Is General Motors (GM), with their plans for as many as 100,000 Volts in 2009, or Toyota (TM), with their long term lead (and behind-the-scenes research) in hybrid technology, or some other carmaker going to win the race to bring consumers the first commercial Plug-In Hybrid Vehicle [PHEV]? More importantly, will it matter?

Ballard's (BLDP) recent confirmation that they are in talks with big automakers left many wondering if the Fuel Cell Vehicle is finally dead. The consensus is now that the next generation of propulsion system will be the PHEV, which combines the range of liquid fuels with the efficiency of an electric vehicle. One reason I thought hydrogen was a non-starter as a fuel was that it could not supply much range due to its low density (except at high pressure, which increases the cost of an already expensive hydrogen still further) leaving it to compete with pure electric vehicles on efficiency, a battle it was doomed to lose because of the inherent inefficiencies of producing hydrogen, and the high cost of Fuel Cells.

So is the road ahead clear for the triumph of the PHEV? I doubt it. I do expect many PHEVs to be built sold, but I think they are likely to be a gateway drug to real efficiency: the pure Electric Vehicle [EV].

The internal combustion engine [ICE] is a complex machine, with over a century of research and development designed into it. This complexity makes it extremely difficult and expensive for new carmakers to break into the market without substantial state support. I'm not an expert on the car industry, but I have read constant news stories about countries massively subsidizing their carmakers, always with the goal (not always matched with success) of nurturing a national car maker.

On the other hand, there are at least 22 Electric car startups (not counting aspiring makers of electric bikes, electric motorcycles, and stranger contraptions) today, each competing to break in as a new manufacturer. I expect that some of them will succeed, and that the traditional car manufacturers who are currently pursuing the PHEV will be reluctant to forsake their highly refined ICE technology. Existing carmakers could thus fail to head off outside competition, leaving a niche open for EV-only manufacturers.

I'm not trying to say that the internal combustion engine is dead, long live the electric motor (although I wish I were), but I do expect that a growing proportion of the vehicle fleet will be all electric, even as Plug-In Hybrids are gaining ground.

Along with the much lower complexity, the primary advantage of EVs is cost. PHEV advocates say that 80% of all daily car use is less than 50 miles, which means that, most of the time, a PHEV will be operating as an electric vehicle. Now suppose that Matt Simmons is right, and oil will soon hit $300 a barrel, along with $10 gas. While people will be clamoring for public transport, many suburban dwellers will not have that option for a long time. A time-tested American solution to most problems is to buy something, but money is likely to be tight (because of those same high gas prices.)

Will that something be a PHEV or an EV? Most people will already own a conventional car, which they can use when they need the range that energy-dense gasoline can provide, for the vast majority of trips. The rest of the time, a true electric vehicle will suffice. So why pay an extra $10,000 or so for a new ICE in your electric vehicle, when you already have one in the old car? (Estimated from the fact that the Zap Xebra MSRP is $10,500, while the cheapest hybrid today has a sticker price of $20,950. The Xebra has a top speed of only 40 MPH, but the Prius I'm comparing it to is not a full PHEV, either.) EVs may get a greater price advantage if the batteries are leased instead of owned.

In addition to the extra cost, an ICE and its fuel add weight to the vehicle, reducing the vehicle's efficiency. In other words, PHEV buyers will not only be paying extra to add an ICE to their electric vehicle, they will be paying again in terms of lower performance and higher operating costs in all-electric mode. This leads to an interesting thought: if the big automakers are confronted with EV upstarts cannibalizing their PHEV sales, might they just start selling cars in both PHEV and EV versions, perhaps with the engine and fuel tank of the PHEV replaced by more batteries?

I think it's still too early to start trying to pick winners in electric vehicles. This is a disruptive technology, which puts everything up for grabs. I can say, however, that investing in traditional car-makers is probably more risky than most people Think.

That said, here are the two public EV companies I know about (most are private.) Zap (ZAAP.OB) and Zenn (ZNNMF.PK). A much safer bet however, is an industry that's likely to be supercharged by the adoption of either EV and PHEV technology: Batteries.