Plugged-in Profits

Addiction is a strong word.

Having volunteered at a rehab clinic during my college years, I can assure you — watching a heroin addict detox and watching a soccer mom roll her eyes while shelling out $100 to fill her SUV are two entirely different situations.

Don't get me wrong. There's no denying the fact that oil is the slippery glue that holds our increasingly fragile infrastructure together.

But the word addiction indicates that we, as a society, have a compulsive physiological and psychological need for oil. . . as if it were cigarettes or caffeine.

So ask yourself: When you wake up in the morning, do you crave oil? Do you need it to get through the day?

On instinct, most would say yes. You do need it. . . because without oil, you don't have gas. And without gas, how the heck are you supposed to get to work, school, or even the grocery store?

Cars don't run on good intentions. And many Americans don't live within walking distance of their workplaces, shopping districts, and schools.

So, assuming your car runs on gas (a pretty safe assumption to make), your oil reliance is real one.

And beyond our daily commutes, we also can't ignore the role oil plays within the shipping and distribution industries either.

Without diesel fuel. . . daily, 'status-quo' logistical operations would come to a standstill.

Yes, we have a very strong reliance upon oil.

Especially when it comes to our transportation needs.

So it's no surprise that more than half of every 42-gallon barrel of crude oil is used for gasoline and diesel fuel.

But again. . . are we talking about an actual oiladdiction here? Or is this merely a case of having a lack of options?

In other words, if your car ran on something other than gasoline or diesel — something that was actually cheaper and more fuel efficient— would you still pay to fill your car with 87 Octane because you're "supposedly" addicted?

Of course not!

And that's exactly why the concept of the United States having an addiction to oil is a bit dramatic.

Because we do have options!

It's just a matter of utilizing those options.

Now before we go any further, let me preface the rest of this report by stating that what you're about to read is not an attack on big oil or the major auto-makers.

Rather, this is simply an observation and an embracement of the capitalist spirit.

You see, for years, big oil and the auto-makers did a tremendous job with their strategic suppression and misinformation campaigns regarding alternatives to gas and the internal combustion engine.

And who can blame them?

If you ran a company that relied on a technology that you knew was antiquated, inefficient and could easily be proven as such - would you invite any type of competition that could profit from that? Or would you do everything in your power to suppress it?

Sure, one could assume that it would make sense to embrace new technologies and new options. But when you already have a trillion-dollar infrastructure in place that consistently turns a tremendous profit. . . good luck convincing millions of shareholders of anything but maintaining that revenue stream.

"A plug-in hybrid is an electric car with an insurance policy - a gas engine."

Former CIA Director,
James Woolsey

Call it what you want — conspiratorial bullsh@# or good business. But as oil price volatility continues (and don't let manipulated price drops fool you. . . it's only temporary), and the reality of peak oil looms over our heads like an ominous black cloud. . . the truth about alternatives to oil are now surfacing.

The reason?

There's finally a market for the stuff.

And just like so many investors made fortunes in oil and auto-manufacturing. . . we're going to do the same with the first validated alternative transportation market that will force auto-manufacturers to reposition their future — or fall victim to it.

Either option works for us. Because today's oil crisis (and this is a crisis, no matter how you slice it), is providing an opportunity for those investors savvy enough to see beyond the smoke screens of bureaucratic bluffs and big oil PR.

OPEC's Biggest Fear

It wasn't long ago when OPEC President Edmund Daukoru stated that he was concerned about high oil prices,"because at a certain psychological level, alternative competing fuels would start to divert investment that should otherwise come to the oil sector."

He was right.

Homegrown renewable fuels like ethanol and biodiesel, while only shaving a small percentage of oil imports, still put a burn in OPEC's belly.

By 2012, there will be enough ethanol in the U.S. to displace 2.125 billion barrels of crude oil. At just $50 a barrel (a far cry from what it will be by 2012), that's $106.25 billion.

Granted, just a drop in the bucket compared to the trillions of dollars of oil churns out every year.

But with each barrel consumed and each war fought over the stuff, the demand for alternatives to oil will continue to rise.

We're only starting to see a glimmer of it now. But when oil soars back over $100.00 a barrel — and it will — all those who invested wisely in the right alternatives today are going to be raking it in. You can count on that!

And when it comes to transportation, there's really only one immediate solution that has the technology in place to put a massive dent in our foreign oil reliance. And that's. . .

Plug-In Hybrid Electric Vehicles (PHEV)

General Motors took a shot at the electric vehicle in the early nineties with its EV1 — after the California Air Resources Board (CARB) adopted a Zero Emission Vehicle (ZEV) mandate, requiring automakers' California market share include 2% ZEVs in 1998, 5% in 2001, and 10% in 2003.

PHEVs are a "silver bullet for our nationa's energy and transportation needs."

