Alternative Fuels, Electrics, Tesla, and Fuel Prices

The alternative fuel vehicle discussion either heats up or cools down based on the current price of gas at the pump. While this is somewhat to be expected, the truth is that this is a discussion that needs to happen on a continuing basis. The use of fossil fuels as our main fuel source is simply an unstainable practice. Fossil fuels also put additional stress on the environment in virtually every stage of its use; extracting, refining, transporting, and consumption. Elon Musk summed up the impact of fossil fuels when he noted that:

”Gas prices should be much more expensive than they are because we’re not incorporating the true damage to the environment and the hidden costs of mining oil and transporting it to the U.S. Whenever you have an unpriced externality, you have a bit of a market failure, to the degree that eternality remains unpriced.”

epa04049808 Elon Musk, co-founder and CEO of Tesla, poses with a model of the brand during a visit to Amsterdam, The Netherlands, 31 January 2014. The European Tesla Service is based in Tilburg and the European headquarters in Amsterdam. EPA/JERRY LAMPEN 0

Image source:

However, it is possible that the trend of alternate power vehicles being in the forefront only when gas prices are high may be nearing an end. Even with the drop in oil prices that have resulted in the lowest gas prices in several years, the sales of battery run vehicles increased by 58% in 2014.

One electric vehicle (EV) that is likely to contribute to and even increase this trend is Elon Musk’s Tesla Model 3.


Image source:

Tesla has effectively broken many of the preconceptions which surround EVs. The car is stylish, handles well, and has a reputation for being very well built. A Tesla goes from 0 to 60 in just four seconds. The name recognition of Tesla is very high, especially considering that many states have laws which prevent new cars from being purchased anywhere than a dealership.

Part of Tesla’s name recognition is directly attributable to the celebrities that drive a Tesla. However the fact that Oprah Winfrey, who is known for her embrace of social causes, avid vegan poker pro Daniel Negreanu or environmental activist Cameron Diaz drive Teslas is not exactly surprising. However the fact that Laurence Fishburne and Jay Leno are also part of the growing list of celebrity Tesla owners indicates that the car has merits outside of its environmental and socially responsible pedigree.


Image source:

One of the biggest barriers in Tesla becoming a mainstream vehicle is its cost. While the $70,000 to $100,000 plus price tag is not an issue to the head of a broadcast and publishing empire, the world’s all time tournament poker money winner or Hollywood A-listers, it is beyond the reach of most car buyers.

That will all change with the introduction of the Model 3. Elon Musk, Telsa’s CEO, recently announced that the company will introduce the Model 3 by 2017. The car will cost approximately $35,000. It will be the general car buyer’s reaction to the car that will decide if the company will achieve mass appeal status.

The reason the Model 3 will be less expensive is due in part to the company’s soon to be fully operational Gigafactory, which will be the world’s largest battery plant, and should result in savings to Tesla of about 30%.


Image source: Tesla Motors via

Tesla will have to overcome several issues in its quest to become a mass-market vehicle.

Perhaps the largest is the “battery” question. There is no doubt that replacing the car battery is expensive at around $12,000. Detractors and critics of EV and hybrids have long used the battery cost to point out that the cars are not as economical as they are portrayed. Tesla addresses the issue with an 8-year warranty. They have also published articles showing the cost of operating the vehicle including the eventual battery replacement as opposed to ICE (internal combustion engine) vehicles. The company needs to address this issue in simple dollars and sense terms that most will understand, while still providing the math for those so inclined.

Tesla also has to fend of the competition. While Tesla is the only pure-play EV manufacturer, respected car companies like BMW, Audi, Porsche, and Mercedes-Benz plan to launch EVs which will rival the Model 3. BMW and Audi are also looking at manufacturing luxury electric vehicles as well.

2013-Audi-R8-e-tron-5Image source:

One of the other obstacles in the face of Tesla’s large-scale success is the American addiction to their cars. People in many countries find the willingness of American drivers to drive thousands of miles unfathomable. Tesla and all of the EV manufacturers actually have to educate drivers as to what a 250 to 300 mile range per charge means in real life terms. Many potential EV customers are also unaware of the mechanics involved with charging or where the vehicle can be charged.

The cost of gas at the pump will also affect the Model 3’s acceptance. Analysts have long stated that fuel costs have little to do either way with the decision to purchase a high end vehicle. If prices remain low, Tesla will have to heavily market all of the company’s strengths.