for EV’s (a vicious cycle for oil), where higher oil prices would further accelerate the demand for EV’s.
 
Illustrating the rising tension between utilities and oil companies over the future of automotive power, the American Legislative Exchange Council (ALEC) considered an initiative backed by the Koch brothers to eliminate state incentives for EV’s and chargers.  ALEC is an influential, free-market organization that brings together conservative lawmakers and the private-sector to draft model legislation.  E&E News (“Utilities win as ALEC spars over electric vehicles”.) While the trade group for utilities ultimately defeated the proposal, it is likely that this battle will continue as utilities start to generate revenue once earned by the oil majors.