Are electric cars truly the future of the automotive industry?

Carbon fuels are going to run out soon, thus a new way to power transportation, private and commercial, is needed. Countless attempts to increase carbon fuel efficiency and decrease pollution, have been made by car companies to try to comply with environmental laws. This ended up in scandals like the Volkswagen diesel gate and the more recent Fiat-Chrysler issue.

A great deal of research and development has been carried out to find a substitute for oil and in the present days we are beginning to see some alternatively fueled vehicles on the road. Tesla has gained fame in many headlines for their cutting hedge technology and is set to become the world leader in this field. Recently, a relatively new technology is getting popular in the sector: fuel cells vehicles. The companies working on this technology, especially Tesla, are promising much better efficiency than regular battery vehicles, which have been shown to not be suitable to substitute carbon fuel powered vehicles. Nevertheless, even this technology is presenting some difficulties to both customers and companies. In this article we are going to go deeper into what Tesla and other carmakers are putting out in the market to face the alternative vehicle challenge.

Engines running on fuel cells instead of electric batteries like the Tesla’s might be powering the cars of the future. That is what a worldwide survey by KMPG conducted in the automotive industry concluded. They state that the battery power cars have reached its peak. The cars are too demanding for the current infrastructure due to their limited ‘fuel’ capacity. Although the fuel cell power cars have quite some catching up to do, they are able to travel much further on one fuel tank than an electric car.

Fuel cells commonly consume both hydrogen gas and oxygen. When the two elements mix a reaction takes place which creates electricity and water. Although many car manufacturers, for instance Toyota, Hyundai and Honda, are producing fuel cell power cars, you do not see many of them driving on the road. A more common use of fuel cells is seen in city busses. They are a more frequent sight, also here in Rotterdam. However, the city council of Rotterdam declined an additional fleet of 18 hydrogen busses this month (Algemeen Dagblad). The current problem with fuel cells is that they are not able to properly cool and safely store the hydrogen gas, yet.

Tesla has its own power stations capable of charging an empty charge within 30 minutes. According to Tesla, that is 10 times the speed that one would get from charging at home. However, with currently only 9 of these stations available in the Netherlands, Tesla simply cannot keep up with the huge demand of the Dutch customers and certainly not in the US. Another problem is the fact that the batteries of a Tesla, or any electric car, have been around long enough to know whether a battery eventually will diminish in power.

Next to this, there are Tesla’s risk factors of its SEC form 10-Q filing. It reads over 15 pages ranging with risks like; delays in the realization of their projected timelines, little experience in delivering a high volume of cars and not being able to maintain long-term agreements with a number of suppliers. All this is of great concern regarding their new Model 3 production, which has over 400,000 preorders already (Business Insider). That is nearly the whole projected production of all Tesla’s 500,000 units for 2020. That comes from a company that produced 50,000 vehicles in 2015 with production running flat out. According to Business Insider, car makers like GM do not even go into detail on their risk in quarterly basis. However, for Tesla this is business as usual. Nobody ever said Tesla was a carmaker like usual, but they have put themselves up to some serious heat.

After many years of very large production expenses and negative profits, Tesla succeeded in recording a profit during the third quarter of 2016, the first profitable period after 2013. This provoked a positive market reactions by boosting the stock price by 6%, which means that investors are now more confident in Tesla’s ability to cut its production and administrative costs and thus achieve a profit and be a successful company also from a financial standpoint, rather than environmental and technological. This can be further be noticed by the fact that Tesla managed to finance Model 3 without raising any external funding, which shows that the company is becoming more and more independent from the market. Moreover, this car will sell at less than half the price that most Tesla’s sedans sell at, thus capturing a very large market share (32%). Thanks to this increased efficiency, probably due to learning curves in R&D, we can expect that the company will have a bright future and finally manage to have positive return on equity (-60% in Q3 2016) in the next five-10 years, thus reaching the same levels of its main competitors, such as Nissan(10%), Toyota (11%) and thus turning all its downsides into upsides.

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