x Abu Dhabi, UAESaturday 22 July 2017

Eco-money: Investors still waiting on a spark from electric cars

While Tesla may have performed well, it is still really in the business of making rich men¿s toys.

Electric cars are an idea whose time has not yet come, at least in the minds of most investors.

Sceptical market watchers have, for example, begun to pour cold water on the plans of US electronic car-maker Smith Electric Vehicles' to go public. The firm is seen as a small player in the comparatively small market for electronic cars.

Smith is to open its second electric-vehicle assembly facility in New York to enable it to market and service the vehicles it sells in and around the city. The company makes the all-electric Newton medium duty lorry. Nevertheless, some doom pundits are predicting that Smith may have problems raising an anticipated US$125 million (Dh459.1m) when it lists its stocks on a public exchange.

The market's fear is that electric cars may be a passing fad and that they could only ever cater for a niche market. Cynics also say that the traditional automotive industry will never really do much to help develop a technology that so thoroughly challenges its more established product lines.

But, if electric cars do take off in the way makers hope, overcautious investors may find they have failed to buy shares in the next Ford Motor Company. As the world increasingly questions its consumption of fossil fuels and people become more aware of the dangers of pollution, there will be growing social and legislative pressure to convert drivers into using electric cars. Rapidly developing technology is also making the cars increasingly fuel efficient and fun to drive.

Although the market may be sceptical of Smith, shares in some electric car makers are performing well in the downturn. When Californian electric car maker Tesla Motors went public more than a year ago, its shares were valued at about $19. They are now valued by the market at about $31. Compared with most stocks, Tesla has performed well in a time of recession.

But in the current economic environment, any new stock exchange listing, especially one that is breaking ground in a new energy-efficient technology, is likely to be viewed with suspicion. There is also the problem of customer acceptance at a time when most have to consider any major new purchase seriously to stretch their budgets.

But the global downturn is not entirely at fault. The electric-vehicle industry itself still has a little way to go before it can start convincing consumers to switch.

Consumers across the globe are still to be convinced as to whether to switch from cars powered by traditional engines to fully electric vehicles. Most expect electric vehicles to be able to go farther, on less charge time, for a lower price than car makers are currently able to offer.

According to a global study carried out by Deloitte's Global Manufacturing Industry group, titled Electric Vehicle Realities Versus Consumer Expectation, the real challenge faced by the electric-car industry is meeting global customer expectations, which are higher than the level met by today's electric vehicles. More than 85 per cent of those consumers surveyed deemed the convenience and cost of charging the electric motor.

The relatively slow growth curve followed by the electric-car industry so far is partly explained by the lack of places to charge electric cars while on the road. But some city authorities are already implementing schemes to introduce regular charging points for electric cars. In any case, the battery life of electric cars is gradually going up while the real cost of recharging them is going down. As with the widespread introduction of traditional cars last century, adoption will reach a tipping point where it will suddenly start to become increasingly adopted until it is the norm. This is what took place at the time Henry Ford began to dominate the auto industry in the early decades of the last century.

But spotting the next 21st-century Ford is difficult. While Tesla, for example, may have performed well, it is still really in the business of making rich men's toys in the form of high-priced electric sports cars. The company has yet to prove whether its coming offering to the mass-consumer market, the Model S Beta electric sedan, will have the widespread appeal it hopes.

But it would be foolish to assume that a new Ford will come from a developed western economy. According to Deloitte, in fast-growing markets such as China and India, 50 per cent or over of the consumers surveyed said they would consider themselves as potential first movers to adopt electronic vehicles. This contrasts with 9 per cent in Germany and only 5 per cent in France.

So, with no clear winner in sight, perhaps the markets are right to be cautious about some of today's electronic-car stocks. But investors should continue to keep an eye on their performance, not only to ensure they are not losing out in the short term, but also that they do not lose out on an opportunity to buy into the world's next mega corporation at the ground floor.

pf@thenational.ae