Who cares about oil prices?
Not Elon Musk.
“What we’re aspiring to do is to make the cars so compelling that even with lower gas prices, it’s still the car you want to buy,” said Musk.
The Tesla Motors (NASDAQ: TSLA) CEO plans to manufacture cars so impressive that gas prices or the cost of a full tank won’t even be a factor of consideration for consumers.
“Gasoline savings will be just another perk for the brochure.”
The Model S laid the groundwork, silencing the naysayers and removing all reason for doubt about Tesla’s ability to manufacture a speedy, safe, and sleek-looking luxury electric vehicle.
As far as speed is concerned, the Model S has available upgrades, one of which is called “Ludicrous Speed” mode, to make it faster than most of the world’s Ferraris, Lamborghinis, and McLarens — rocketing from 0 to 60 in less than 2.6 seconds.
It’s also safer than any car currently on the road by far.
As of 2013: “Independent testing by the National Highway Traffic Safety Administration (NHTSA) has awarded the Tesla Model S a 5-star safety rating, not just overall, but in every subcategory without exception.”
Speed? Check.
Safety? Check.
Affordability? Just wait for it…
Like I said, the Model S has already silenced the naysayers, proving that electric vehicles can and will compete with traditional combustion engines. It redefined what “electric car” means for the American consumer.
In less than four years, Tesla’s Model S became the top-selling large-luxury vehicle in the United States.
Yes, it even outsold all of the high-end options from Mercedes, BMW, and Audi.
Now, it’s time for Tesla to redefine “electric car” for the everyday driver, and it’s about to happen next week at Tesla Motors’ design studio in Hawthorne, California.
(It’s oil’s worst nightmare, but we’ll get to that later.)
Elon Musk will be revealing the Model 3, the company’s first entry into the “small luxury” or “compact executive” automobile sector.
The Model 3 will be joining the BMW 3 Series, Mercedes-Benz C-Class, the Audi A4, and others:
“The Model 3 will be one of the most affordable cars in the class, even before accounting for government incentives for purchasing electric cars and savings on gasoline.” — Bloomberg
With tax incentives, and depending on the driver’s state of residence, the Model 3 could cost as little as $25,000.
Although Musk has promised a drivable vehicle at the reveal event, all we have so far is a silhouette:
If the Model 3 looks and performs anything like the Model S (which I have no doubt it will), then investors should be ready for a significant shake-up in the automotive sector.
But Tesla’s Model 3 is just the first step in developing a mass market for electric vehicles. According to a recent report by New Energy Finance, we will see unsubsidized electric vehicles that are just as affordable as their gasoline counterparts within the next six years.
“By 2040, long-range electric cars will cost less than $22,000… 35% of cars worldwide will have a plug.”
Traditional auto manufacturers have reason to worry about remaining competitive with Tesla — but not as much as Big Oil.
If electric vehicle sales continue the 60% growth we witnessed just last year, then this technology could displace oil demand of 2 million barrels per day by 2023.
This is surely an aggressive model, but even more conservative outlooks predict the oil glut to still occur, just a few years later — in 2028.
Sure, the crash in crude oil prices hit electric vehicles fairly hard, and understandably so. It’s more difficult to justify the purchase of a $100k+ vehicle when the cost of everyday fuel is so low.
Last year alone, SUV and crossover sales increased by almost 12%, whereas sales of hybrids like the Prius fell by about the same.
Adam Jonas of Morgan Stanley recently lowered his price target on TSLA stock from $450 to $333, but it looks like he might have been shortsighted with that move.
“Low demand for electric vehicles categorically and globally in a $30 oil environment leads us to reduce volume assumptions for the Model 3.” — Jonas
This trend is just short term, especially as the cost of electric vehicles continues its downward trend and crude oil prices appear to stabilize (somewhat).
At least we’re not in the $30 territory for right now…
Ultimately, we are all left to speculate about the Model 3 until production ramps up in 2017. The future ahead will surely be tumultuous for Tesla Motors and oil prices around the world.
As the two are intrinsically linked, investors should keep a close eye on both. However, something tells me that Tesla Motors is about to come out on top.
As one finance news source challenges its readers, “Now is the perfect time to reexamine the core reasons why you bought the shares of Tesla Motors in the first place, now is the time to decide if you still believe in Elon Musk and this plan to change the world, one EV at a time.”
Until next time,
Jennifer Clark for Pro Trader Today