Tesla Model S

What is powering the electric vehicle market?

Image credit: Tesla

Politics and financial manipulation make electric cars possible and provide a great investment opportunity, but all cars need power and it’s going to take engineering and technology to create it.

Markets today are less free than they once were. Take the government’s fixing of interest rates far away from their natural levels; it is an economic blunt instrument and only the clearest example of a trend towards ‘tamed’ markets.

All markets are driven by returns on capital and all returns are connected and derived from the ones governments set to pay for their borrowings. The artificial manipulation of these rates reaches into everything and their cumulative effect is tremendous - both positively and negatively.

The electric car market is a huge beneficiary. Car companies are banks that make cars. Their wellbeing is linked directly to interest rates. Quantitative Easing (QE) and low interest rates make for cheap cars. Couple car manufacturing with subsidy and you get the electric cars.

Cars turn into consumer debt which turns into a yield-earning paper. The lower the returns a government is prepared to pay, the better a briefcase full of car loans looks to your pension fund. Car companies have to manufacture good-looking, efficient, reliable debt instruments to prosper.

A huge proportion of investments, especially ones made for pensions, go into financial instruments that pay interest. This financial infrastructure is the financial engine of industries that ultimately make things that need to be financed. The need for yield on savings powers the production of cars, planes, ships, credit card debt and student loans. One hand washes the other.

It is the politics of climate change and the market corner of QE that makes electric cars possible. Politics and QE have made sustainable energy possible and chunks of this landscape are now on the brink of being able to stand alone without help. It is the unintended consequences of this that provide the markets and investors a tremendous chance to profit.

The Tesla dream of a world full of electric cars is viable - but the West will need 50 per cent more electricity generation to fill the batteries of those vehicles. While Tesla has just merged with Solar City, the home solar energy company, it only solves the problem for sunny places. It is not going to enable a country like the UK, with no room or appetite for 50 per cent more electricity infrastructure, to dramatically grow its generating capacity.

Let’s imagine a case where a climate change-sceptical President Trump does not put the process of sustainable energy development into reverse. On the current trajectory, a lot of things are going to change. The scaling of electricity generation within such a timeframe will be hard.

It will not be the first time in recent history that new technology has created electricity shortages. The rise of server farms in the 1990s drove electricity shortages in California that threatened blackouts. The rise of electric cars will generate much more demand than the arrival of server farms, which to this day require special solutions for their power-hungry needs.

Engineering and technology will have to come to the rescue. Perhaps efficient, pooled, driverless cars suppress demand.

That would be great, but it will take many experiments and failures to get to a point where the new demand can be met. These experiments will have to come from the private sector and be funded by the markets.

The solutions to avoid a burgeoning electricity shortage will probably come from more generation and more storage. These solutions will offer huge opportunities for a boom in industries connected to these tasks. Electricity storage will become a giant area of development. Battery technology will prove even more core to a society already scanning for the next charging opportunity.

Exotic and less-than-common materials, associated with electromechanical and electrochemical technologies, will experience greatly increased demand. Until further notice lithium will become one of the touchstones of the mining industry. Classic utterly unpopular nuclear energy will be pushed as a practical solution and thorium will be brought into focus as a theoretical alternative.

Anyone who can predict the ramifications of this hunger for electricity will make wild profits.

Outside of battery tech, most solutions sit smack in the political domain. For example, it is simply not politically possible to build 50 per cent more power stations in the UK.

Electricity generation and mining are, by technology standards, moribund industries, ones that plan for single iterations on decade-long cycles. There is no yearly development cycle in these industries to match the technology shifts driving their demand.

The dream of electric cars has a pinch point and that is electricity generation and storage. A complex mash-up of politics and markets will try to sort that out over the next 20 to 30 years, but technology and engineering will have to come up with the goods.

Meanwhile it will be open season for tech and engineering-savvy investors to place their bets and fund solutions.

A new boom and bubble is about to begin.

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