TESLA: THE CHANGE IS…NOW?
While Tesla is addressing emission increase by creating market for sustainable vehicles, the climate change brings a challenge for sustainability of Tesla itself.
Tesla was first auto producer to launch fully electric car at scale to address recent sharp increase in carbon dioxide levels in the atmosphere.
With governments turning their heads towards environmental-friendly companies to improve their emission targets, Tesla creates the supply for emission-less demand just in time. The company is on the path to become a leader of the electric cars market, and essentially benefits from the climate change growing concern.
The key contribution of the electric cars and Tesla in particular to the environment lies in its low emission of CO2. According to Tesla spokesperson “an electric car like the Model S has almost four times lower CO2 per mile than an equivalent gas-powered car”. This is thanks to absence of tailpipe, releasing no heat or gases and, hence, low emission. Despite there is still emission due to the electricity generation, the advantage is still considerable. Electric car brings carbon dioxide emission from electricity 35-60% down comparing to CO2 pollution from the gasoline car.
Additionally, in the countries where renewable power sources are more advanced (think solar, wind or hydro), the emission rates are even lower for electric vehicles.
Further, Tesla enjoys a lot of support from the governments in certain countries (Netherlands, Hong Kong, Norway), where thanks to the state subsidies it can offer consumer more affordable prices and tap into mass car market (with its retail price for Model 3 at USD 35,000, subsidies and tax wavers can bring this price down to USD 30,000 if not less in some markets). In fact, according to some extreme scenarios, in Europe electric cars can gain up to 50 percent market share in the next 10 years, bringing 25% drop in the demand for gasoline cars.
Clear opportunity is the international market, where Tesla is focusing on China, which accounted for 11% of its total volume in 2015, reflecting government plan to promote electric vehicles linked to the emission reduction ambition.
With the opportunities come the threats.
In order to grow, eclectic car market needs not only to change consumer behavior, but also to gain sufficient government support. While this is happening to an extent, Tesla and other electric vehicles introduce serious competition to the conventional car makers, subsequently affecting oil industry and threatening transport industry demand for oil products to go down over the next decade. The scale of reduced demand can be extensive. Globally, 45% of all extracted oil is used for transport. This number is much higher in developed countries – for example, in US it is 71% and most of it is for the cars. While the change to sustainable cars is inevitable, oil and car giants are focused on delaying this change by lobbying potential damage that electric cars might bring.
To add, oil companies and car giants represent a strong voice, which can influence government decisions to support electric cars development, but most importantly, to institute low emission regulations. A good example was attempt of California government to introduce zero-emission regulations in 1990, which was fought by car and oil companies until it was removed in 2003. By sticking to the old convenient ways of making cars, the industry dictates the general message sent to the consumer.
Another threat that climate change is bringing is the competition in the shape of self-driving cars. While Tesla has been playing with this idea, it needs to accelerate its development to get at least a chance to tap into the self-driving vehicle market, which already starts to shape. According to the forecasts, private vehicle ownership will decline by half in the next 25 years, with each shared car replacing up to 9 traditional cars. This trend will lead to 40% reduction of annual auto demand and 60% reduction of the car park. While for now, Tesla is well positioned in the family car category, if it will not find the application of its self-driving car, it risks losing serious revenue pool. Of course, Tesla still could provide batteries for more disruptive competitors, but the scale of revenue will be very different.
To sum up, climate change offers a great opportunity for Tesla electric cars to lead a brand new big market. Being a pioneer of this market promises high revenue and market share. At the same time, climate change creates tension between key market players. Tesla growth potential might be considerably slower without governments support and strong opposition from large oil and car companies. Additionally, Tesla should reinforce its innovation edge to embrace the change to shared self-driving cars, which climate change is bringing along.
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3. Barclays Equity Research. US Autos and Autos parts. Disruptive mobility by Brian A. Johnson. May 19, 2015.
Student comments on TESLA: THE CHANGE IS…NOW?
