Investment Contrarians

Electric Vehicles to Charge Up as Oil Rises

By for Investment Contrarians |

Electric Vehicles to Charge Up as Oil RisesWith the outlook for the U.S. and global economies looking more encouraging, we have seen a corresponding upward push by oil prices on the chart.

An issue for us is that oil prices continue to be largely dictated by the folks in the Middle East, namely the 11-member oil cartel Organization of the Petroleum Exporting Companies (OPEC). At this time, OPEC feels oil prices of $100.00 a barrel are reasonable, and $80.00 is viewed as the low point that is acceptable for oil prices. This might be fine with OPEC, as it adds to their rich coffers; but with the average price of gasoline at $3.54 a gallon, consumers aren’t happy with these high oil prices. (Source: U.S. Energy Information Administration web site, last accessed February 8, 2013.)

But unless we see a massive flow of new oil from the controversial tar sands in Alberta, Canada, and a move back to offshore drilling in the post-BP era, oil prices will continue to be dictated by OPEC. I think it’s wrong to be held hostage by a group of oil-rich countries.

The U.S. has agreed to allow oil from the tar sands to be delivered to refineries in Texas, but the process to retrieve the oil from the tar sands is not considered environmentally friendly. Europe, at this time, is looking at placing the tar oil on the “no-go” list.

The government must continue to look at ways to reduce the country’s insatiable appetite for oil and reduce the impact of high oil prices on the U.S. economy.

Oil magnate T. Boone Pickens continues to push his view to cut the country’s reliance on foreign oil. He is investing heavily in alternative energies, such as natural gas and wind-powered energy generation.

President Obama knows this and has increased government spending on creating less dependence on fossil fuels. The government has spent about $2.7 billion in stimulus to try to get the electric vehicle (EV) market going. And with the high price of gasoline, I expect the demand for pure electric or hybrid vehicles to continue to grow.

There is estimated to be 30.6 million EVs sold in 2011 worldwide; this is expected to rise to 51.3 million EVs sold by 2021, according to IDTechEx.

In the U.S., the Obama administration has a goal of one million EVs on the road by 2015.

A play on the rising demand of electric vehicles and other electric-dependent applications is Monrovia, California-based AeroVironment, Inc. (NASDAQ/AVAV). Founded in 1971, AeroVironment operates in two key segments: efficient energy systems (EES) and electric-powered unmanned aircraft systems (UAS).

The real intriguing thing about AeroVironment is its EES segment that includes the EV-charging solutions area. This comprises home charging, public charging, fast charging, data collection, grid-integrated communications, training, and support services. Clients include consumers, automakers, utilities, government agencies, and businesses. The charging systems are currently used in 25 states. The end result would be clean energy and reduced impact from high oil prices.

Clearly, there is plenty of long-term potential here, and it appears that AeroVironment is at the forefront of this development.

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