Blessed by the Potato

Netbug sends along this opinion piece on electric cars after discussing it with his family, saying “I’m sure the math is sound, but I think he’s missing the point… Can you refute the article articulately or am I way off base?”

I’ve only read it twice, but I’m sure he’s missing the point. Moreover, I’m not sure the math is sound. He uses a particularly bizarre way of figuring the cost/savings of EVs, and even then gets his figures wrong.

Let’s start with his assumptions about fuel economy for gas cars. Note that he does not spell them out. To maintain consistency, through most of this I’ll be using US units, figures, and data sources.

A CAFE compliant new car will offer an average fuel economy of 33.3 mpg while a CAFE compliant new light truck will offer an average fuel economy of 25.4 mpg.

Well, right off the bat, that’s untrue. CAFE is not a measure of any particular car, it’s a fleet average, and it includes the contribution of electric vehicles and hybrids (plus some voodoo about ethanol credits). Moreover, it uses a modified scale/test procedure: 33 MPG for CAFE terms is more like 25 MPG on the current EPA test, and even lower real-world. Look up the EPA ratings. I picked a Ford Focus (compact car): it’s at 28 MPG combined. Even compact cars aren’t at the numbers he’s using. According to Natural Resources Canada, the average fuel consumption of the current light vehicle fleet is just under 11 L/100km, or 21.8 MPG.

Now, there is room to quibble there: that’s for a range of cars from new to 10+ years old, whereas new cars will be slightly better. Still, your comparison car is not going to be getting 30 MPG, and especially not when you consider that you should be comparing to the city mileage since EVs are for urban settings.

At 30 mpg, the owner of a new light duty vehicle will consume about 420 gallons of gas per year

He didn’t go through his math, but let’s go backwards: 420 gallons * 30 MPG = 12600 miles/year. That’s probably a reasonable figure to use (I’ve seen 15k mi as more common, but that may just be a case of rounding to a prettier number; not sure what the figure is for those with daily driving commutes). At 22 MPG, that’s more like 572 gallons.

Then he goes to another paper, and somehow gets that electrification doubles the cost of the car (from $19k to $39k). That again is a pretty suspect analysis. For instance, a general rule-of-thumb is that the engine & transmission are 20-40% of the value of a car, yet that paper somehow found that the engine & transmission were just 13% of the cost of a gas car. Moreover, we can buy EVs on the market today that do not cost that much — the Nissan Leaf is “only” $35k (USD), the Prius plug-in has a gas engine and a plug-in battery, is larger and nicer than a $19k comparable car, and is only $32k (USD). Indeed, from looking at US manufacturer’s websites, a compact car with automatic transmission is more like $21k than $19k, and that’s still not adjusting for non-driving features.

The ultimate obscenity is that a conversion from gasoline drive to electric drive will not reduce the total amount of energy used in transportation.

This statement is unsupported by the author, and with good reason: it is patently false. Half the reason to go to electrification or hybridization is the efficiency gain: electric motors are just simply more efficient at turning chemical potential energy into kinetic energy than internal combustion engines. Plus, you can shift the source of that energy from oil to natural gas, hydro, or other renewables.

So, if we re-do his analysis with more realistic numbers (all US figures), we have that the incremental cost for an EV ($21k to $35k) is $14k. That’s saving 572 gallons of gas/year, or 14.1 bbl/yr, or 212 bbl/car lifetime. That works out to a cost of $66/bbl. Which is less than the current cost of oil. Now, this is not the method I would have chosen to make a comparison, but even using his analysis the point he’s reaching for isn’t made.

He also forgot a lot of factors that make EVs a better choice.

Direct financial ones like: Less mainenance cost (no oil changes, spark plugs, timing belts, water pumps, brake pads, etc., etc., etc.), lower fueling costs (oil is an expensive and volatile commodity).

