I’ve been reading about a new crop of garages that convert hybrid cars such as the popular Toyota Prius into all-electric vehicles. Once you consider the economics of this folly, you see why electric cars are a fallacy for both the owner and investors looking for a toehold in this burgeoning market.

I read my first story a few months ago. It was about the Luscious Garage in San Francisco. Run by women, they carved out a juicy niche for themselves by yanking out the gas engine in hybrid cars and replacing it with another set of batteries. The job cost about $7,500.

More recently, I read another story about a similar operation — this one across San Francisco Bay in Berkeley. Run by two guys, they’ll do the same thing for $7,000.

Regardless of who you used for the conversion, the results were pretty much the same. Instead of filling up at the pump, you plugged your car into a socket. Let’s forget, for a moment, that you’re still burning up fossil fuels from your local power plant and instead focus on the feel-good economics of actually operating the cars.

In both cases, the writers of these articles interviewed the cars’ owners. What you get are comments like this when asked about shelling out $7,000 and more for the conversion…

“My carbon footprint concerned me more…”

“We don’t like what oil is doing to the world…”

One piece in CNN included a gentleman named Dave Moore. A resident of Washington state, CNN said Moore had “started down the electric-car path when he became worried about climate change. On the waiting list for an $85,000 Audi sports car, he decided to buy a Prius instead and got it converted to a plug-in car for about $10,000. He figures he has a green car for less than half what the Audi would have cost.”

That may in fact be true, but that doesn’t make it a valid business case for investors.

When it comes to making investments in green technology for the road, only one thing matters: ROI.

Carbon footprint, sticking it to the sheiks or that butt-tingling smugness as you sit in rush-hour traffic won’t cultivate a new industry. When you’re pitching fuel economy, it’s all about the economics.

So I ran a few numbers to see what the ROI would be on a hybrid-to-electric conversion just to get an idea of whether or not electric cars are something for investors should consider for future growth. Here’s what I came up with…

The average price of a gallon of regular gas today is $1.65 according to Consumer Reports. And the average driver logs 12,000 miles per year, using 550 gallons of gas, says the AAA.

For the $7,500 conversation, the ROI is 12 years for your average driver at today’s gas prices. For the $7,000 conversion, the ROI is 7.7 years.

Anyone can see that a 12-year ROI is ludicrous in terms of trying to sell an electric car. We’re not even sure the batteries would last 12 years. And as far as 7.7 years goes, well that’s marginal – again assuming that all the batteries can hold a charge of that long.

Now, what I didn’t take into account is the approximate $5,000 premium that people are paying for the privilege of buying that stock, hybrid Prius in the first place over the price of a gas-powered economy car such as the Honda Civic. If you want to tack on that extra $5,000, you’ll see that the ROI is simply absurd (or maybe not as absurd as Moore’s $10,000 Prius conversion).

What do these numbers mean in the real world of major automakers?

It means that electric cars could become nothing more than window dressing for empty showrooms. Sure people will flock to the Chevrolet dealership to see the impending Volt for about $35,000, but they’ll drive out with an econo-box Aveo for $12,600.

And why not?

You would have to drive the Volt for 13.5 years longer than the Aveo to justify the price difference at $1.65 per gallon.

So if you want to invest in an industry that strictly caters to people worried about their carbon footprint, well, more power to you.

The first comes from Karl N. and he says…

Charles, First you have to buy into the assumption that fuel prices are realistic and will continue to increase! In reality, there is no reason for them to be where they are.

Second, Ethanol requires no more energy to produce than gasoline. Producers must pump, refine, and transport gasoline. Global hunger increased before ethanol because the American farmers cannot cost effectively operate. Fertilizer, fuel, seed, transport costs, living expenses, land and machinery have all increased substantially since the 1960’s without a significant increase in grain prices. The market will have more grain with the increased production of Ethanol than without it.

Please do not buy into propaganda that Ethanol is not efficient to produce, will contribute to world hunger or will drive food prices up (a loaf of bread uses 4-5 cents of wheat in it).
The truth is that unless grain prices increase more farmers will be forced to quit and food supplies will decrease.

I have to say Karl, that fuel prices are realistic even at today’s price. Granted, a lot of speculation has helped take prices higher. But the truth is that according to the Energy Information Administration, the world’s oil production peaked in 2005.

Sure, more oil is being found. But it’s not being found in easy-to-reach places. It’s all offshore, sands, and shale. Production from these areas should come online in time to replace lost production from older wells. The net result? Flat to slightly higher production in the next five to ten years.

Even with US consumption falling, consumption in China, Brazil and India is skyrocketing. The truth is, if these countries keep buying more and more, then oil isn’t too expensive.

Second, you have to admit that corn-based ethanol isn’t the most efficient way to make energy, right? The US Department of Energy says that corn-based ethanol produces a whopping (note the sarcasm) 26 percent more energy than required for production.

That’s god-awful.

Cellulosic ethanol, on the other hand, could produce up to 80 percent more energy than is required to produce it. That’s much better. But mass-scale production is also far off. (There are a few companies setting up pilot plants. But that’s all)

Now, I agree that global hunger isn’t all ethanol’s fault. I’d place the blame on the emerging economies like Brazil, Russia, India and China. But you have to admit, using farmland for fuel means there’s less farmland available for food. And if there’s less food being made, prices move higher.

In addition, corn-based ethanol was a big reason why corn jumped well over 100% after President Bush first announced the ethanol initiative. The effect is obvious – the ethanol hype is helping prices move higher. And this has been a boon to farmers.

Better yet, farmers are poised to make even more money in the years to come, mainly because of growing global demand for food.

I also received an e-mail from Sam L. that said…

As a seasoned investor I wouldn’t put one penny in green stocks, not now or for the near future. It is all hype and no action.

All hype and no action, Sam? How about geothermal producers that are taking off? Or solar producers which are making profits? Wind producers are doing well, and many high-tech battery manufacturers are on the cusp of inking huge, multi-million dollar revenue generating deals.

If you think investing in clean energy is a bad idea, just take a look at the Market Vectors Global Alternative Energy Fund (GEX) and you’ll see that the sector’s been clearly moving higher. And the PowerShares Global Clean Energy Portfolio (PBD) has been doing the same.

It seems to me that investing in green stocks is a great thing to do. What you want to do is avoid the companies that have no profits… the ones that are using very experimental technologies that haven’t been proven yet. These companies may do well in the future, but you take a huge risk by putting your money on them now.