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TheStreet Open House

Electric Cars -- the Math Simply Doesn't Add Up

Stocks in this article: TSLA

(I gave a keynote presentation last week at the 13th European Lead Battery Conference in Paris. This is the first in a series of articles for TheStreet that will highlight the principal issues that I touched on in that presentation.)

NEW YORK ( TheStreet) -- People focus on energy supplies and prices because they buy energy in minimally processed form several times a month. They never think about metal supplies and prices because they're buried in the cost of other products. The harsh reality is that metal prices are more volatile than energy prices, and metal supplies are far more limited.

Natural resource supply constraints are easy to understand if you think in declining orders of magnitude. Every year our planet produces:

*14 billion tons of oil, natural gas and coal;

*1.5 billion tons of iron and steel; and

*0.13 billion tons of non-ferrous metals.

Annual production of several "technology metals" including cobalt, rare earth metals and lithium is less than 100,000 tons. There are no resource stockpiles. We use it all, and every use involves choices because most metals have hundreds, if not thousands, of alternative uses in consumer and industrial products.

Since supply and demand must balance, we can't increase the use of scarce technology metals for one class of applications without conserving them somewhere else.

If you look at the bill of materials for HEVs, PHEVs and BEVs, you see a veritable litany of critically scarce technology metals.

Except for the Tesla Motors (TSLA) product line, all hybrid and plug-in electric vehicles use large amounts of the rare earth metals neodymium and dysprosium in the permanent magnet motors for their electric drive.

And except for the Fisker Motors product line, all hybrid and plug-in electric vehicles use either nickel metal hydride batteries that require large amounts of the rare earth metal lanthanum, or lithium-ion batteries that require large amounts of cobalt.

As funny as it may seem, lithium isn't an issue because there aren't many alternative uses for that quirky combustible metal. Lithium rarely represents more than a couple percent of battery weight and production rates are relatively easy to increase.

Cobalt, rare earth metals, nickel and copper are another story altogether because they frequently account for 10% or more of battery weight and have so many critical alternative uses in essential consumer and industrial products.

In the final analysis there isn't an HEV, PHEV or BEV on the planet that doesn't use immense amounts of technology metals in a vain attempt to conserve energy resources that are 100,000 times more plentiful.

The worst offenders are cars with plugs that use huge batteries instead of fuel tanks to facilitate the questionable luxury of substituting one energy resource for another.

Imagine you have 45 kWh of batteries. You can use them to make one basic Tesla Model S or a fleet of 30 Prius-class HEVs. The Model S will save one owner 400 to 500 gallons of gas a year, but a fleet of 30 Prius-class HEVs would save 4,800 gallons of gas a year using the same battery materials.

The bottom line is that conserving energy by increasing the use of technology metals is usually a fool's game. The natural resource scales can't possibly balance. Electric cars may be technically possible, but they will never be sustainable at relevant scale.

John Petersen, a lawyer and CPA, has specialized in advising companies on corporate finance and business development for more than 30 years. He writes the deathless prose and dire warnings investors read in offering documents and SEC reports. While Petersen has served as a board member or executive officer for a handful of public companies, the bulk of his work is behind the scenes where precision and a passion for detail are essential. Petersen�s investing style is that of �elephant hunter,� and nothing grabs his attention like a �multi-bagger� in the rough. His investing time horizon is two to four years. On the long side, Petersen looks for blood in the streets and stock prices that have been beaten down to unconscionably low levels. On the short side, he seeks out high-profile companies that trade at unsustainable levels while hype-intoxicated executives make the same tactical mistakes he�s suffered through with clients. Petersen�s sector focus is batteries and efficient transportation because he has almost a decade of experience in the industry, including a three-year stint as board chairman of an R&D-stage battery-technology developer. He�s convinced these sectors are emerging investment mega-trends.

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