Plus, environmental factors like: Less total pollution (even on a 100% coal power source, an EV is arguably cleaner than a conventional car, and most places are only a fraction coal-powered); pollution shifting (no more smog in city centres!); self-reliance (you can make your own electricity if you’re a doomer, whereas refining your own gas is hard; plus, the cars are quiet and good for sneaking up on zombies). And that efficiency gain.

So right now, going with an EV is close to break-even (though maybe just one the far side). You get all the nice stuff on top of that, but it’s also new, unfamiliar technology. That’s why the subsidies come in: to help make it not only better, but cheaper, to get the ball rolling.

I’m sure the author was cautious in his conclusion, pointing out that his back-of-the-envelope paper, pencil, and calculator analysis could have some holes, that it’s a bit of a strange approach to take (cost per barrel of oil offset?) and that EVs might in fact make some sense…

Electric drive proponents are selling a house of cards based on fundamentally flawed assumptions and glittering generalities that have nothing to do with real world economics. Their elegant theories and justifications cannot withstand paper, pencil and a four function calculator. Shiny new electric vehicles from General Motors (GM), Ford (F), Nissan (NSANF.PK), Toyota (TM), Tesla Motors (TSLA) and a host of privately held wannabe’s like Fisker Motors and Koda are doomed to catastrophic failure. Their component suppliers will fare no better.

Oh wow, he really got the whole foot in there, didn’t he.

Now, as usual, I’m not saying that EVs are going to suddenly take the market by storm: there’s a lot of range anxiety to conquer. They’re not suitable for everyone. But no car is. There are about 1.5M families in the GTA alone; of those, about half have 2 or more cars. I’d estimate that something like 15% of those have (or could easily have) one car that is largely used just for commuting within the GTA — in other words, there’s potentially a market for about 100k EVs in the GTA alone. It’s a niche, but a respectably large one; one that’s worth developing. The economic argument may not be a slam-dunk on its own, but it’s a far cry from a house of cards doomed to catastrophic failure.

Wow, nothing rubs in the cruel realities of old age (or, more precisely, a lifetime of sedentary computer work and the cruel realities of carrying around 40 lbs more than is healthy) like playing flag football against a bunch of 20-year-olds.

I don’t quite know how I got roped into it, but a few friends convinced me to join them in the TSSC flag football league. We didn’t have nearly enough players to form a team on our own, so we signed up as individuals to get randomly put together with some other folks to field a team. The other two guys who showed up to play were good, but unfortunately they were the only ones who showed up — we had to forfeit due to lack of players (though the other team had to forfeit from lack of equipment, so we called it even and played anyway).

There were a few incidents that made me question the whole concept of flag football. The idea is to have a little velcroed-on flag on your body that the other team can rip off to show that you are down, to avoid the brain-damaging tackling of “real” football. The thing is, sometimes you can’t grab the flag, but can grab the player. So at one point one of our guys (one of the younger, fitter ones — obviously not me ;) had two of the opposing players hanging off him, but because they couldn’t manage to grab his flag, he just dragged them across the touch-down line. I had to wonder if that was a kosher goal: on the one hand, they didn’t get his flag, but on the other, they clearly had caught the player. I don’t know, I think if I were faced with the same situation, I’d be sportsmanlike/defeatist and give the other team the benefit of catching me once they started to pull my pants down: yes, you’ve caught me. It’s ok, I won’t get all rules-lawyery about ripping the flag off being the only way to stop the play. The point of the flags is to avoid tackling and the ambiguity of two-hand-touch, and I don’t want to encourage people to tackle someone just to get the flag off at their leisure on the ground.

Speaking of which, I unintentionally knocked someone down, just pushed them the right way below their centre of gravity in the process of grabbing the flag, and down they went. I went down on the next play myself and learned just how deceiving the fake indoor turf is: it feels soft enough under-foot (actually pretty good for running on), but it’s like steel wool to the touch. I’ve got some real nasty turf burn down my leg now, not to mention some sprains and bruises that I’m really feeling today. So I feel pretty bad about (accidentally!) knocking someone down.

