Thunder road gets clean

4 min read

The days of car petrol fumes may soon be behind us. According to Bloomberg New Energy Finance, it is possible that most new cars will be electric and most energy will come from solar power stored in our homes by 2035. Tim Rocks, Head of Market Research & Strategy, investigates the coming world of clean technology.

You might think electric cars are new and high tech. The truth is, the first electric car was actually built in the late 1800s and phased out due to the better affordability and longer range of gas fuelled cars. As we’ve become more conscious of alternative energy for sustainability (and environmental protection), electric cars have returned to common speech. Demand is increasing rapidly – and car companies are working hard to innovate and make electric cars affordable.

Tesla is usually front of mind when you think of electric cars – with good cause – it received more than 400,000 orders for a new vehicle with no set delivery date and no set price. It isn’t the only developer of electric cars though, with many other car suppliers building them and China rapidly increasing its production.

Why are electric cars becoming popular?

  • They are quieter, smoother and have greater acceleration

    The Tesla S can accelerate to 60 miles per hour in 3.2 seconds, which is faster than the Porsche 911 and Ferrari 599, and as fast as the McLaren F1.

  • They are far more energy efficient than combustion engines

    EVs use 95% of energy generated compared with only 20% for combustion engine vehicles.

  • They will cost at least 10 times less to fuel than conventional vehicles

    In fact, fuelling costs could fall to zero as shopping centres begin to offer free charging. AGL recently announced a scheme where EVs could be fully charged at home for $1.

  • Maintenance will be much less

    There are less than 100 moving parts in EV compared with 2,000 for conventional cars and there is much less complexity to these parts – no transmission, clutch, crankshafts.

Getting cheaper…

Electric cars are expensive at the moment because batteries are expensive. But as production of batteries increases, the price should fall. Tesla’s “Gigafactory” in the Nevada desert is expected to double global battery production when it opens in 2017 and help batteries drop in price.

The cheaper electric cars become, the more likely we are to buy them instead of traditional cars. The less we buy traditional cars, the more expensive they are likely to become.

Cheaper batteries also help boost the use of solar energy because you can store power in them to use at night in peak periods. So this means cheap batteries can mean cleaner energy all round.

Thinking about investments

As electric cars, cheaper batteries and solar power become the norm, there will be some changes for businesses.

  • It will lower demand for oil which is currently used for 60% of land transportation and in turn, mean lower prices for oil.

  • Electrical companies will need to adapt to manage these changes.

  • Some car companies may not be able to keep up with companies like Tesla, or the rapid innovation in China.

  • Many roads are funded by taxes on fuel so governments may need to consider different sources of funding as we move to electric cars.

  • Developing countries would benefit from the cheaper access to electricity as building a grid currently is very expensive.

  • Lithium and graphite are key components of batteries so increased production of batteries would benefit companies that supply these. 

Innovation is both exciting and challenging

There’s no doubt electric cars are something to look forward to – clean energy is not only a win for the environment, it could be a win for a number of companies – but there are also challenges. Innovation means changes so it will create some difficulties for companies in adapting to these in the coming years. The ones who will succeed will already be developing plans for this.

For more information on the impact of clean energy on your investments, please contact your financial adviser.

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This information is current as at 12/07/2016.

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© Westpac Financial Services Limited 2016.