Electric Car Adoption With A Focus On The Tesla Model S: A...
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Energy and Energy Policy: Electric Car Adoption With A Focus On The Tesla Model S: A Cost Benefit Analysis Prepared By: Andrew Bak Harsh Hiranandani Jameson Moriarty Pranav Gandhi Rohan Manthani Sachin Sharma Varoon Rai Prepared For: Dr. George Tolley Dr. R. Stephen Berry
Transcript of Electric Car Adoption With A Focus On The Tesla Model S: A...
Energy and Energy Policy:
Electric Car Adoption With A Focus On The Tesla Model S: A Cost Benefit Analysis
Prepared By: Andrew Bak Harsh Hiranandani Jameson Moriarty Pranav Gandhi Rohan Manthani Sachin Sharma Varoon Rai
Prepared For: Dr. George Tolley Dr. R. Stephen Berry
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1. Acknowledgements
We would like to thank the following people:
Professor George Tolley, University of Chicago
Professor R. Stephen Berry, University of Chicago
Jing Wu, University of Chicago
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2. Table of Contents 1. Acknowledgements ................................................................................................................ 2
2. Table of Contents .................................................................................................................. 3
3. Introduction ........................................................................................................................... 5 How Does an Electric Car work? .................................................................................................................................... 5
Key Components ................................................................................................................................................................. 5
4. Electronic Vehicles Vs. Gasoline Vehicles ............................................................................ 8 History of Electric Vehicles .............................................................................................................................................. 9 Types of Electric Vehicles ............................................................................................................................................... 10 Hybrid Electrical Vehicle (HEV) ................................................................................................................................... 10 Plug-in Hybrid Electrical Vehicle (PHEV) ................................................................................................................... 10 Battery Electric Vehicle (BEV) ...................................................................................................................................... 11 The Market Surrounding Electric Vehicles .................................................................................................................. 11
Why the Pessimism? ......................................................................................................................................................... 11 Electric Car Market in the US ........................................................................................................................................ 12 Global Electric Vehicles Market ...................................................................................................................................... 16
5. Choosing an Electric Car..................................................................................................... 18 Tesla, The Gold Standard ............................................................................................................................................... 18 Efficiency: Technological Advantage ............................................................................................................................ 19 Convenience: Swappable Production and Super Chargers Network ....................................................................... 21 Safety .................................................................................................................................................................................. 24 Summary ............................................................................................................................................................................ 25
Pros ................................................................................................................................................................................. 25 Cons ................................................................................................................................................................................ 25
6. Choosing a Gasoline Car: .................................................................................................... 26 Comparison for The Tesla Model S .............................................................................................................................. 26 Comparison for The Unreleased Tesla ......................................................................................................................... 28
7. Comparing the Average Electric and Gasoline Cars: A Cost Benefit Analysis of a Single Electric Car Compared to a Single Gasoline Car .................................................................... 30 Summary of Cost Benefit Analysis Methodology ....................................................................................................... 30 Simplifying Assumptions ................................................................................................................................................. 31 Upfront Cost Comparison .............................................................................................................................................. 32 Cost of Fuel ....................................................................................................................................................................... 34 Cost of Time ..................................................................................................................................................................... 41 True Cost of Ownership of Car ..................................................................................................................................... 43 External Cost of Carbon Emissions .............................................................................................................................. 45 Production, Recycling, and Disposal Costs .................................................................................................................. 54 Cost of Energy Transmission ......................................................................................................................................... 55 Summary ............................................................................................................................................................................ 57 Unquantifiable benefits and costs: ................................................................................................................................. 57
Safety ............................................................................................................................................................................... 57 Noise Pollution ................................................................................................................................................................ 59 Energy Sustainability ....................................................................................................................................................... 60 Other Benefits .................................................................................................................................................................. 61
8. Aggregate Benefit of Tesla .................................................................................................. 62
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9. Discussion ........................................................................................................................... 67 Conclusion: ................................................................................................................... Error! Bookmark not defined. Considerations/Limiting Factors for Study ................................................................................................................. 69
10. Group Contributions .......................................................................................................... 72
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3. Introduction
How Does an Electric Car work?
