Of the Many Ways to Travel, This Is One of the Cheapest
Alexander is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Much has been made about the idea that people would refuse to buy cars made by Tesla Motors (NASDAQ: TSLA) because of concerns about range anxiety on roadtrips. Setting aside the fact that most people with enough money to purchase a Tesla Model S also own at least one more car and are likely to fly instead, the Model S may become one of the cheapest ways to travel across long distances in the United States. After all, how many other automakers supply free fuel?
A cost comparison
Data from the U.S. Energy Information Administration finds an average electricity price of 11.92 cents per kilowatt hour. This data uses the residential charging rate, which is what the majority of Tesla owners would be using when not connected to public chargers. Tesla Motors says the average energy consumption rate for the Model S is roughly 330 watt hours per mile. Assuming a 600 mile roadtrip (300 miles each way, a fairly reasonable drive), the Model S would consume approximately 200 kilowatt hours of electricity. Taking a 15 percent charging loss into account, it would take around 230 kilowatt hours to fully power the Model S. Using the owner’s own residential electricity, this trip would cost around $28 in total.
But this situation is unlikely to happen since the Model S range is less than 300 miles. Once more Tesla Supercharger stations (which offer free electricity to Model S owners) are installed, the owner is likely to use one of them for between a third and two thirds of the drive. Using the $28 figure above it is fairly simple to calculate how the energy cost can easily fall to less than $20.
Tesla Model S cost for 600 miles: $20 - $28
When comparing gasoline cars to Tesla, many analysts make the mistake of using a mass market car as a reason to show a supposedly prohibitive cost for the Model S. Nonetheless, I will compare the Model S with two cars for a cost to drive here: The Ford (NYSE: F) Focus (the best selling car in the world according to R.L. Polk data) and the Porsche (NASDAQOTH: POAHF) Panamera (quite likely the best available comparison to the Model S is terms of price and performance).
Data from Fueleconomy.gov shows the Ford Focus FWD with an automatic transmission to have fuel consumption of 27/38/31 miles per gallon and the base model Porsche Panamera to have fuel consumption of 18/27/21 miles per gallon. If we take the optimistic approach and use the highway fuel economy numbers, the 600 miles trip uses 15.8 gallons with the Focus and 22.2 gallons with the Panamera. Using AAA’s fuel price figures on Jul. 10, the Focus would cost $55.32 to drive while the Panamera would cost $85.20. (The Panamera’s fuel costs more per gallon since it uses premium gasoline while the Focus uses regular gasoline.)
Giving a variance of 10 percent in either direction to account for differences in driving results in the following numbers:
Ford Focus cost for 600 miles: $50 - $60
Porsche Panamera cost for 600 miles: $77 - $94
For trips of this length, many customers may also choose to fly. However, air travel is rarely done for cost savings and is usually done to avoid the need to drive or to reach a destination faster. But for those who do the airfare to car fuel comparison anyway, the Bureau of Transportation Statistics gives the average domestic airfare for the fourth quarter of 2012 at $374.24 roundtrip, significantly more expensive than driving. Even discount fares from carriers like Southwest Airlines rarely get to the point where roundtrip airfare would be cost competitive with driving.
Airfare for 600 mile trip: Approx. $370
Looking at the numbers above, the Model S is more than competitive for a roadtrip of 300 miles each way. With this distance it would require only one Supercharger stop, and most drivers would probably want time to stretch their legs anyway considering that even at highway speeds the trip would take around four to five hours each way.
So the question is what do these numbers mean for sales? In the case of Ford it’s fairly simple at this point. With a starting price only a fraction of the Model S, there is hardly anyone in the car market trying to decide between a Ford Focus and a Tesla Model S. Therefore, Tesla’s Model S does not represent a threat to Ford, and even the Tesla Gen III sedan would come in at the higher end of Ford’s price range. The Detroit automaker’s bigger concerns have to be competition in the mass market car and truck markets. Trucks and SUVs tend to be used in the construction industry, and the housing recovery could cause higher demand for these vehicles. Ford can also look toward emerging markets where a growing middle class sees the automobile as the symbol of climbing the social ladder. If Ford can continue to build sales in developing markets, these faster growing and highly populous countries could provide a boost to Ford’s total sales over the next several years.
Porsche is more threatened by Tesla than Ford. but it still has many times the capacity of Tesla and a more diverse model line. The Model S is competing with the Panamera but soon the Model X will compete with the Cayenne, a model that significantly outsells the Panamera. Fortunately for Porsche, the automotive market is not a zero-sum game. As seen by the way Ford can target developing markets, this and a recovering economy are set to expand global automotive demand over the next several years. Even if Tesla can take a bite out of Porsche’s market share (and it won’t all come from Porsche; some will come from other luxury automakers as well), there will always be Porsche fans, the gasoline car isn’t dead, and an expanding auto market means a lower future market share does not necessarily equate to a decline in total sales.
Of course the numbers listed above make the Model S all that more attractive. Many of the people who would buy one may never take it on a roadtrip of this length but they want the freedom to know they could do so if they wanted to. Instead, many Model S owners may fly or even take their Porsche for long distance travel. After all, Tesla does not need to conquer all forms of transportation; it only needs to carve out enough to deliver on its goals.
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Alexander MacLennan owns shares of Tesla Motors. This article is not an endorsement to buy or sell any security and does not constitute professional investment advice. Always do your own due diligence before buying or selling any security. The Motley Fool recommends Ford and Tesla Motors . The Motley Fool owns shares of Ford and Tesla Motors . Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!