What If Tesla Took 500,000 Gas-Guzzlers Off the Road?

fool.com ^ | August 18, 2013 | Comments | Matt DiLallo

[ckilmer]

Last quarter, Tesla (NASDAQ: TSLA ) delivered 5,150 cars, which was well above its expectations of 4,500 deliveries. The company did so by boosting its production rate by 25% to 500 per week. If everything goes according to plan, the company's deliveries for its award-winning Model S could reach an annualized rate of 40,000 by the end next year, which is nearly double this year's expected rate. That's simply stunning growth. However, it's only the tip of the iceberg for where this company plans to be in the future.

The company has a very long road ahead of it to reach its goal to produce 500,000 vehicles annually, which is the rate CEO Elon Musk believes it can eventually reach. To get there, the company needs to capture lightning in a bottle again and produce a car that can be a mass-market success. That will happen only if consumers can drive a car off the lot in the $35,000 range -- something Tesla believes will be possible in as little as four years. While that's a bold dream, if Tesla has taught us anything, it's that it's OK to dream. So let's dream together of a world were Tesla can sell half a million cars each year.

No more pain at the pump? Americans as a whole are driving less, but we still drive a lot. Last year alone, the average American drove 9,363 miles, which is 7.5% down from the peak in 2004. While there's no telling how much we'll be driving by the time Tesla takes 500,000 gas-guzzlers off the road, we could conservatively assume that each one of those cars would have driven 10,000 miles per year. Even with using 2025 CAFE standards of 54.5 MPG as the average gas mileage of the cars being taken off the road, that's 183.5 gallons of gas being saved per car.

Overall, that's a savings of nearly 92 million gallons of gas each year. For perspective, that's just about a quarter of the 367.08 million gallons of gas Americans use per day. Thought of another way, if gas was $4 per gallon, it would save Tesla owners a collective $367 million, or about $733.94 per year. Swapping in a more gas-guzzling car would certainly boost the savings, so just think of these numbers as ballpark figures.

In fact, let's just say that Tesla was able to replace 500,000 true gas-guzzlers and knock off one day's worth of America's annual fuel consumption, or roughly shave the demand for a million gallons of fuel per day. Let's take a look at those numbers. anImage

*Based on an average of 10,000 miles driven and $4 gasoline

How much of a pinch would that be for refiners such as Phillips 66 (NYSE: PSX ) or Valero (NYSE: VLO ) ? In 2012, Phillips 66's refining and marketing segment produced $4.5 billion in earnings on $173.3 billion in revenue. Similarly, Valero's total revenue last year was $139.3 billion and its operating income was $4 billion. Clearly, the $1.47 billion in gasoline that Tesla could save each year won't put either out of business.

Oh, by the way Further, while taking a million gallons of gasoline per day out of the equation would still have some impact, odds are it would find somewhere else to disappear. In fact, just last quarter, Phillips 66 highlighted that it had increased its refined product exports to 181,000 barrels per day, or more than 760,000 gallons. By the end of this year it should have the capacity to export 370,000 barrels of refined product per day, or more than 1.5 million gallons. That additional capacity means Phillips 66 alone could easily export the amount of gasoline per day that 500,000 Teslas would save.

In fact, the U.S. has now become a net exporter of refined petroleum products because of lower U.S. demand and our competitive advantage in the marketplace. This situation is putting U.S. refiners with a strong Gulf Coast presence like Valero in a key competitive position to take advantage of future demand outside the United States. Tesla might actually be doing these companies a favor, as refined petroleum product exports are more valuable than those sold in the domestic marketplace.

Final Foolish thoughts Tesla's bold goal to sell 500,000 cars per year is a great dream, but it won't put gasoline refiners out of business anytime soon. Instead, these companies will simply have more gasoline available for the export market, which is a real positive for our economy. That's not to say half a million Teslas won't affect the energy markets, so tune in next week for a look at how that many Teslas could affect the electricity marketplace.

The only problem as far as investors are concerned is that Tesla is currently priced almost as richly as its Model S. That means investors looking to profit from the revolution in the energy markets need to look elsewhere

[Sherman Logan]

As is more or less necessary. Gas taxes are the primary source of money for road construction and maintenance. But the wear and tear on the roads is proportionate to the number of miles driven, not to the fuel used to propel the vehicle.

So at present electric vehicles are essentially driving for free on roads paid for by those driving ICE vehicles.

[Jeff Chandler]

Petroleum products are the most efficient fuel for consumer motor vehicles and will not be replaced any time in the future.

BTW,the only thing that CAFE standards of 54.5 MPG will do is make it impossible for medium-to-large families to travel safely. CAFE standards should be eliminated.

[Cool Guy]

He keeps hanging around and making progress. If I’m counting right he is selling his car at about the same rate that GM is selling the Volt.

