Falling Oil Prices Will Not Stop Tesla’s Boom

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Falling Gas Prices Relieved Tired Drivers the numbers whistle on the pump at wallet drain speeds. According to the AAA, Americans pay an average of $ 1,929 for a gallon of regular gas and $ 2,584 for the premium brand – about 29% and 21% cheaper, respectively, compared to a year ago.

Electric vehicle manufacturers, however, are probably less than thrilled by the turn of events. After all, one of the main selling points of electric vehicles is the fuel savings that can be gained by owning a cheaper electric vehicle instead of gasoline.

Indeed, the leading EV manufacturer, Tesla Inc(NASDAQ: TSLA), is now facing a triple blow from low gas prices, lower fuel economy standards introduced by the Trump administration and a potential drop in demand due to the coronavirus pandemic.

Tesla has just emerged from another solid quarter where the company revealed that it had produced nearly 103,000 vehicles and delivered about 88,400 for its best first quarter in history. Deliveries included 76,200 model 3 and model Y vehicles as well as 12,200 model S and model X vehicles, marking a 40.3% year-over-year increase.

TSLA stocks rallied hard after the Wall Street update with some improvements. TSLA stocks have successfully reduced some of their previous losses and are now posting an impressive 22.7% year-over-year return.

But maybe bulls need to pump their brakes? After all, the majority of these Tesla orders were placed several months ago, when oil prices were still much higher, and COVID-19 had not raised its head. Related: Why The OPEC + Cutoff Is Not Relevant

Are TSLA Investors Whistling Now in Front of the Cemetery?

Tesla always cheaper

Inexpensive gas and lower fuel economy standards are terrible news for electric vehicle manufacturers like Tesla – or at least the bears are fighting over each other.

The value proposition for electric vehicles seems to be much more robust in a $ 4 per gallon environment than in a $ 1 per gallon environment. Still low gas prices could deter people from considering switching to an electric vehicle, as it could take several years before the minimal cost savings pay off the higher price of the sticker.

It gets even worse with lax environmental rules after Trump recently granted companies an “open license to pollute.”

According to new guidelines from the Environmental Protection Agency (EPA), companies are now mostly free from the consequences of air or water pollution during the coronavirus epidemic. Meanwhile, automakers need only aim for an average fuel economy standard of around 40 mpg by 2026 compared to the 46 mpg goal in Obama’s day.

As expected, many manufacturers are happy with the rollback, with about half of them choosing to follow the less stringent standard. The other half, on the other hand, have committed to California’s stricter regulations. While it is tempting to think that the lower standard means less competition for Tesla, it also means that there will be less pressure to switch to cleaner alternatives like electric vehicles.

But how much did cheap gas get into Tesla’s business case?

From a purely technical point of view, not much. It’s always a lot cheaper to use a Tesla than your average gasoline vehicle.

An interesting study from a few years ago found that Americans waste billions of dollars each year by unnecessarily charging expensive premiums instead of regular gasoline. According to AAA, 70% of Americans drive cars that require only regular gas; 16 percent require a premium, and the remaining 14 percent require medium-quality gas or have an alternative power source such as electric batteries. Another study found that Americans paid about 15 cents per mile for their gas (the national average price for gas was then $ 2.96 per gallon). Using this information, we calculate that American drivers currently pay around 10.6 cents per mile traveled on average.

The cost of charging Tesla largely depends on the model and how you use your vehicle. SolarReviews has established that it costs 3.7 cents per mile to charge a Model 3 and 5.2 cents per mile for the Model X, assuming a national average cost of 13 cents per kWh for electricity in the United States . In other words, the average Tesla driver pays only 40% of what an ICE driver pays for his fuel, despite the low gas prices.

Tesla also comes out on top when you look at the big picture. Related: Political Battle Could Endanger World’s Most Spectacular Oil Boom

In 2017, AAA reported that it costs an average of $ 8,469 per year to own and operate a new vehicle in the United States, or $ 706 per month. Driving costs were lowest for small sedans ($ 6,354), small SUVs ($ 7,606), hybrids ($ 7,687) and electric vehicles ($ 8,439). Remember, it was before the mass production of the Model 3 was launched at $ 35,000, so the cost of owning a Tesla is currently much lower than the figure at the time.

Tesla Cybertruck in trouble

Gas prices are expected to drop below $ 10 a barrel – or go into negative territory – before gasoline-powered vehicles can begin to challenge the low operating costs of EVs. But with the environmental movement in full swing, the link between the price of EV gas is expected to continue to weaken.

Indeed, it is quite remarkable that electric vehicles have continued to gain market share at a scorching rate over the past decade despite generally low gas prices and the US federal gas tax unchanged since the 1990s.

The story, however, could be different for Tesla’s next $ 39,900 cyber truck.

The cybertruck is slated to start rolling out of production chains in late 2021, with the all-wheel drive four-wheel drive version coming into production a year later. Full-size pickups are not particularly noted for their fuel economy, so fuel savings could be a much stronger reason for choosing an electric truck than a gasoline one. But with fuel prices so low, the urge to take a chance on an experimental truck could quickly go away.

In the final analysis, the global electrification campaign is in full swing and low gas prices could only act as a retarder.

As Reuters ‘ Stephanie Kelly and Jessica Resnick-Ault noted that gasoline has indeed become more affordable, just when Americans don’t need it.

Volkswagen chief strategist Michael Jost recently told reporters that even a prolonged drop in oil prices will not persuade the company to abandon its long-term commitment to its CO2 reduction targets and EV strategy. You can bet on a lot of other car manufacturers [and consumers] feel the same way.

By Alex Kimani for Oilprice.com

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