Watt Up!

In 2009, I bought a Honda Civic hybrid. That was my first foray into the electrification of the automotive industry. In 2013, I went one step further and bought a Chevy Volt plug-in hybrid. I even did the vanity license plate thing, choosing “Watt Up”.

First a word about how the Chevy Volt plug-in hybrid works. The Volt has a battery pack that charges to ~35 miles. The car runs on that charge until the battery is depleted. Once that happens, the Volt has a 9-gallon gas tank. The gasoline engine turns on. The engine powers the motor-generator to produce electricity that runs the main drive motor. If that is too much detail, the bottom line is that the Volt uses a battery first, followed by a gasoline engine that provides about 300 miles of range. In today’s parlance, there is no “range anxiety” that the battery will deplete, stranding me somewhere.

Second, a little on my background. My undergrad degree is in Electrical Engineering and I spent my 5 college summers working for Napoleon Power & Light to digitize their electrical grid. So, I’ve always had a fascination with electricity. Enter, my desire for an electric car.

I’ve taken A LOT of grief from my friends about the Volt. Kellett says it’s one of the ugliest cars on the road. My friends at P&G questioned how I made it to work on rainy days – “don’t you get electrocuted?” I can dish it out so I had to take the jokes. And the vanity license plate was a huge mistake. Everyone knew it was me. And I’m not exactly a defensive driver so I was opening myself up to notoriety I didn’t want. 😊

But the truth is, it’s by far the best car I’ve ever owned. I have 156,000 miles on it and it’s still smooth and quiet. GM estimated that most people don’t drive more than 35 miles in a given day and thus the gas engine is truly just a backup most of the time. In my experience, especially since my commute changed, that’s been accurate. Compared to its contemporaries (Nissan Leaf, BMW i3, etc), it’s far more practical as those cars had 80 miles of range with no gas backup. And in 10+ years, I’ve had 3 oil changes (remember, it has a gas engine, it just isn’t used much), a set of brakes, two sets of tires and had to add some coolant.

All of that said, the electric car probably isn’t going to deliver cost savings. Even with the electric car subsidy, I paid $32,000 for the car. Ohio added a $100 electric vehicle tax 7 years ago and doubled it to $200. If you do the math, this is roughly what the state would collect in gas taxes if I were to drive 15,000 miles/year.

It isn’t clear that the re-sale will be there, at least as long as the battery technology continues to change. In January, I had a “check high voltage electrical system” light come on. YouTube owners told me to re-fill the coolant. That didn’t reset the error so I took it to the dealer. The dealer called me and said the battery was dead and it was time to get a new car unless I was ready to spend $25,000 for a new battery pack. Just like your cell phone battery, car batteries degrade over time. But just because one cell in the battery pack read below the dealer threshold, it didn’t mean the battery was dead. They reset the check engine light and I’ve been rolling along since. However, the long-term point is that battery degradation will impact re-sale in ways that combustion engines aren’t impacted, at least for the foreseeable future.

Finally, while the price of gasoline gets a lot of attention, electricity prices aren’t immune to increase either. When I bought the Volt, the break-even electric cost vs gasoline was $2.50-3/gallon. Electric rates in Ohio have gone up 26-28% from 2022 and over 10 years are up well over 30%.

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The Fed seems to be making progress in fighting inflation with the current reading under 3%:

The current GDP estimate for the quarter ending September 2023 is forecast at 5.6% which would be a healthy growth rate for the country. Inflation and the latest growth estimates may explain the year-to-date charts which look fairly strong. The tech-heavy NASDAQ 100 (QQQ in the chart below), looks particularly good at +40%.

All the same, we continue to get mixed messages about the costs we incur every day. As I mentioned in the story above, electric bills are up nearly 30% in the past year. This week’s headline in the Wall Street Journal suggested health care insurance premiums will rise 6.6% in 2024, and Hamilton County recently re-appraised valuations which showed a 31% property value increase across the board (note: this doesn’t translate into a 1 for 1 increase in property tax). This mixed macro environment might explain why the 2-year chart tells a different story from the year to date chart. On a 2-year chart, QQQ turns negative! And small and midcaps (IJR and VO respectively) are even worse at ~-9%. When you look at this 2-year chart, it becomes evident we’ve been treading water.

And with interest rates having moved from 0% to 5+%, bonds haven’t helped portfolios (bond prices move opposite of yield). The “go to” portfolio for most retirees and a prevalent 401k option is the traditional “60/40” portfolio. This simply means a portfolio that is 60% stocks, 40% bonds. With last year’s bond market thrashing, it’s not doing so well either. Its 2-year chart looks like this:

With the direction of interest rates unclear, we continue to lean on relatively safer options wherever feasible. Treasuries continue to pay 5+%. And some banks offer short-term CD’s over 5% as well. The Schwab platform gives us access to multiple banks so we are even able to split an account between banks with a couple clicks, easily providing the necessary FDIC insurance on larger accounts. The market is often full of uncertainty as lower inflation, stabilized corporate earnings estimates and the prospect of an AI productivity boom are offset by more debt ceiling negotiations, higher interest rates and a contentious presidential election. It’s easy to see why a lot of us are wondering Watt Up?

Jared

What’s Your Financial Story?

Brian Kellett, brian@kellettschaffner.com. Phone 513-312-6067

Dave Bodnar, david@kellettschaffner.com. Phone 513-258-6973

Jared Kline, jared@kellettschaffner.com. Phone 513-768-2238

Kellett Wealth Advisors LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Kellett Wealth Advisors LLC and its representatives are properly licensed or exempt from licensure. This website is solely for informational purposes. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Kellett Wealth Advisors LLC unless a client service agreement is in place.