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A magneto is device similar to an alternator for creating electrical energy. Many small gas engines, including several road worthy motorcycles, use them to generate electrical energy. They can be used for supplying spark or charging a battery.

I am guessing that efficiency (i.e. cost or power demand) plays the major role in deciding to use a magneto or an alternator. When is a magneto more efficient than an alternator? Is there some general rule of thumb used to decide which to use on an application?

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    The basic rule of thumb for use of a magneto is twofold: 1) If there is no room for an alternative electrical source, such as a lawnmower or a chainsaw; and 2) they are commonly used in aviation due to their reliability. The Wikipedia page has a pretty good write-up about magnetos.
    – Pᴀᴜʟsᴛᴇʀ2 ♦
    Commented Mar 19, 2014 at 21:24

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Magnetos are used to provide spark to spark plugs in an engine that does not require electronic fuel injection and variable valve timing. Or more accurately: a magneto can be used in the case where you simply need to fire spark plugs and not much else. They're simpler than alternators and thus more reliable, but a magneto the size of an alternator won't be able to produce nearly as much current as the alternator, making it useless in passenger cars. A magneto simply can't supply enough amps to charge a 12V battery capable of supporting your lights, stereo, engine management and electric windows.

Interesting fact: magnetos are used in some race cars in lieu of an alternator as part of a crank-fired spark plug setup. this is because this setup creates much less parasitic drag on the engine, thus freeing up more of the horses to turn the wheels.

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A magneto and alternator both make use of a 1 coil spinning in a magnetic field or 2 a magnetic field spinning inside a coil of wire. The field in a magneto is furnished by magnets, whereas the alternator has a wound field and must be excited by a battery. The alternator's output is also able to be controlled, Some Harley Davidson's used an ignition magneto for spark and a generator for headlite, horn, tail and stoplites.larger bikes now have what's called a stator a ring of coils under the primary drive sprockette, enough power is made to keep the battery up for lites engine and starting, still tho it is a magneto. The famous Ford T had a magneto that would furnish current for the 4 coils for the ignition, they could also be worked off a battery thru use of a switch.

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