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Investing in Electric Vehicles

The DIY Strategy for Energy Price Hedging

Written by Nick Hodge
Posted June 25, 2008 at 8:22PM

If you think $4 at the pump is bad, just wait. It's not getting better anytime soon.

By now, we've heard all the reasons for escalating prices: rising demand in India and China, a falling dollar, speculative trading and many others.

But the one that receives the least attention—and the one that is most patently obvious—is a clear-cut and well-documented minimal margin of supply over demand—about 1%-2%. And don't expect that margin to grow anytime soon. Even with the discovery of a few minor new fields, the increased capacity (after the years it would take to develop) would hardly be enough to put a dent in now skyrocket demand.

Yet proposed solutions have been coming from high and low as to how we can secure our energy independence, or at least ease the pain of rising energy prices.

So far, we've heard:

  • a gas tax holiday

  • ANWR

  • increasing CAFE standards

  • suing OPEC

  • ceasing the filling of the Strategic Petroleum Reserve

  • opening off-shore drilling and

  • many laughable others

So let's see. . .

The gas tax holiday was merely an election season novelty and has no real substantive base.

ANWR, according to the Energy Information Administration, "would only slightly reduce America's dependence on imports and would lower oil prices by less than 50 cents a barrel." Plus, if Congress opened up ANWR today, oil wouldn't start flowing until 2013 and peak production would occur by 2025.

CAFE standards are (and have been) a joke. Even after a the overall standards were raised 27% in late 2007—for the first time in more than 30 years—they still are less-than-impressive, calling for a fleetwide fuel economy of 35 mpg by 2020.

BS alert: average fleetwide fuel economy in 1987 was 26.2 mpg, and has fallen since. So Detroit has to raise its average fuel economy less than 10 mpg in 33 years. That comes out to an increase of .30 mpg per year, and it's pathetic.

Suing OPEC is too preposterous to even address.

Halting deliveries to the Strategic Petroleum Reserve is one of the few measures that have actually been passed to combat high fuel prices. And while some economists argue that ceasing to fill the reserve could knock a few buck of the price of a barrel, the 60,000 bpd, which is only 0.3% of U.S. daily consumption, is hardly enough to help struggling supply gain ground on surging demand.

It's a good gesture though. And we'll see how it pans out when the reserve stops getting filled in early July.

And so we're left with opening U.S. shores to oil drilling, which, again, would take years to come to market and the long-term benefits still aren't clear. Short-term benefits to drilling off our shores are nearly non-existent.

Plus, this issue won't get a decisive conclusion until there is a change in administration—still seven long months away. And even if ANWR and offshore drilling are opened, the one million bpd they could possibly produce—and that's the most egregiously high estimate—would do little to quench America's 21 million bpd thirst.

Also, don't forget that oil is a global market. Any oil produced here would still be sold at the going rate, and that, by nearly all estimates, is never going below $85 again.

Investing in Electric Vehicles: The DIY Strategy for Energy Price Hedging

After that quick run-through of proposed fuel price solutions, it may appear as if there is no government help in sight. The market is in full control, at least for now.

While Congress dilly-dallies and the presidential candidates posture for poll position, it's up to consumers to fend for themselves.

Now, with the market's bottom hopefully behind us, it's possible to make some smart investments to help offset the cost. And if you do it right, you can invest in companies making the next generation of automobiles and energy efficiency devices. So you're literally investing in the future while hedging against present energy prices.

Take, for example, Altair Nanotechnologies (NASDAQ: ALTI), which designs, develops and produces nano lithium titanate battery cells, batteries and battery packs. They also offer testing services for batteries and battery applications.

The company made inroads to the electric vehicle industry when they became the battery provider of choice to Phoenix Motorcars—one of the first companies to bring an all-electric car to market.

Despite falling with the broader market for the first half of the year, Altair seems to be on the upward move again. It bounced off its 52-week low earlier this week, and I doubt it will stay below $2.00 for long. Take a look:

altair phoenix electric vehicle company

UQM Technologies (AMEX: UQM) is another electric vehicle company that's been doing business with Phoenix Motorcars. But instead of providing batteries, UQM specializes in propulsion systems, generators, converters and other power electronics.

Also down for a good part of the first half of the year, UQM has enjoyed recent upside. And as fuel and oil prices continue to rise, electric vehicles and hybrids are going to look increasingly impressive. So will the share prices of the companies involved in the sector. Take a look at UQM's recent bounce:

uqm phoenix electric vehicle company

Folks, the electric vehicle and battery markets are in the very nascent stages. Many of the current orders—beyond the obvious success of the Prius—are coming from utility and government fleets.

But the market has so much more potential than that. Every one of the nearly 100 million Americans that drive less than 30 miles per day is a target.

We've already seen sales of traditional internal combustion engines plummet as ridership of public transportation and sales of electric vehicles surge.

This is only the beginning. When it comes time for those 100 million Americans to buy a new car, you can bet an electric option will be on the table. And that's just here in the States—there's an entire international market that ripe for the picking.

Of course, the addition of millions of electric vehicles to our nation's highway will also require billions of dollars be invested in infrastructure, including smart grid technologies and the like. But that's an entirely different article.

For now, try to ease that pain in the pump by taking profits from companies trying to do the same.

Call it like you see it,

nick hodge


PS. My colleague, Jeff Siegel, is one of the foremost experts on investing in electric vehicles. His service, Green Chip Stocks, has already taken profits from related companies. But like I said, this thing is just getting started. If you'd like a piece of the huge profits that await this industry, consider joining his service today.

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