That is because he cannot make his cars fast enough. He has back orders for a few months on his car.

[Tilted Irish Kilt]

The rest of us will use horse and buggy !!

The Elites will get the electric cars , and will be the only one's who will be able to afford one .

[RBStealth]

Tesla is paying for alot of propaganda/advertising through the motleyfool and Yahoo. The home page of Yahoo has been full of promotional articles disguised as news for Tesla for the past 2 or more months. Dont be Motleyfooled or Yahoo-ed!

However, a good investor can take advantage of such a promotion-fest to his financial gain.

[Tilted Irish Kilt]

The rest of us will use horse and buggy !!

The Elites will get the electric cars , and will be the only one's who will be able to afford one .

[entropy12]

Tesla owners will puke when their battery pack wears out and needs a new pack. I bought a new gasoline powered car for under 10k with multiple rebates and discounts. It gives me 30 mpg. During a normal life span of cars of about 10-12 years, I am still way ahead moneywise.

[animal172]

What if wishes were fishes and we all had a fry?

[Dick Bachert]

Yep! These greenies are SLAP NUTS! I guess they never took Physics.

Of course, this spiffy number doesn't require charging:

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[Jeff Chandler]

Pennies vs $70-ish for the same miles...It's a no brainer.

Indeed it is, because only someone without a brain would fail to predict the dramatic rise in the cost of electricity which such an increase in demand would cause. The money you save on gas will be made up by paying more for residential electric rates and the inflationary effects of higher electricity costs across the board.

There's no such thing as a free lunch.

[prisoner6]

Wait until all those batteries need replaced and the old ones disposed.

FWIW I think the trend toward do all touch screens is stupid. Give me old fashioned toggle switches with deadly bat handles.

[entropy12]

[max americana]

I’ve never seen a Tesla even here in libtard L.A., including W Hollywood. Usually if I see one near Sta Monica then maybe they’re making a serious dent, but I don’t really see Tesla selling even in the red states.

[kabar]

From Tesla:

At the base price of $62,400, including the $7,500 Federal Tax Credit, Model S comes equipped with a 60 kWh battery, 19” wheels, black textile and synthetic leather interior, 17” touchscreen, seven speaker sound system with AM/FM/HD radio, mobile connector, and a J1772 charging adapter.

To qualify for the Federal Tax Credit, you must purchase Model S new for your use, not for resale. The credit is applied when you file your annual taxes with qualification contingent upon your adjusted gross income. We recommend speaking with a tax professional for further details.

Model S has insurance premiums consistent with other cars in its class.

So if you can afford a $62,400 car, Tesla is the one for you.

[magellan]

I have nothing against electric cars, however Elon Musk's business activities since PayPal are built on rent-seeking.

Elon Musk paid hundreds of thousands of dollars to Obama in 2008 in return for hundreds of millions of dollars from Obama.

Tesla's profits are pure rent-seeking. Government handouts to build a factor and $7,500 in government provided gross-profit per vehicle built. Tesla would be losing money if not for the subsidies.

SpaceX's success is in large part because Obama shut down its primary competition (the Orion spacecraft) by executive fiat, and gave the business to SpaceX.

I believe the Hyperloop is the same thing. Musk hopes to get federal money to usurp a state of California plan. His extreme cost comparisons are intended to force a defunding of the planned high-speed rail program (just like he got Orion cancelled).

Musk is just a younger, hipper version of GE's Jeffrey Immelt. He sees Uncle Sam as the biggest potential customer.

[Fightin Whitey]

There’s no such thing as a free lunch or free electricity.....

But there is a freebilly by cracky!

[Mastador1]

And don’t forget that new tax on mileage to pay for the revenue lost to the Feds and local governments for the loss of gas sales. Now taking that into account how much will the electric vehicle owner save, take into account also the escalating cost per kilowatt due to increased demand and dwindling generating capacity.

[Redcloak]

Here's what I think every time I see some rich dude driving his Tesla down the road: "There goes $45,000 dollars of our money."

If this boondoggle were worth the effort, they why isn't Musk spending his own money on it? Why does he need government subsidies to the tune of $45,000 per car to turn them out?

[Popman]

How will the government make up for the expected loss of gasoline tax revenue?

Little box box that tracks your mileage use...

Set at whatever arbitrary fee your overlords think you can afford...

Think of it as a cell phone bill for your car...

They will just add whatever fee they want...

Needy children ? $01 per mile
Meal on Wheels social services? $.01 per mile
Democrat election campaign $.01 per mile...
Muslim diversity outreach program $.01 per mile
SEIU needy union thug fund $ .01 per mile

The possibilities are endless

[dangus]

The MPG-e of a Tesla is something crazy in the triple digits. Yes, it still needs energy, but its amazing how little it needs. What more limits the environmental sustainability of Tesla is its need for Lithium.