Sep 29, 2005 (From the CalCars-News archive)
At the original URL, find links; mention of PHEVs links to July Wired story at http://www.wired.com/news/autotech/0,2554,68101,00.html
Pricey Gas Fuels Alternatives By Future Stock Columnist Joanna Glasner Sep. 27, 2005 PT
With gas prices hovering near record highs, motorists today often fantasize about filling up with something other than fossil fuel. But back in the real world, few viable alternatives exist.
Certainly, there are other ways to power a car, using grain-derived ethanol fuel, an electrical socket or even reprocessed fast-food grease. The trouble, however, is that alternate sources are normally more expensive and harder to obtain than gasoline.
Future Stock Investors in alternative fuels face the same conundrum. While public companies tout advances in engineering automotive fuel cells and hydrogen power technology, no one's getting rich betting on a substitute for the gasoline engine. Those who've kept their money in oil stocks, meanwhile, have seen their portfolios soar.
But if gas prices continue their upward march -- and the combination of high demand from developing nations and the post-Katrina supply bottleneck indicates that they might -- alternative fuels promise to become more cost-competitive. Moreover, fossil-fuel supplies won't last forever. So, for investors who still have cash left after paying at the fuel pump, here are some ideas to keep in mind.
Keep your horizon long term: It's easy to imagine pulling up your fuel-cell-equipped car at a hydrogen fueling station. But bringing the vision to fruition, even if it is viable, will take years or even decades.
"There's really no infrastructure to support the demand for hydrogen power," said Tony Tursich, portfolio manager at Portfolio 21, a green technology investment fund. "People would need to be able to drive into a gas station and order hydrogen for their tanks, and of course this isn't available yet."
Tursich's example illustrates the broad dilemma alternative-fuel developers face. Costs for gasoline replacements won't come down until there's an economy of scale to produce and distribute them. The catch is that an economy of scale won't exist until a technology is cheap enough to appeal to the general public.
High costs and underdeveloped infrastructure are two factors holding back deployment of automotive fuel cells.
Fuels cells are devices similar to batteries in which fuels like hydrogen gas or methane can combine directly with oxygen to produce electricity and very little heat. For years, the world's largest automakers have been developing fuel cells, either in house or through investing in companies like Ballard Power Systems (BLDP) that specialize in the technology.
Today, a few cities, including London (.pdf), are testing fuel-cell-powered buses. The technology isn't expected to trickle down to your local dealer's lot anytime soon, however.
"No one has yet invented a fuel cell good enough to put in a car that anyone can afford," said David Redstone, publisher of The Hydrogen & Fuel Cell Investor.
Fuel-cell stocks no longer favorites: Shares of companies heavily involved in developing fuel-cell technologies were popular picks about five years ago. Since then, they've been on a fairly continuous decline, as shareholders run out of patience waiting for profits.
"The market and investors realize that these technologies have so much farther to go, so they're not willing to put more money and capital into these companies at this time," said Tursich, citing Ballard as an example.
Shares of Ballard, based in British Columbia, vaulted as high as $115 in 2000, as investors gave a bold thumbs-up to its plans for deploying fuel cells. Over the past three years, the company has posted total losses in excess of $450 million, and investors are no longer so enthusiastic. Its stock currently trades at around $6.
Stocks listed on the WilderHill Fuel Cell Index follow a similar pattern. Distributed Energy Systems (DESC), which develops technology related to hydrogen production and fuel-cell applications, trades for around $7. Years ago, investors paid $30 for the stock. Shares of Quantum Fuel Systems Technologies Worldwide (QTWW), which designs fuel systems for alternative-fuel vehicles, are down more than 50 percent from a year ago.
But if oil prices remain at current levels or edge higher, the market might give fuel-cell businesses its affection once again.
It's all about infrastructure: Investors in alternative automotive fuels need not limit their imaginations to liquid substances. Electric vehicles can run on anything that provides power through the grid. It doesn't matter if the source of that power is coal, nuclear, natural gas or something else.
Because today's electrical infrastructure provides barely enough juice to power our homes and gadgets -- let alone our cars, too -- Redstone believes investors ought to concentrate on ways to produce more power-generating capacity.
"The focus has to be on replacing fossil fuels with renewable sources," he said. This will require a collection of power sources, including solar, wind, geothermal and tidal. Redstone also believes ramping up nuclear power capacity is a compelling option.
But for automobiles, storing energy is also an issue. Robert Wilder, founder of the WilderHill Fuel Cell Index and the exchange-traded Wilder Clean Energy Index, says today's electric cars work well for short distances. But for longer treks, drivers need something different, such as a plug-in hybrid car that can use gas when the battery runs out of juice.
Invest in better mileage: If we are going to be stuck with gasoline engines for many more years -- and it looks like we will be -- technologies that raise fuel efficiency can also make for sound investments.
For investors who don't mind some exposure to the volatile automotive industry, one approach might be simply to invest in manufacturers of high-mileage vehicles. Leading makes of hybrid cars, like Toyota (TM) and Honda (HMC), fall into this category. But would-be buyers should take heed: Shares of both companies are trading at multiyear highs.
Or, you could go with an oil company: These are indeed tough times for drivers, but things have never been better for oil producers.
Companies like Exxon (XOM), Shell and BP (BP) are reporting record profits, revenues are surging and their stocks are trading at cyclical highs. Some oil firms, such as BP, are also exploring alternative energy sources.
But even clean-energy boosters like Redstone acknowledge that oil companies will be hard-pressed to find anything more lucrative than their current line of work.
"There's nothing like a fossil fuel.... You just stick a straw in the ground and it comes out," he said. "You can't beat that by building 10 million windmills."
Disclaimer: Wired News makes no representation as to the investment-worthiness of any companies mentioned in this article. Examples are provided for informational purposes only, not as a recommendation to purchase or sell any particular stock.