In the end, I wasn’t much help to our team: I made a few good plays, but also dropped a catch that was right to me twice, and one time as QB just threw it right into the arms of an opposing player (hey, he was open!). And while I did learn that I suck at football and am out-of-shape, I also found it fun. As much as I hate leaving the house and meeting new people, and as much as I suck at football, in the end I had a good time last night. No one cared that I sucked or gave the other team the ball almost as much as my own, and everyone was friendly and sportsmanlike. I think I’m going to try to sign up for more of these sports things in the spring, since team sports always seem to be a better motivator to go and exercise than just working out is for me.

Though the rolling-over of the calendar has very little physical or spiritual meaning (if anything, the solstice should be used for new undertakings), it is nonetheless a very common time to make resolutions for change. Here are a few handy tips for a variety of resolutions:

Exercising/getting in shape: This is a very common new year’s resolution. Perhaps the most common, so whatever you do, don’t run out and join a gym January 1st (or the 4th, whatever). My friends who do go to the gym regularly are already complaining about the influx of resolution newbies making the place crowded. If you join a gym now, it’s going to be a crowded experience, and less fun than it would normally be. Trying to exercise outside is miserable this time of year. So do yourself a favour and put a pin in that resolution, and mark your calendar for March 1st to make your new beginning.

Dieting: I am not one to talk, but it’s probably best to ease into a diet/weight loss resolution. You should get a natural boost to a weight loss plan just coming down from your post-holiday binge. The next month will be harder, and you’ll have to be even better about your diet to see improvements (losses).

Quit Smoking: The miserable weather makes deferring exercise plans a good idea, but really helps a quit-smoking plan. There are a tonne of different approaches to control cravings, modify behaviour, etc., and this isn’t the place to deal with it in detail. I will say briefly that the #1 quit-smoking motivation in my experience is a cancer diagnosis. If you were not lucky enough to get a cancer diagnosis over the holidays, there are other ways to take the initiative to quit. Procrastination can help: you don’t have to quit forever right now, you just have to put off your next cigarette until tomorrow (and tomorrow and tomorrow). There are also some new-ish pharmaceutical treatments that can help (in addition to good old nicotine replacement like the patch and gum there’s Bupropion and Varenicline — and it is at this point that I will remind you that I’m not “that kind of doctor”).

Start Investing: Ah-ha, now more into my subject matter. This is a great time of year to start investing: you may have a bunch of cash gifts, or will have some free cash flow to save once the holiday credit card bill is paid off. A new round of TFSA contribution room just opened up, and it’s still early in “RRSP season” so there won’t be much of a wait to see someone (if you need to). If you’re not quite sure how to get started, go off and do some reading (for example, my own book: Potato’s Short Guide to DIY Investing), but don’t spend too much time on that: it’s easy to get lost becoming a near-expert on theory, and planning out a perfect-to-the-last-basis-point investment plan without actually getting around to opening an account. Particularly early on, actually starting with a “good enough” plan is better than getting it perfect — especially with one that’s easy to back out of (like a savings account, or a no-load fund with a short lock-in time like TD’s e-series funds or ING Direct’s Streetwise).

Travel more: That’s not even a resolution, that’s a wish or a plan for a one-off event. Get out of here.

Be environmentally friendly: this is a good one to break up into a few pieces, and add them as you go. January is a good time to get on the energy-efficiency kick: put on a sweater, turn down the thermostat, get that shrink-wrap film for the windows, put a grill block on your car. February is a great time to kick bottled water and start using a reusable bottle (the tap water is particularly chill this time of year, too). The spring is best for avoiding car use, and mucking around with composting/gardening.

Learn more/study more: A new term for those in school, and a great time to snuggle up in bed with a good book for those who aren’t. Go ahead and tackle this one right away.

