Business & Controlled Profits
Electric Vehicles 1994
In 1994 I attended a seminar on electric vehicle conversions. I was really fascinated with the idea of a vehicle, which was almost silent and could be very, very fast! The horsepower rating of an electric motor is really not the same as the horsepower rating of an internal combustion engine. The basic difference has to do with the fact that horsepower in an internal combustion engine is cyclical whereas in an electric motor the horsepower is constant. Therefore an electric motor rated at 60 horsepower installed in a vehicle is very, very fast and smooth.
That was the good news. The bad news was -- the electric vehicle would need to carry approximately 20 batteries, weighing around 900 lbs! And the range was 80 miles on a full charge. It simply was not feasible. That was in 1994...
Electric Vehicles 2001Well I didn't do the conversion in 1994, but in 2001, I started thinking about it once again. After all, GM had produced the EV1 and every other manufacturer was working on EV technology as well. Surely in 2001 the limitations of 1994 had been overcome. Ha! I began investigating the equipment available for EV conversion and I came to find that the technology was almost identical to that found in 1994. The motor controllers were more refined, the motors were a little more efficient, but the batteries were still exactly the same. This was a baffling discovery. How was it possible that every aspect of technology over the intervening years had grown by leaps and bounds, yet electric vehicle technology had almost stood still?
Hybrids...While the technology of purely electric vehicles seemed stagnant, hybrids appear to possess viability and in 2001 were poised to enter the market place. Hybrid transportation is not new. The MIT "Technology Review" recently published an article, which briefly described a hybrid vehicle developed by Ferdinand Porsche at the turn of the century. Most diesel locomotives are actually hybrids -- diesel-electric locomotives, power trains across the USA. As I said before, electric motors are extremely powerful. Coupled with diesel generators the range and power is extremely efficient.
So why hybrids and not pure electric vehicles?There are many forces at work in an economy. I am not claiming that there are conspiracies but I have noticed that one of the cornerstones of our economy stands to benefit immensely by the proliferation of hybrids. Even in a diluted economy, which is so large that no single entity can completely control it, there are strategic partnerships that develop which can maximize profits of several industries in concert. Over the last few years many oil industry analysts have declared that known oil reserves have peaked and can no longer sustain the growing worldwide demand for oil/gasoline. If this is the case then it becomes necessary for participants (the oil companies) to maximize both the profitability and longevity of their markets. Hybrids are capable of slowing demand... but what about the profits? That is where the "ratchet effect" comes into play.
Ratchet EffectEvery spring, consumers are extremely surprised to find the gasoline prices have gone up. How is that possible? The usual story from the industry is that, there was unusually high demand or a facility was unexpectedly shut down for maintenance or the winter had been unusually harsh and therefore reserves had to be diverted for heating or California's special requirements have caused a fluctuation in availability of product. This same scenario plays out in the fall as well. Sometimes it also happens in the summer and winter... We consumers whine and complain because the price jumped 25 cents over a few weeks. Everyone decries the greed of the industry and demands for investigations start echoing throughout the media, but then the price drops 15 to 20 cents and everybody just quiets down again. We are all "happy" once again, but what just happened? The price went up 25 cents but only came down 15 cents, now the new low price is 10 cents higher than before! Every few months the "ratchet effect" takes place. The underlying objective for the industry appears to be -- methodically ratchet the price up to over $3.00 per gallon.
Lower volume and higher prices - what a great business plan!In a previous column about gasoline I indicated that the industry had always sought higher volume. That was the old industry. The new industry seeks lower volume -- lower volume but with higher margins and reduced overhead. Here is how I believe it will work out. The introduction of viable hybrids coupled with increased gasoline prices has created a sudden shift. A slow and steady migration from pure internal combustion powered vehicles to more efficient hybrids will create a very profitable period for two monolithic industries. The automobile industry will be able to enjoy a period of vehicle replacement similar to that experienced after WWII. It will be as if they are entering a completely new market. The oil industry will experience lower volume sales, much higher margins and they will be able to lower production which will reduce their overhead radically. The other entity, which will enjoy this period, is the environmental movement. Normally these entities have very different objectives, but this strange turn of events will allow them a coincidental alliance of sorts.
Portions of this column were originally written in 2002.
Gigliotti, Lorenzo. "Electric Vehicles, Hybrids, Business & Controlled Profits."
The quixotic mind of Lorenzo Gigliotti
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