When Considering The EV, P-HEV And FCEV Value Conundrum, Perception, Pricing And Common Sense Should Play Central Roles

By Rick Carlton

Today's consumer auto segment is rife with turbulence when it comes to electrification. On the one hand, Elon Musk and Tesla have been producing significant share value since the company's all-electric Model S rolled-out last year. However, while the all-electric product appears to suck most of the air out of most of the alternative segment whenever Musk et. al. make a move, other electrification technologies are emerging as well, including a host of evolved plug-in electric hybrids, on top of two additional technologies in the form of KIA-Hyundai and Honda with their hydrogen-electric variants. Consequently, what is a Fool to do?

The Big Dog Eats - But For How Long?
There is no doubt that Tesla currently stands at the top of the electrification value pyramid both in terms of applied technology, and for our purposes, share price. As I write this, each Tesla share is worth $220, with a market cap standing at just above $27 billion.

That’s not bad for a company that was only worth about $30 per share five years ago. However, if you spend some time looking at the company, and its extended product development in comparison with its potential future value, faint cracks can be seen in its veneer of business stability.

Consider these value constraints:
• Tesla’s products are quite pricey, and consequently tend to limit the company’s mass-appeal.

• In terms of the domestic market, Tesla’s projected overall sales volume represents just over 30% of the company’s gross revenue, and instead primarily depends on Asian and European revenues to drive on-going growth.

• The company continues to have periodic issues with product assurance as represented by recent multiple customer car fires, in addition to its recent settlement of a customer lawsuit costing nearly $127k. Further, events of this type damage the brand’s image, ultimately creating sluggish or limited go-forward sales volumes.

• The growth of the all-electric value is intrinsically dependent on the emergence of a currently un-realized national public charging infrastructure. Consequently Tesla sales volumes are entirely dependant on highly-urban sales results, while being denied an ability to penetrate the larger domestic market. • Tesla continues to face legal challenges associated with its domestic direct-to-customer sales model. Illustrations in this case, are represented by a recent failure to secure an agreement with the Federal Government associated with its 2013 petition request to legalize direct-to-customer selling in all 50 states. This failure further compounds the company’s legal troubles given other multiple active lawsuits at the State level.

• Even the company’s company current effort in the Asia-Pacific region is being threatened by continual product deliveries due to customs issues. This impact has been made worse due to a rancorous and particularly high-visibility international Patent Trademark lawsuit in association with a Chinese National.

Consequently, none of these constraints appear to be easily resolved and, therefore appear to be antithetical to the goal of investment growth at the mid, and long-term.

Tesla’s More Obvious Competition
While Tesla continues to fight its good fight, other brand technologies have come to the fore including a long list of evolved plug-in hybrids. This glut of alternatively-powered brands ranges from uber-premium vehicles like the Porsche Cayenne and Mercedes E-Class, to much more reasonably priced products such as Ford’s C-Max hybrid, or Honda’s new Accord plug-in hybrid electric vehicle (P-HEV).

These products attempt to straddle brand values that offer green technology over sale price in hopes of creating better mass-audience acceptance, however, they also tend to harbor the same intrinsic constraints as Tesla in terms of short range and extended battery charge cycles. However, although these brand-makers are able to honestly suggest the application of electrification as a value point, as a practical matter these vehicles extend range by continuing to lean on the vehicle’s internal combustion engine (ICE), rather than depending on electric power only.

For example, the maximum range of Ford’s C-Max Energi is only 20 miles, and requires 7 hours to charge using a 120 volt plug-in circuit; and in the case of the Honda Accord P-HEV the vehicle will only travel 13 miles on zap-power only. Granted, the Honda is more charge-efficient, only requiring 2.5 hours to charge using a 120 volt plug-in circuit. But even at that, one can easily see that at the moment, the practical value of purely-applied electric power is still much more about the size of the hat, rather than the size of herd.

That said, however, the P-HEV segment is growing year-over-year and interest shown in the technology by traditional automakers like those mentioned above and others, are likely to attract more investment value as the market expands over time.

Then There’s Hydrogen
Our treatise now leads us to consider the emergence of auto brand’s that leverage newly-applied hydrogen fuel-cell electric vehicle (FCEV) technology, and its consequent value when compared with the potential of investment growth over time. To set the scene, the advent of hydrogen, or H2 vehicles, immediately eliminates one of the major consumer hurdles to the acceptance of electrification by offering an ability to produce traditional ICE travel ranges, without actually having to use an ICE.

For example, the new KIA-Hyundai Tucson ix35 produces a measured range of 360 miles on one tank of pressurized hydrogen. This means that a customer can fill-up in Costa Mesa California and drive to Phoenix Arizona; completely dependent on the SUV’s electric motor while producing zero-emissions. Then, once the customer reaches the Phoenix Metro area all he has to do is identify a likely H2 station, spend the requisite 10 minutes pumping hydrogen into the FCEV’s tank like any other traditional fill-up process, and proceed along another leg – easy right?

Then, lets consider market-entry sales price. Although FCEV’s are still too new to the domestic market to establish firm price points, based on the price of KIA-Hyundai’s Asian version, a U.S. version is likely to come in at approximately $62k per copy, which is close to being affordable in the mass-market. Nevertheless, domestic customers can already order and take delivery of one of these vehicles on the basis of a lease program starting at $499 per month, which is currently directly comparable with any other upscale ICE-SUV lease in today’s market.

Finally, in the case of development and propagation of hydrogen distribution and delivery infrastructures, systems and processes are already available in many locations in North America, since H2 is being utilized as an industrial gas solution throughout the country. In addition, however, Austria’s Linde A.G. recently announced the launch of the first commercial production line solely focused on the creation and delivery of consumer-based hydrogen filling stations, thereby, immediately affording the market with a ready mechanism to extend hydrogen service processes quickly.

In the end of the day then, of the three current electrification technologies attempting to drive investment value over time, although hydrogen is the newest of all, it appears to attract the most opportunity. This value decision is guided by a reasonable set of technical advantages and constraints, yet at the same time is intrinsic to the most commonly accepted decision driver of all; common sense.