NEW YORK (TheStreet) -- One of the greatest debates about the future of the automotive industry is the relative merits of pure electric cars, so-called BEVs (battery-electric vehicles), versus plug-in hybrids, so-called PHEVs (plug-in hybrid electric vehicles). This article is an attempt at making a prediction of how it will shake out over the next half-decade.
Let's start with the BEV.
The main advantage of the BEV is the elegance of its architectural simplicity. It contains an absolute minimum of moving parts. It can also be made very small and the energy storage can be conveniently baked into the floor pan of the car, enabling the overall car design to be optimized for people, luggage, handling and safety.
The BEV design's simplicity has two other implications:
1. It should allow for the lowest possible service costs over time. Aside from tire rotation, at some point after the car's first decade of service, you might consider trading in the battery for a fresh one. That could admittedly be a very expensive proposition, and the debate is raging as to what to expect for those battery prices at that time.
2. It could make for the fastest possible car. By ditching the entire internal combustion engine (ICE) driveline, you can create a high-performance car and you can optimize for a low center of gravity and maximum acceleration and handling.
The BEV also has three important negatives:
1. The economics isn't quite there yet. Thanks to one factor alone -- the battery -- the cost of a reasonably equivalent BEV is higher than an ICE car. Okay, you say -- but you save on gasoline. Sure you do. But how much?
Let's say you buy a regular fuel-efficient car such as the Toyota (TM) - Get Report Prius. This is what you would buy if you are concerned about fuel economy but for whatever reason aren't buying anything that plugs into a wall.
The average American drives close to 12,000 miles per year. The Prius, at 50 miles per gallon, therefore, consumes 240 gallon per year. Multiply by $4 per gallon and you get $960 per year in fuel cost.
Assuming your cost of electricity is zero, the most you can save per year is $960. How much are you willing to pay up-front to save $960 per year? What's the opportunity cost of a $10,000 upfront investment? 5%? Well, there's $500 per year, or half your savings. Do you actually pay for electricity? If so, that other $500 per year could start to approach zero net savings.
This sort of suggests that $10,000 is the maximum number for the money saver and a smaller number being far more likely. You can judge for yourself when you think that we will start going below $10,000 for the additional cost of an equivalent BEV over an ICE car. It may happen some day, but we are not there yet.
There are three almost impossible problems in judging whether there is an economic payback on a BEV or not:
A. What's the apples-to-apples comparison in terms of the cars?
For most BEVs, there is not an exact ICE counterpart. For example, the Nissan (NSANY) Leaf does not have an exact ICE equivalent. Yes, there's something of an approximate size -- the Nissan Versa -- but they come with different equipment.
B. The drivetrain characteristics are simply different: One car is smoother to drive (electric), whereas the other one has superior range and refueling time. How do you compare the two?
C. What is the battery depreciation over time? Let's say that after 10 or 20 years, you want to replace the battery. What will be the cost? Really, nobody knows at this point. You obviously have to amortize this annual depreciation in order to have a fair economic comparison. This may be the BEV's highest cost -- depreciation.
2. Range and refueling time.
No matter how you slice it, this is the Achilles' heel of a BEV. Range is vastly inferior to an equivalent-priced ICE; perhaps more importantly, you can't just stop almost anywhere and refuel another 300 to 600 miles of range in a couple of minutes. For the average person who is not obsessed with gaming his or her car, and who isn't willing to organize the entire life around the car's recharging needs, this is asinine.
Either there aren't enough charging stations or they are busy all the time. Either way, it's a disaster. Unlike a gasoline station, if there's a person or two ahead of you in line, your wait isn't a minute or two. It could be an hour or two -- or more! This is totally unacceptable to 99% of all sane people.
What's worse is that the recharging time problem isn't going away anytime soon. Yes, faster chargers will become available. Yes, there will be many more of them. However, the congestion problem is just getting worse -- not better -- at least for now. Wake me up when this reverses.
3. Environmental sensitivity and inefficiency.
A battery needs to be kept to a certain optimal temperature in order to not lose capacity. This means that it needs to be heated and cooled. In addition, since it doesnt generate much natural heat, you will lose a lot of efficiency when it's cold outside.
This means that the calculus for a BEV is very different if you live in coastal California versus Michigan or Minnesota. Someone living where it's cold can't imagine getting into a BEV on a long rural snowy drive at 30 below zero versus someone in Santa Monica who doesn't understand why those mountain country folk don't drive electric cars to Whole Foods or yoga class.
Now for the alternative: Plug-In Hybrid (PHEV)
The disadvantage of the PHEV is that you are carrying around two power plants and energy storage. You have an electric motor, a gasoline engine, a battery, a fuel tank, an exhaust system and so forth. That's a lot of gear.
All that gear takes up space and it is heavier than a pure gasoline car. All that weight also means handling and acceleration won't be as good as in a pure electric car.
However, even in terms of the weight and space, there is a partial payback. In a PHEV you obviously don't need a battery that is as big. If your electric range is only 30 to 40 miles, you will already be covering close to two-thirds of many active Americans' driving needs. You can accomplish this with a 16 kWh battery, which is noticeably smaller and therefore lighter than what you would need in a pure BEV.
The PHEV solution also takes care of the temperature sensitivity issue. Unlike a BEV, there is no argument against a PHEV if you live in Montana or North Dakota.
But far most importantly, the PHEV eliminates any dependence on public charging infrastructure. I thought this was going to go away as a problem as little as a year or two ago.
I was wrong.
The public charging problem simply moved from lack of charging stations to congestion -- too many people hogging all of the stations all the time. Same result for the user!
With a PHEV you charge when you can -- such as at home and at work -- but you don't worry about charging elsewhere. If by some luck you should happen to find a vacant charging spot, great. If not, no worries.
What is the conclusion of all this?
The BEV wins for these kinds of people:
1. Extreme sports cars, where performance is #1.
2. People with very short drive range needs.
3. People who live in warm, optimal climates.
The PHEV wins for everyone else, which I believe is the larger part of the market. Most people simply don't want to worry about having to find a working and non-occupied charging station. Most people want their car to conform to their needs, not the other way around. The PHEV solves this problem very elegantly, even though the upfront investment cost remains very dubious for reasons similar to the BEV.
The bulk of the automotive market, where cost matters most, will continue to be dominated by pure gasoline and diesel cars -- at least where fuel costs anywhere near $4 per gallon. Why? They simply provide the best value. The brand-new cars sold in the U.S. and western Europe today are also very clean, not emitting any meaningful amounts of pollution compared to old cars or trucks.
There is a market for both BEVs and PHEVs but it's limited, expensive and environmentally unnecessary. How's that for a cold shower's worth of reality check?
At the time of publication the author had no position in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.