Senator Orrin Hatch,
(R-UT)

Of course, a couple of years later, after an impressive manipulation of CARB's mandate by the automakers, GM began strategically dismantling the EV1 altogether. From halting production, laying off sales staff, and quietly removing the vehicles from the nation's highways.

Granted, GM will tell you the EV1's demise can be traced back to 'lack of demand.'

But demand. . . even with GM's questionable self-sabotaging marketing campaign, was actually quite impressive.

Regardless, demand for PHEVs existed then and it exists now. Perhaps even more so today.

Let's face it: the popular hybrid vehicles on the market today, like the Prius and Insight wouldn't even exist without a robust demand for more fuel-efficient vehicles.

However, the hybrids on the market today also require gas - even if you're only driving a few miles. This gently appeases those who want fuel-efficiency...but keeps big oil and auto repair shops (where a big chunk of auto-manufacturers make their money) in business.

Plug-In Hybrid Electric Vehicles, on the other hand, require absolutely no gas at all and don't require the same type of repair services auto-makers offer for conventional Internal Combustion Engines. (Many of the PHEV prototypes are now being developed with flex-fuel engines. This way, ethanol or gas can kick in after the vehicle has gone beyond its 'all-electric' mode.)

With the price of gas creeping up everyday, loads of pollution being spewed into the air by conventional vehicles and a continued reliance upon foreign oil — do you honestly believe an alternative that could single-handedly end nearly all of this wouldn't command interest from the car-buying public?

You can't rely on the cost factor on this one either.

Mass-manufactured, these plug-in electrics can be produced competitively.

So what's the hold up?

PayPal founder, Elon Mush, eBay billionaire, Jeff Skol and google co-founder, Larry Page and Sergey Brin were among the big money that initially funneled $40 million into the California-based upstart, Tesla Motors.

Tesla Motors developed an electric vehicle - the Roadster - a couple of years ago that looks similar to the sleek Lotus - and drives like one too.

Only difference - this one gets 244 miles on a single charge.

The Tesla Roadster delivers a top speed of 125 mph, launching from zero to 60 in under 3.9 seconds.

You know what it is. But you also know that the oil lifeline's only got so much time left.

This isn't just a minor blip, my friends. This is the beginning of the end of an economic dynasty, unmatched by anything this country's every witnessed.

This is also the dawn of a new age. . . and more importantly, a new industry that couldn't be in a more perfect position to exploit the coming oil implosion. . . and hand over significant gains for investors who are smart enough to tap this opportunity now.

Never Buy Gasoline Again!

Today's PHEVs are not inefficient bubble car prototypes that many auto-manufacturers want you to believe. In fact, many look and operate just like the cars you and I drive today.

Only they're much more efficient.

Today's PHEVs can be charged in a standard home outlet, and some battery packs are sufficient enough to power the vehicles for up to 100 miles or more on just one battery charge.

According to the Bureau of Transportation Statistics, 78% of daily commuters in the U.S. drive 40 miles per day or less. And most electric and plug-in hybrid electric vehicles being developed today are focused on delivering at least 40 miles or better.

Now the most recent U.S. Census data indicates 112,904,000 working Americans over the age of 16 drive or are driven to work. So that gives us a rough estimate of about 88 million daily commuters, driving no more than 40 miles per day.

If half of those folks had access to an electric or plug-in hybrid electric vehicle that delivered the necessary miles per charge to get from point A to point B. . . that's 44 million daily commuters who would not require a single drop of gasoline.

Assuming the average fuel economy for these passenger cars is 27.5 miles per gallon- the current corporate average fuel economy standard is for passenger cars- a typical commuter driving 40 miles per day would go through 1.45 gallons per day.

Based on those 44 million commuters, you're looking at a consumption rate of 63.8 million gallons of gasoline per day. It takes about 2.1 gallons of oil to make one gallon of gasoline. So that comes to about 133.9 million gallons, or 3.19 million barrels of oil being displaced. That's about the equivalent of 55 percent of our daily imports from OPEC.

And this does not include commercial trucks. Very soon we will be electrifying sweepers, tow trucks, garbage trucks, etc.

Yes, my friends- the cars of the future will overwhelmingly be electric.

You may have heard the argument that PHEVs just replace air pollution from automobiles with air pollution from power plants.

But the fact is, in almost every possible power generation mix, plug-ins reduce greenhouse gases and other pollutants. Moreover, as opposed to emissions from millions of cars, emissions from power plants are concentrated in one location which tends to be situated further away from critically-endangered air sheds and highly populated areas. Plus, it's just easier to control emissions from a few smokestacks than millions of tail pipes.

It's also important to note that in recent years, most power plants have been modified to lower emissions while many of the older plants have been retired. This has already resulted in a 25% decrease in emissions from U.S. power plants over the last 25 years. And now that zero-emission sources, like wind and solar are increasingly being added to the mix, this current level of power plants emissions will decrease even further. This kind of continued reduction clearly trumps conventional vehicle emissions.

