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Why Tesla Is On Fire

Yahoo! Finance
The Exchange

By Jigar Shah

No, this is not about the recent fire reported about the accident in a Tesla (TSLA) Model S. Nor, conversely, is it about this fact: “Independent testing by the National Highway Traffic Safety Administration (NHTSA) has awarded the Tesla Model S a 5-star safety rating, not just overall, but in every subcategory without exception.”

It is about the fact that Tesla’s stock has risen from $35.36 on January 2 to $183.94 on October 15th. Since the car caught on fire on October 1, the stock has declined a bit from its price of $193 that day.

Fifteen years after the first mass market electric vehicles, there are more than a dozen electric cars on the market and have now achieved about 2 percent of global sales for light vehicles. Obviously, as Shell recently pointed out, the potential growth of total sales of the electric vehicle market huge – creating huge amount of climate wealth.

The underlying reason for Tesla, the Nissan (NSANY) Leaf, Chevrolet (GM) Volt and other electric vehicle is because of five key reasons below.

1. Batteries have already gotten 50% cheaper since 2009.

When the most recent electric vehicles came out, many commented they would never be affordable, but today the Nissan Leaf is now one of the most affordable cars on the road at less that $30,000. In fact, many deals can be had at less than $3,000 down and $199/month. It is hard to find any other vehicles, gasoline or electric which are cheaper to own. The Tesla S model compares quite favorably on features and price to other luxury cars in its class.

2. Cars are focused on folks with garages.

Car companies should focus on folks with garages. Businesses might put in charging kiosks as an employee retention scheme, but public charging stations? In fact, according to Pike Research, “82% of respondents drive 40 miles or less per day, with an average daily driving distance of 27 miles.” Over 57% of American households have suitable garages. While apartment dwellers want electric vehicles as well, that just doesn’t seem to be the low-hanging fruit.

3. Policy support is robust.

Like the existing hybrid vehicle tax credits, lawmakers smartly designed the plug-in vehicles tax credit to be limited to a certain number of vehicles per manufacturer – 200,000. That’s a lot of cars and the Volt is the only vehicle which has crossed 40,000 sales; plenty of room to go for everyone else. More importantly, the point of the program is that once a manufacturer sells 200,000 cars, the manufacturer should have reached scale to lower costs so that the tax credit is no longer needed. This seems like sound policy.

4. Oil prices are above $100 and seem like they aren’t going down.

In addition to low upfront lease prices for the Leaf and other electric vehicles, gasoline prices seem to be stuck on high. Since the financial crisis of 2008, gasoline prices have more than doubled. Many electric vehicle owners revel in the knowledge that their fill up for an equivalent 400 miles of driving often costs less than $15 – much less than the $70 per fill up a gasoline car can cost. That doesn’t even include maintenance savings as electric vehicles have fewer moving parts and no active cooling system needed.

5. Electric utilities have plenty of capacity and in fact could use the growth.

With roughly 4,000,000,000 megawatt-hours of sales per year, the electric utility industry can handle electric vehicle fuel usage. If Americans meet President Obama’s 1,000,000 electric vehicles goal by 2015, electric utility demand would rise less than 0.5%. More importantly, if after 2015, we could add 1,000,000 electric vehicles each year, the storage capacity in the batteries would be more than enough to provide all of the storage needed to meet Google’s vision for a 100% renewable electricity future in the USA by 2030. Finally, because of the night time charging profile of electric vehicles, we could add more load at night when we have excess capacity which would dramatically reduce electricity prices for everyone.

Navigant Research projects EVs will grow to only 3 percent of car sales by 2020. But like solar PV predictions of the past, these reports do not take into account that growth is rarely fueled by technology improvements. Instead growth is usually driven by business model and financial innovation enabled by policy.

For example, today, electric system operators like the PJM will pay $5 per day to be able to charge and discharge electric vehicle batteries to support the grid. That’s $150 per month. Businesses can use employee electric vehicles batteries to save up to another $150 per month on their electric demand charges. Homeowners can use their electric vehicle batteries and solar on their rooftops to provide reliable back up power for their house – a savings of $10,000 compared to a polluting diesel generator.

Electric vehicles becoming more than a flash in the pan will only come about if the market is about more than transportation. Grid integration is worth more than the $199 monthly car payment for the Nissan Leaf. Meanwhile, Tesla is red hot as an ultra cool mode of transportation!

Jigar Shah is an entrepreneur and visionary committed to leveraging the next economy by solving the challenging issues of our time. Shah is the author of the book, "Creating Climate Wealth."