An Electric Game Changer

One reader of this posting will recognize himself. We worked together in the investment business in the '90s, and he'll remember one of my mottos, which was to look for products and trends that would change your life.

There were some life-changers in the 1990s and this decade. Falling interest rates and budget surpluses during the Clinton years, laparascopic surgery, cellphones, Microsoft Windows, video gaming, visual computing (think "You Tube"), broadband, the convergence of computers and communication (think "the Internet"). All of these things have had major impacts on people's lives, and those who saw them early made a pile of money.

I see another life-changer coming soon: the electric car.

I've been interested in them for quite a while. A couple years ago, I drove to the middle of Oregon to look at someone's converted Ford Ranger pickup truck with a useable range of 25 miles on a charge. It was a long drive and a friendly conversation, but the vehicle wasn't reliable enough to justify the purchase. I wonder if the seller ever thinks about the guy who drove 300 miles from Seattle, didn't buy his truck, and advised him to pay off any debts because we were heading into a real estate crash and depression.

The reliability issue is about to be solved, and usable range will be extended to 100 miles. The vehicle is the Nissan Leaf, a subcompact that looks a lot like a Toyota Yaris or a Honda Fit. The main difference is that is doesn't have a gas engine. It's not a hybrid, but a pure electric car.

I saw one on display in Seattle last weekend. Nissan says they'll start selling them here at the end of next year. I hope to be among the first retail customers. Right about the same time, Chevrolet will introduce the Volt, a hybrid that will get 40 miles on a charge, with batteries then replenished by a small gas generator on board. A bunch of other real car companies have said they'll be introducing electric vehicles in 2011 and 2012.

Not All Electrons Are Created Equal

I've never been much of a believer in the current generation of hybrids like the Toyota Prius or Ford Fusion. They get 40 to 50 miles per gallon, a level of economy that I regard as trivial. Plug-in vehicles are in a different category, especially the all-electric models.

Nissan's forthcoming Leaf will be accompanied in the Puget Sound area by charging stations that, in 25 minutes, can recharge the car to 80% of capacity. At home, it'll fully recharge overnight on a 220-volt circuit. In the winter, with the heat on, the range will be 70 miles. In summer, with the A/C blasting, it'll be 80 miles. For all-city driving, the range will be 10% higher. The car will cost about $30,000 including the battery.

The average American motorist drives 28 miles a day. Give that person an electric car with a 100-mile range, and you've eliminated his gas consumption, period. That's the game changer. Before very long, you'll have a whole group of drivers who don't use any gasoline at all.

And remember, this is only the beginning. Once these things get up and running, we're going to see rapid improvement in battery technology. Performance will improve and costs will decline. Electric propulsion systems are inherently simpler and cheaper than gas. The guts of the new all-electric cars are going to ride a cost and performance curve that will look an awful lot like personal computers. I bought my first new computer in 1990 for $3,000. Today, I can get a much better one for $600.

(Incidentally, I've never been any kind of fan of the Tesla Roadster, a criminally overhyped converted Lotus Elise produced in small batches by a Silicon Valley boutique. I have been waiting for car companies to get into this game. Nissan and GM, and the next set of entrants, are car companies. Unlike Tesla, a car company -- even GM -- won't deliver a vehicle without working brakes and a range of one-fifth the claimed level, two years late and 20% more costly than expected, at a loss of $40,000 per unit.)

The Implications of the Shift

Oil companies are not going to like this very much at all. Demand for their product is stagnant due to the current economic depression, and commodity prices are always set on the margin. I expect to see much lower gas prices within the coming decade, as demand begins falling. By 2030 or so, gas consumption in the U.S. is going to decline by 75%. Just wait.

The coal companies, on the other hand, will probably do well, because those cars will need electrons. An intelligent government would be racing to erect windmills to supply the new power -- windspeeds are higher at night, when those vehicles will be recharging, and the U.S. is chock full of windy spots. But the reality is different: We live in a deeply corrupt country, and Big Coal will use its influence to block meaningful investment in alternative power generation. There will be a few prominent wind demonstration projects, but I don't think we'll see widespread implementation.

(An aside: Seattle is a special case on the electricity front. We get 90% of our juice from hydro, 5% from wind, and 5% from hydrocarbons burned during peak demand periods. Electric vehicles will be charged mainly at night, and won't cause the burning of any additional coal or natural gas. Where I live, an electric car really will be a "green" alternative. Major smugness points for this one!)

There is also the issue of highway construction and maintenance. It is now financed mainly through gas taxes that average about 40 cents a gallon. Stagnant gasoline demand has already pinched the funds, but they ain't seen nothin' yet. I expect a mileage-based system to replace gas taxes for owners of electric vehicles.

There are also potential foreign policy implications. If lightning were to strike and the U.S. also got serious about alternative forms of heating and cooling (through the use of ground-source heat pumps I discussed in this post a while back), the U.S. could turn its back on oil imports and the trade deficits and geopolitical messes that go with it. Not that I think this will happen, mind you. There are too many other interests conspiring to keep us in the Middle East.

The Risks to This Forecast

There are all kinds of reasons to doubt my enthusiasm. After all, the Nissan Leaf gets only 100 miles on a charge. Even people who average 28 miles will want more of a reserve. And what about long trips?

But those aren't objections I worry about. For starters, there is more than one market for cars. Electrics will begin as second vehicles. As performance improves and costs fall, you'll see more people with a primary electric vehicle. Gas-electric hybrids with meaningful electric-only ranges will appear. (Note to General Motors: 40 miles on the Volt simply isn't enough. Your new car is neither fish nor fowl, and I think it's going to flop until you extend the battery-only range.)

The bigger risks are the following: First, that the Obama administration's weak responses to the depression prove ineffective, and the current malaise deepens so dramatically that even a life-changing innovation fails to make an impact. It has happened before. Television was ready to roll in the 1930s, but the depression and then the world war kept it on the shelf for 20 years.

Second, the oil companies find a way to block the change. At the very least, people should get ready for a wave of anti-electric publicity, focusing mainly on range limitations and the expense of the new vehicles, and whatever initial performance quirks emerge as the technology is rolled out to the masses. They'll be labeled as a type of "greenwashing," simply a relocation of the smokestack from the vehicle to the local power plant.

If they are as popular as I think they'll be, electric cars will upset some big, rich apple carts, one of which is piled high with money that routinely makes its way to Congress. This is one area, however, where American corruption could benefit the rest of us. True, the oil companies will be giving it their best shot. But so will Big Coal, and so will the electric utilities. If I were a typical member of Congress who cares about nothing but the money, I'd have my hand out to all of them.

Cynical as I might be, I'm also an optimist. I realize that many of you who are reading this will scoff at that idea, having heard me go on and on (and on) with my doom and gloom about the economy and politics. But amid all of the well-justified discouragement, our best minds have a way of producing life-changing ideas and products. I think the electric car is going to be one of them.