Of course, the question remains. . . where's the opportunity for investors?

Well, there's more than just one. But the most immediate opportunity will be found in advanced battery technology.

Lightweight and powerful — the companies that are able to meet this requirement at a competitive cost will grab us by our short hairs and take us for one of the most profitable rides we'll see in this industry. Don't get me wrong. . . the battery 'angle' is nothing new. But the wolves are starving, and the demand for PHEVs that we'll see in the next few years will be the dinner bell catalyst that will define the dominant players in this Darwinian arena.

Leading the ‘Battery' Pack

The Electronic Power Research Institute (EPRI) issued a report on PHEVs that highlighted the latest in battery technology. The reason? It's the only real challenge left for PHEV manufacturers.

You see, according to the EPRI, the performance and practicality of the vehicles depend on the weight of the battery in relation to the amount of energy it can store and the power it can produce. The lighter and more compact the battery, the more efficient and practical the vehicle. . . and the more energy the battery stores, the longer the vehicle's driving range.

Electric vehicles of the past used mostly lead-acid batteries and had very limited range. The considerable battery weight actually compromised vehicle performance and efficiency. And lead-acid batteries also had a relatively short life, which meant several replacements over the life of a vehicle.

Today's advanced batteries, principally the nickel-metal hydride (NiMH) and the lithium ion (Li-Ion), have demonstrated not only much higher energy storage and power delivery capabilities, but also far longer life in the deep-discharge cycling required for electric vehicle and PHEV propulsion. Specifically, for a given amount of energy storage, the NiMH battery weighs half as much as a lead-acid battery and produces two to four times the power. The Li-Ion battery weighs half as much as a NiMH battery and provides up to 100% more power than NiMH. Being the lightest and most powerful, the Li-Ion battery has a fundamental advantage: a state-of-the-art NiMH battery that weighs around 250 kg can give a Sprinter a range of 20 to 30 miles on electricity alone, which is perfectly adequate for PHEVs that can perform a substantial fraction of their daily operations within that range. The lighter Li-Ion battery, on the other hand, would be the choice for PHEVs that need a greater electric range — say, 40 to 60 miles — and for purely electric vehicles.

Unlike the lead-acid battery, both NiMH and Li-Ion batteries have the potential for very long life. The NiMH battery has demonstrated more than 2,000 deep-discharge cycles — that is, cycles that nearly deplete the battery of its stored energy. The Li-Ion battery has shown more than 3,000 deep-discharge cycles. These numbers correspond with the number of cycles a PHEV battery is expected to deliver over its 10 to 15-year life. And unlike a lead-acid battery, NiMH and Li-Ion batteries can be recycled to recover and reuse their valuable metal content and don't use any toxic materials.

Now the disadvantage PHEV producers face is the high cost of these advanced batteries. Both NiMH and Li-Ion are more expensive to produce today than lead-acid batteries. The materials are more expensive, and the manufacturing methods are substantially more sophisticated. But just as the cost of the small NiMH and Li-Ion batteries used in cell phones has dropped dramatically, the cost of PHEV batteries is expected to drop as they go into mass production and as global competition for the market heats up.

The ultimate achievable cost is likely to determine which applications develop first and to what degree PHEVs of extended electric range will penetrate markets.

The PHEV High-Performance Battery Index

There are currently six publicly-traded companies that we believe have the potential to take this market to the next level with their advanced battery technology. While some are relatively safe and others are a bit more speculative, all are working towards the same goal: producing the lightest and most compact battery that can ramp up the efficiency and practicality of the PHEV.

The companies that can pull this off and get the PHEV to the next level — mass production — will clean up big time!

Below are the companies that we see as having the best shot in this market:

Company	Symbol	Risk	Technology
A123 Systems	AONE	Medium-Risk	Li-Ion
Electrovaya	EFL.TO	High-Risk	Li-Ion
Ener1	HEV	High-Risk	Li-Ion
Valence Technology	VLNC	Medium-Risk	Li-Ion
Johnson Controls	JCI	Low-Risk	NiMH/Li-Ion
Altair Nanotechnologies, Inc	ALTI	High-Risk	Nano Lithium Materials

The Future of PHEVs

Introducing vehicle-to-grid (V2G) "smart charging. . . "

This ambitious idea extends the use of a PHEV's source of clean energy. The PHEV battery would charge overnight and further be used to power the grid over peak usage periods during the day.

Extensive systematic developments would include sensors, metering devices, and intelligent connectors to allow power to flow from vehicle to grid. Such systems could report problems and failures, analyze battery conditions, and send messages to the consumer.

We will continue to follow up on V2G developments at Green Chip Stocks.

In the meantime, click here to see a list of the first round of electric and plug-in hybrid electric vehicles hitting the market within the next 3 to 5 years.