Improve the blog: Well, posting more is a common resolution, but that is not necessarily an improvement if it’s a matter of quantity over quality. Myself, I’m cleaning up the blogroll: a few sites there have stopped posting (or equivalently, been taken over by sponsored ad posts). Self-promotion time: is Blessed by the Potato in your blogroll? If you want to start a blog, then I’d recommend starting by writing a few posts to get a feel for just writing without having to deal with the whole issue of putting it all out there for the world to comment on, or dealing with a platform (it’s pretty easy these days, but still not zero work to set up a blog).

Things that are, and that are not, in your control: in general, I think it’s important to recognize what is and what is not under your control when undertaking your new year’s resolutions. It’ll be nothing but disappointment and guilt, leading to an unstoppable shame spiral if you set some kind of new year’s goal that you actually have no power to enact. For example, you may decide to be more efficient at work and make more money, but only one of those may actually be under your control.

Just wanted to take a moment to thank Sustainable Personal Finance for the giveaway, especially since I ended up getting a prize out of the deal! Woo-hoo! And of course, the sponsor, Maximizing Money for providing the prize :)

Here are my picks for the 2012 Island of Misfit Bloggers Stock Picking Contest:

Poseidon Concepts (TSE:PSN) ($12.45)
Indigo (TSE:IDG) ($7.40)
Superior Plus (TSE:SPB) ($5.75)
Research in Motion (TSE:RIM) ($14.81)

I’ve already done a whole post on PSN.

Indigo was originally a “hidden value” play for me. Now the Kobo division has been sold (though the deal has yet to close), and yet the stock price has been languishing after an initial bump on the news — presently trading at about the value of the Kobo deal plus half tangible book of the bookstore business. Management has said that they won’t be returning the cash from Kobo to shareholders, which means some mad folly may easily destroy the value there. For risk management reasons, I won’t be buying any more in RL unless it gets a lot cheaper, but there’s a lot of potential here if Indigo can shake the impression of being somehow on death’s doorstep (a profitable holiday quarter would help a lot there).

Superior Plus is a long-time holding of mine. A bit of a strange mini-conglomerate with 3 business lines, one of which I like, one of which is mediocre but generates reasonable cash flow, and one of which is just terrible. They took on too much debt building this little conglomerate, and the debt market has recently bitten them. The past few years have not been easy for them, and they spent a long time over-paying a juicy dividend while hoping business fundamentals would turn around faster than they did. When they did finally decide to cut the dividend, the stock tanked (from already-depressed levels), yet the company is still about as cash-generating as it was a few months before; all that changed is where the cash is going. Plus, new management may lead to a promising 2012. The thing to watch will be dilution, as they state they are still looking for tuck-in acquisitions, which will be funded with equity (since the objective now is to reduce debt). That makes me roll my eyes, since expansion by acquisition is in large part what got them into trouble in the first place, and you don’t want to be doing equity raises while the stock price is so depressed.

RIM: there are stocks that are “priced for perfection” which means that so many good expectations are built in that even if the company is profitable and grows but just grows a little less than the market was hoping — anything short of perfection — the stock price can tank. At some point a few years ago, that description may have fit RIM very well; it seems to be the opposite now. RIM is if anything, priced for the worst-case scenario: barely above book value, for what is still a profitable company — though no longer a growing one, in a very rapidly shifting business. At this point though, I think any good news could really drive the stock up, as witnessed by the 10% pop on the mere rumour of a rejected takeover courtship. I don’t own any in RL, but was hoping for some last-minute tax-loss selling to put it into the $12-13 range (it sure looked like it was heading there before the rumour came out). Some big things to watch for include just falling flat on their face: the fabled QNX phones were supposed to be the next big thing for RIM, but they have been much-delayed, and now may not even make it out for the 2012 holiday season. Mr. Market’s pessimism may be overdone in this case, but it is certainly not unwarranted.