Iryna, I really enjoy reading this post and learning the challenges and opportunities that Tesla is facing now. I think Tesla and fully electric car is a very interesting topic to talk about in terms of how to address climate change. Actually in my hometown (Taiyuan, a middle-sized city in northwestern China), the local government recently changed all of the taxis into electric cars (Chinese local brand: BYD, the car costs about $50k each and government subsidizes 1/3 of the total cost). Everyone agrees that electric car is very efficient to reduce carbon dioxide emission during driving, but some people still have concerns about whether it could really help reduce the impact on climate change.
1) The manufacturing of battery used in electric cars actually generated a lot of CO2 emission, thus when cars are manufactured, gas-powered vehicles are initially better for environment than electric cars.
2) EV’s emission rate also depends on what kind of energy source they are using to charge the battery. As you mentioned, in the countries where renewable power sources are more advanced, the emission rates of EV are even lower. However, in my hometown, we are still using coal-burning to generate electricity, and some people argue that it might be even better to drive a gas-powered hybrid.
Thank you for this Iryna – really interesting article.
I’m interested in the implicit risks of Tesla’s commitment to lithium-ion batteries, given the significant investment competitors have made in alternative emissions-reducing fuel sources. For example, Toyota has committed to developing hydrogen fuel cell technology, since they believe that battery-powered cars are impractical due to long charge times and range limitations. It would be interesting to consider whether Tesla is currently involved in a ‘Betamax vs. VCR’ style technology war with other large auto manufacturers. Can lithium-ion, sodium-ion and hydrogen fuel cells exist in parallel, or will we barely remember two of the three technologies in 50 years time?
Great article Iryna. I definitely agree with you that only with external help (i.e., by the government) it will be possible to reach adoption levels that have a great impact on the climate. For example in the car nation Germany only 0.7% of vehicle registrations are electric cars (http://www.cnbc.com/2016/05/24/this-country-has-hit-a-major-milestone-for-electric-cars-heres-how.html) although the popular brands (e.g., VW, BMW, Audi) all provide several models. Car drivers are still resistant due to the long load-times but short distance.
Furthermore, I think governmental initiatives need to be drastically. Current subsidies provided by the German government have only a marginal impact on sales (https://www.theguardian.com/world/2016/apr/28/germany-subsidy-boost-electric-car-sales). A real change could be reached by limiting the amount of non-electric car registrations or high dues for driving them.
Thanks for the interesting article! I think one of the most innovative aspects about Tesla’s introduction of the Model S is not only that (like your article states) it was a fully electric car but also that it has been able to achieve a coveted brand image in the automotive industry. Because of this allure to an electric car that not only reduces CO2 emissions but also has a sleek design and high driving performance, Tesla is able to appeal to a wider group of consumers (not only ones interested in buying a car to reduce energy consumption and CO2 emissions). When I ready the part of your article that talked about government subsidies in certain countries to make Tesla cars more affordable to the mass market, I thought this was a great step forward to increase adoption of electric cars. However, it seemed a little counter-intuitive to try to gain adoption for a luxury car by the mass market. This made me think about Tesla creating a separate line (and potentially separate brand altogether) that was more affordable for the mass market. This new subset could hopefully benefit from the fuel saving technology in Tesla, but include less luxury features so that it could be adopted more broadly.
Thanks for the post. It’s a very interesting subject and it seems like fertile ground for a lot of improvement. Is their more information around the amount of electricity needed per mile compared to gas consumed broken out by CO2 production? It seems like this will be a critical part of the debate as things move forward. It would also be interesting to see how this number has changed over time. As I understand it, Tesla’s newer cars have onboard computers that allow the company to send updates and other optimizations. Theoretically this might allow them to create more efficiency in the operations of their cars.
Thanks for the interesting post! I agree with you that there is a ton of opportunity for electric car manufacturers such as Tesla with climate change. There does need to be significant government support however, not only to take on the traditional car manufacturers, but also to prod consumers into adopting the electric cars. If there are not sufficient electric charge stations and the cars do not have a long enough range to match consumer needs, then consumers will not buy them. Government can play a significant role in not only supporting the electric car manufacturers but also trying to support and help develop the other industries that are necessary to support electric cars.