Category: Regulation

With the car world being pushed towards higher efficiencies, the question “What causes fuel/electricity consumption in a car?” arose in my mind. The answer was easy: Weight and Aerodynamics. Lets talk about weight today.

Energy Consumption

In terms of the physics of it, it doesn’t matter which fuel is used or if the car is electric or gasoline powered; If we calculate the energy required, we can use whichever fuel we like to supply that energy. Once the energy consumption of the vehicle is ascertained, the fuel can be chosen based on the environmental impact, availability, cost and other factors.

Kinetic energy at a constant speed is a function of mass and velocity. City driving involves a lot of acceleration and braking as well though and every time we brake, we’ve got to accelerate again and energy consumption is proportional to the square of acceleration.

With the velocity being a function of speed limits and acceleration being a function of driving habits of the user, the vehicle design majorly only affects the weight in this equation. Let’s look at the co-relation between weight and fuel consumption of various cars using an available dataset:

Vehicles weighing approximately 2000lbs lie around the 30mpg mark in this dataset. When we look at the cars weighing around 4000lbs, the mpg drops to the 15mpg area. Of course there’s other factors at play too, most important of them being the aerodynamic drag which is a function of frontal area and drag-coefficient. And although the frontal area is highly correlated to the size of the vehicle which lends even more support to this thesis, let’s ignore that for a minute.

Electric vs Gasoline

I love electric cars and their amazing torque characteristics. And the electric drivetrain itself is actually lighter than a traditional IC engine. The thing that literally weighs electric cars down is the battery. And while there’s very little reliable data on how much more an electric car weighs compared to a traditional ICE car, an approximation can be had using platforms offering both electric and ICE drivetrains. The Hyundai Kona electric for example weighs about 335kg or about 750lbs more than its gasoline counterpart for the same trim package. So we’ve added 25% extra mass to a car, which has increased its energy consumption by at least the same percentage.

To paint a simpler picture, imagine increasing the car driving population of the world by 25%.

What’s ideal?

To really be green, we need to be driving lighter cars. If electric cars are greener, then we need to be driving electric cars that are lighter than their ICE counterparts. Unfortunately this seems to be a bit of a technical challenge right now.

Japan, having gone through austerity once, really has it figured out in my opinion. The best selling vehicle in the USA is the Ford F150 weighing 4400lbs and having a fuel consumption rating of 16mpg. In contrast, the best selling car in Japan is the Honda N-Box weighing 2100lbs with a fuel consumption rating of 54mpg.

That’s effectively reducing the emissions and fuel consumption footprint by at least 70% for the same distance driven. What’s the impact of the current set of laws again? Which law encourages lightweight cars?

Laws and Regulations

Unfortunately, with emission standards being relatively loose for SUVs and Crossovers, automakers are incentivizing customers to switch to these vehicles. This is backwards compared to what is ideal. Who’s even making these laws?

The ideal laws would incentivize lighter cars with lower taxes and discouraging heavier cars by adding taxes to the heaviest of cars. Does something like this exist? Yes, Japan again with its Kei car laws.

What do I do?

Buy lighter cars. You’ll save money and probably have more fun while driving a more agile car. In the words of Colin Chapman: Simplify and add lightness.

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The 2008 crisis occurred because of too much leveraged risk concentrated in few places. It is easy for an institution with limited liability to fail and take hundreds of jobs with it. This is an open letter to SEBI (Securities and Exchange Board of India), addressing the discouragement of retail participation in the financial markets that it proposes so often.

 

Why do we do things a certain way?

Why do we spread out a country’s debt over a large period of time? Because, a lot of unfeasible liability suddenly starts to look feasible when spread among a lot of people (the taxpayers) over a large amount of time.

Why do we have democracies instead of dictatorships? Because we’ve learned through experience that the power to govern a country should lie with the people of the country and not with a single person. It is easy to corrupt an individual, harder to corrupt an entire population.

When we need to bring trust to a financial transaction, why is the block-chain a feasible alternative to having a third party (bank, escrow, etc.)? Because we know that the consensus of the majority of the population won’t be wrong. If a transaction can be verified by the majority, trust prevails.

These things are done the way they are because there is less risk involved. It is a good idea to ensure that there aren’t a scarce number of entities controlling any kind of decision making. They are susceptible to making a huge mistake and dragging everyone else with them. The consequences of the decisions that lead to the 2008 financial crisis and the consequent bailouts of the american banks and automakers affected every single tax payer in the country even though they had no role in the decision making that lead to this in the first place.

 

We can goof up but you can’t!

Why is it that despite everything mentioned above, the decisions that affect just an individual without any collateral damage to others are a restricted commodity? Securities and Exchange Board of India (SEBI), in the name of risk management, continues to increase lot sizes to restrict retail participation in derivatives. Is this not, instead of distributing the risk, concentrating it in a few hotspots – the institutions? How is this, in any way, reducing the liability of taxpayers if and when something goes catastrophically wrong? How does this, in any way, stop the market from being controlled by a select few when the action itself is empowering the strong and weakening the feeble?

 

Let there be freedom and transparency

Will encouragement of participation by retail investors not be a step towards better financial literacy? It might involve some short term pain while the population gets educated about these instruments. The long term benefits though, far outweigh the short term cons. On top of that, instead of the taxpayer bailing out the institutions, let the individuals have the profits and the losses to themselves. Let the decision makers own their decisions and their consequences.

How about redirecting these efforts towards ensuring transparency in the stock markets to prevent illegitimate transactions from happening. How about letting the market have better instruments that allow investors to come to a consensus about the price of a security. Easier access to derivatives will allow for better price-finding simply owing to the fact that more people will be able to short and hedge, when needed.

 

Empower everyone while reducing risk: Winning while winning

How will a retail client hedge 100 quantity of his stocks in a listed company when the lot size itself is 5000 or 3000? Why will a trader or investor pay a monthly option premium amount equal to the value of his holdings? Why is it that when someone wants to pick up a stock using a cash covered put, he or she cannot do so without committing to an amount 10 times higher than the quantity they actually want? Is it not better to be able to lose small?

A lot of stock exchanges have standard lot sizes for derivative contracts, regardless of what the price of the stock or underlying is. To be a matured market, we need to act like one. It is never a good idea to try to control the actions of people. Let there be financial freedom, let there be transparency, and let there be ownership of one’s actions. Babysitting does not apply to adults.

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