Tesla and the (Potential) Rise of the Electric Car

The future of the electric vehicle is here … maybe.  Tesla Motors is a Silicon Valley based automaker whose part-time CEO, start-up extraordinaire Elon Musk, hopes to revolutionize the auto industry by selling high-performance electric vehicles that are, in Musk’s words, “the best car[s] in every dimension that matters.” His Model S sedan seats seven, can go zero to 60 in 4.4 seconds and can achieve up to 300 miles per charge.

Last June, the company delivered their first Model S luxury sedans to customers including Jeff Skoll, eBay’s first president, and the current governor of California, Jerry Brown. However, at a staggering base price point of $52, 400 (even after the $7,500 federal tax credit), many of us will not have the opportunity to drive one of these vehicles anytime soon. But, hope may exist. Plans are already underway for Tesla to build an electric car that will cost less than $30,000, and Musk’s long term goals are to make these electric vehicles more affordable to the mass market.

Whether or not the company will successfully follow through with those plans, though, is still up in the air.  In the third quarter of last year, Tesla suffered losses of $110.8 million which can be compared to losses of $65.1 million in the third quarter of 2011 and have yet to release a positive earnings report since they ceased production of their Roadster back in 2011.  Nevertheless, even after hearing about such losses, investors remained optimistic due to increased production of Model S vehicles at the end of last year, up from 100 cars per week to 400 cars per week, the tipping point for Tesla to reach a positive cash flow.  Furthermore, news that more than 13,000 orders are out for their Model S and that a marketing push is planned for Europe is also good news.  While 13,000 is not immensely significant compared to the 14.5 million cars sold in 2012, it still means a rising importance for electric cars.

But, what are the long term implications of an electric car fleet? Wide adoption of cars like Tesla’s Model S,  Nissan’s Leaf, and  Chevy’s Volt pose interesting questions that relate to the future of the electric grid.  If we move away from the dominant transportation fuel of gasoline, will the electric grid be able to handle it?  Furthermore, even if the electric grid could sustain such a large increase in energy demand, would this switch mark a significantly more environmentally friendly transportation system?  These are some of the questions that will need to be answered.

To start, existing power generation in Texas has been struggling to meet the rising electricity needs of the continuously growing population.  A report published last December describes some of the growing concerns of ERCOT, the state’s chief grid operator.  Projections show that Texas’s reserve margin, a percent calculation representing the state’s peak power demand  compared to the state’s total power-plant capacity, is going to shrink from a desired 13.75% to 2.8% by 2022.  Although this number only relates to the time when peak power demand is highest, a time when electric vehicles might not need to be recharged, increased electric vehicle deployment could still increase the strain on grid operations. The bottom line is that the strain on grid operations depends on when electric vehicle users decide to recharge their car batteries and without significant electric vehicle deployment today, the time when an average person recharges their car can only be estimated.

To comment on my second question discussed above, the environmental impacts of the supply of the electricity for electric vehicles may also be a concern.  Does an electric vehicle that boasts zero emissions truly contribute zero emissions to the environment?  Since roughly 42% of US electricity production comes from coal, there is a good chance that your electric vehicle will be running off coal as well, at least indirectly. Hopefully, as the grid continues to transform to cleaner fuels through cheap gas and wind energy incentives, more efficient and clean power plants will come online.

Nevertheless, while electric vehicles are an exciting opportunity, hard questions need to be answered surrounding their feasibility and their potentially large scale impacts.

First, the business model has to be proven, and new updates from Tesla in the next year should provide insight into this issue.  Second, more studies need to be performed that determine how a fleet of electric vehicles affect the grid and what improvements need to be made in order to prepare for a future of electric cars.  And last, cleaner electricity sources are needed in order to truly realize the environmentally beneficial aspects of electric vehicle technology.

Who knows, maybe even Tesla and Elon Musk can solve these problems too.

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3 Comments

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3 responses to “Tesla and the (Potential) Rise of the Electric Car

  1. I think the biggest impact of the Model S, or even the Tesla brand in general, is the ability of a start-up automotive company to be sustainable in an arena dominated by the giants. And while they do continue to post losses, this is not uncommon for start-ups to take years to reach profitability . Tesla faces the additional obstacle, as compared to say small software or other widget start-ups, of not having the machinery and infrastructure that is so critical for producing the increasingly complex cars on the market today. Tesla has already expressed that their intention has been to produce increasingly economical vehicles, stepping down from their Roadster, to the Model S, and eventually the $30,000 price point you mentioned. Building up their manufacturing ability to reach that price point will take more time, over which they will likely continue to post losses. In that sense, even more telling than their profitability is their ability to produce cars at a competitive rate (as mentioned in your Daily Tech article). The demand is already there, as a 14,000 order reservation list will show, and Tesla is finally starting to catch up with the supply side. This is also important from a big picture standpoint as other automotive start-ups continue to stumble and face very public setbacks, like Fiskar and Better Place. Meeting their projected output rate while still producing quality vehicles will help not only with future investment opportunities, but also with public perception that this company and other companies like it are viable long-term. So while the technology that Tesla is developing might not be planet-saving on its own, being a poster child for alternative energy vehicles that can come from innovative minds outside the automotive establishment might make it a catalyst for a bigger movement.

  2. It’s interesting to think about the potential drawbacks of a zero emissions vehicle. While the car itself isn’t a burden on the environment, does the overall impact from the production of electricity through coal weigh the benefits down to the point that better emission controls on gasoline engines could be seen as the better overall technology. I agree this will be less of the case as we bring on more clean energy to the grid, but until that point are we doing a disservice by ignoring the impact of addition draw on the power grid? I think the long term viewpoint is where we need to focus our attention and as Tesla makes their lines of automobiles commercially successful and as we move to cleaner sources of electricity electric vehicles could be an excellent opportunity to reduce our long term dependency on oil.

  3. It is extremely important to make the market of electric vehicles wider. It can become fashionable only if there is a wide choice. Unfortunately as it’s still too innovative to be cheap enough for “normal” users.

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