Monday, November 22, 2010

Electric Car Demand Could Dwarf Supply

About 11 million cars are sold in the U.S. each year. The first two practical and moderately priced plug-in electric cars -- the Chevrolet Volt and Nissan Leaf -- are about to be delivered to the first customers in December. Over the next 12 months (calendar year 2011), Nissan will deliver 20,000 Leafs and Chevrolet about 15,000 units in the U.S. market.

The total of 35,000 cars is less than one-third of one percent of the U.S. car market.

Leaving aside the important distinction that the Chevrolet Volt, made by General Motors, is close to a "no compromise" solution with a back-up gasoline engine that picks up after the first 25 to 50 miles, who will be buying plug-in electric cars out of these 11 million annual U.S. buyers? The debate seems focused, almost subconsciously, on single-car households, and the argument goes that almost all U.S. households won't tolerate the familiar "range anxiety" phenomenon.

Let's for a moment assume the debate is right about single-car households: If you are a one-car household, you will simply not buy an all-electric car. This is where the analysis these days typically stops.

But what about multi-car households? In most multi-car households, the second car is driven shorter distances -- to school, shopping, soccer practice and local errands. It is often asserted that a majority of cars are driven less than 60 miles a day. Rarely is the question asked: How many second or third household cars are driven less than 60 miles a day? I would venture to guess close to 99%.

In other words, most households only need one car that can go 60 or 100 or more miles a day, while the second car almost never doesn't. This means that as long as all-electric cars can be price-competitive, the demand in the U.S. alone could be 5 million electric cars a year if one assumes that almost half all cars sold in the U.S. are for multi-car households. You only need one car that can handle a longer road trip; the second car is almost always used only locally.

Are all-electric cars price-competitive? Thanks to the generosity of your tax-paying neighbors, the Nissan Leaf sees its $33,500 sticker price reduced by $12,500 ($7,500 federal tax credit, plus $5,000 in some states) to $21,000. At that price, it appeals to a majority of second-car buyers.

Therefore, as a baseline scenario, we should be able to say with some confidence that as soon as electric car awareness spreads, even without a meaningful public charging infrastructure, U.S. demand for all-electric cars should be about 3 million units a year (a majority of 5 million multi-car households). Even if we too-generously include the Chevrolet Volt into the equation, this means that in 2011 we will have a 100:1 demand/supply imbalance based on these two cars.

Clearly, the supply of all-electric cars will increase rapidly as we move into 2012 and beyond. Nissan has announced that by the end of 2013 it will be making 500,000 Leafs per year, about 200,000 of which will be made in the U.S. Indeed, 2013, will be the year when almost every other significant car manufacturer will enter volume production (more than 10,000 units a year), although there is very little precision to the 2013 numbers outside Nissan.

By 2013, the U.S. will also have a very well-developed charging infrastructure for plug-in electric cars. Already today, most any establishment in control of a few parking spaces is looking to install chargers: hotels, malls, fast-food joints, parking garages, office buildings, apartment buildings, you name it. It is not inconceivable that the U.S. alone may have more than 100 million electric car chargers installed or in planning by 2013. The low cost of these installations (well below $10,000 apiece), and the simplicity of the environmental requirements, should mean that already in 2012 we will have many more electric car chargers installed than traditional gasoline/diesel fueling establishments.

Therefore, by the end of 2013, the U.S. should be seeing the demand for all-electric cars by single-car households go from near-zero to at least 10% to 15% of that part of the market, with plenty of upside potential as people realize they can plug in their cars almost anywhere they stop. All in all, by 2013-2014, therefore, the U.S. alone should drive demand for about 4 million all-electric cars a year.

There are all sorts of legitimate arguments against electric cars, applying to different people in different situations, causing 100% adoption to be unrealistic for the next 10 or so years. For example, people with very large/heavy van needs, trailer-pullers, or classic supercar enthusiasts, are less likely candidates for all-electric cars. Likewise, however, the strongest case for electric car demand comes from multi-car households, where the majority of demand will reside for at least the first two to three years following the current pioneering Nissan Leaf introduction. And as I have said, that part of the market alone should be about one-third of the total U.S. car market.

For the next two to three years, the supply/demand imbalance is so dramatic, with production being well under 10% of demand, that investment opportunities should abound. As to what those companies are, that will be the subject of a separate analysis, and in the meantime I welcome suggestions and arguments.

Tuesday, November 16, 2010

4 Days in January: The Mother of All Smartphone Clashes

The new frontiers in personal computing have unmistakably become the smartphone and the tablet. In the smartphone arena, Apple is hampered by its reliance on AT&T, while it is enjoying a supremely successful near-monopoly in the 10-inch tablet segment.

This all changes in January, 2011. Here is a timeline for how it will likely unfold:

Jan. 3, 1pm Eastern: Verizon and Apple announce a CDMA version of the iPhone. Additional versions for T-Mobile and Sprint to follow six months later. This may put the brakes on Android's dramatic market share gains in the U.S., and shore up the competition against RIM and Microsoft.

Jan. 4: RIM provides the final details of the Blackberry PlayBook, which will be found on U.S. retail shelves later in the March quarter. This may just be the highest-performance tablet to date, and you can view the comparison video vis-a-vis the iPad here:

Jan. 5: Motorola announces a 60- or 90-day exclusive of the Google-optimized Android tablet, initially available on Verizon. Unlike the Samsung Galaxy Tab, which is just now becoming available on U.S. retail shelves, this one is optimized by Google for a very competitive refinement in relation to the Apple iPad. Sometime after March, other OEMs such as Dell, Samsung, Lenovo, HTC, LG and Sony Ericsson will also bring to market versions of the Google-optimized version of Android.

Jan. 6: Hewlett-Packard announces its new WebOS-based smartphones and tablets. Widely recognized as having one of the most attractive smartphone interfaces when it was first announced two years earlier, the Palm WebOS suffered from weak hardware. This time around, the smartphone hardware should be more competitive, and a tablet should complete the lineup.

You heard it here first. The new competitive reality will be announced on these four days in early January.