Tag Archives: tesla

Electric Vehicles and the President-Elect – 11/29/16

According analysis by Bloomberg New Energy Finance (BNEF), early 2020’s electric vehicles (EVs) should be cheaper than equivalent hybrid and even gas-powered models. It is likely that many of the campaign promises (cutting fuel efficiency standards, letting tax credits expire, etc.) of the president-elect would create speed bumps for EV adoption, but what impact could he really have on adoption?

The rise in EV adoption can be attributed to consumers concerned about climate change, falling EV prices, and government subsidization. Now consumers who get an EV for the sake of the environment won’t suddenly start buying gas guzzlers just because there’s a new president so this article will focus on the effect the administration could have on the other two factors.

Prices

The difference in price between electric vehicles and conventional ones comes down to how they store and use energy. Compared to most batteries, fossil fuel products like gasoline store more energy in less weight making them the cost-effective option even though electric vehicles lose weight by not needing a combustion engine. Batteries have just been too heavy and costly for electric cars to compete in essential areas like driving range and price. By 2020, that fatal flaw could be a thing of the past.

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Since 2010, the cost of EV battery packs has fallen over 50%. That trend will continue.

Tesla’s latest Lithium-ion battery already beat projections for energy density versus price by 7 years according to BNEF. Those numbers come before the company’s Gigafactory in Nevada comes online and let it really begin taking advantage of economies of scale.

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According to Tesla, battery cell production will start in 2017 with its mass production methods lowering the battery prices from $190 per kWh to an estimated $130 per kWh once complete.

Tesla’s latest car, the Model 3, currently starts at $35,000 with over a fourth of the price coming from the cost of the battery. A $190 to $130 per kWh cost change would mean a price reduction in the thousands. Since replacing battery packs also make up most of the operating costs associated with a Tesla EV, the lifetime cost of owning an EV would plummet relative to conventional vehicles.

A permanent reduction in battery costs isn’t something the federal government can change; however, what one thing can change could still work out in at least Tesla’s favor. That thing is trade agreements.

If the president-elect throws out NAFTA or starts a trade war with Mexico, then it will be electric car maker Tesla Motors that benefits. Automakers like Ford Motor Co., GM and Fiat Chrysler have invested billions in Mexican plants that produce parts for their vehicles. By contrast, Tesla’s manufacturing and assembly are done almost entirely in California and Nevada. Any tariffs on outsourced production would only raise the prices of conventional cars relative to Tesla’s EVs.

Subsidies

Technically, the president-elect could eliminate a $7,500 federal tax break for electric cars, but that would be harder than it sounds. Since subsidies were designed to phase out after each automaker reaches its 200,000th domestic EV sale, Tesla is much closer to that threshold. Removing the tax break now would only hurt automakers hoping to develop their own competing EV models. It’s not hard to see how car makers already invested in developing EV’s, like Nissan Motor Co. or General Motors Co, would likely fight tooth and nail to keep the subsidy.

Each state also has authority over its own electric-car subsidies that the Federal government has no control over. For example, Louisiana residents can get an additional tax credit of almost $10,000 for buying a long-range electric car. In Colorado, it’s an extra $5,000. Remember the price of Tesla’s Model 3 is about $35,000 before subsidies so those tax credits are a pretty substantial chunk of the EV’s total cost.

Conclusion

Between falling battery costs, interest of traditional automakers in keeping federal subsidies, and state level subsidies, the usage of electric vehicles will rise regardless of guidance or lack thereof from the White House.

Tesla Motors Posts Surprise Profit – 11/9/16

Tesla Motors Inc. posted $22 million profit in its latest period with record sales of its electric cars ahead of the release of its mass-market sedan. This profit is the electric car company’s first after 12 consecutive quarterly losses.

As it prepares to ramp up annual production from 50,000 cars in 2015 to 500,000 cars in 2018, Tesla has collected more revenue than ever with improved improved sales of the Model S sedan and Model X sport-utility vehicle, a reduction in spending, and a boost from selling tax credits.

Gross profit from the tax credits rose to $139 million from $39 million a year ago though Tesla expects “negligible” sales of them in the fourth quarter implying that they will not be a reliable source of income for the future. Given that a large number of car makers are expected to bring out competing electric car models, it is unsurprising that they would buy fewer credits from Tesla.

Tesla’s revenue increased to $2.3 billion from $937 million last year. Tesla also said it held $3.1 billion in cash in September. Analysts expect Tesla will need about $2.5 billion through the end of 2017 for the Model 3 rollout and the completion of its battery factory in Nevada.

The company surpassed CEO Elon Musk’s profitability goal and analyst expectations, reporting earnings per share of $0.14. Tesla also delivered a record number of cars in the third quarter and is on-track to meet its full-year target. It even reported positive free cash flow, defined as operating cash flow less capital spending, for the first time since 2013.

Of course, one good quarter doesn’t ensure that Tesla Motors can deliver on its ambitious goal. With a massive hike in production volume on the way, Tesla will have to shake off a reputation for missing its self-imposed production deadlines.