Electric vehicles (EVs) are powered exclusively by electricity and driven by an electric
motor(s) supported by rechargeable battery packs. These vehicles are known for providing a cleaner
and safer alternative to cars with gasoline engines. To better understand the workings of an EV, we
have provided an extensive breakdown of the different facets of the car.
Key Components
The key components of an electric car are the electric motor, the motor’s controller and the
rechargeable battery packs. In relation to how the car is powered, the controller uses the power
stored in the batteries and delivers it to the motor. Meanwhile, as the driver presses down on the
accelerator, a potentiometer that is attached to the pedal delivers signals to the controller to indicate
how much power should be delivered. The controller is usually the largest part of the system and is
clearly visible when the hood of an electric vehicle is opened.
The Motor
With regards to the motor, electric cars can use AC or DC motors. A DC motor usually runs
on a voltage between 96 to 192 volts and most of these DC motors that are used in electric cars are
obtained from forklift industrial vehicles. An AC motor is a three-phase motor that makes use of
240 volts AC and has a 300-volt battery pack attached.
Usually DC motors have a 20,000 to 30,000 watt range and a controller will be in the range
of 40,000 to 60,000 watts. DC motors are usually cheaper and have the option of going into
overdrive in short bursts whereby the motor will permit 100,000 watts and supply up to five times
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the regular horsepower. This enables quick bursts of acceleration in short periods of time, however
also has the ability to generate significant amounts of heat that could potentially damage the motor.1
In comparison to DC motors, AC motors have a braking regenerative quality in which the
motor acts as a generator when the car is braking and subsequently enables this power to be then
transferred to the rechargeable battery pack. The car that is central to our project, the Tesla Model S,
makes use of a three-phase AC induction motor with a copper rotor.2
The System
1 Brain, M.. N.p.. Web. 8 Dec 2013. <http://www.howstuffworks.com/electric-car.htm>. 2 "Model S." Tesla Motors. N.p., n.d. Web. 08 Dec. 2013. 2 "Model S." Tesla Motors. N.p., n.d. Web. 08 Dec. 2013.
Figure 2 –DC controller attached to 96V batteries and the motor. Potentiometer controls the power delivered to the motor by sensing the pressure put on the accelerator pedal.
Source: www.howstuffworks.com
Figure 2 - AC controller is attached to the AC motor and uses power provided by the 300V battery. The controller takes in 240V AC in three-phase. The controller acts as a charger for the battery and provides a DC-DC conversion to recharge a 12V accessory battery.
Source: www.howstuffworks.com
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The Battery
The battery is crucial to the debate regarding vehicle-type because it is the only physical
component in an electric car that sets it back in comparison to a gas vehicle. The lead-acid battery
and the lithium-ion battery are the two main batteries that electrics cars utilize today.
There are many issues with the lead-acid battery, particularly the fact that they are heavy,
slow to charge and have a very short life span of just about three to four years. Furthermore, they
high a high inconvenience factor for electric cars given that they have a very limited capacity of only
about 12-15 kilowatt-hours of electricity. This low capacity indicates that the car requires frequent
recharging and hence does not accommodate an extensive driving range.
The Tesla Model S makes use of a Lithium-Iron Phosphate (LiFePO4) battery because it has
several distinct advantages over the lead-acid battery. The most important differentiating factor is
that fact that Lithium-Iron Phosphate has a far longer lifespan of over 6 six years that triples that of
its lead-acid counterpart. Moreover, Lithium-Iron batteries have a higher power retention rate and
thus charge faster. They are also about 60% lighter than the alternative.3 One drawback of the Li-ion
battery technology is that it is significantly more costly today. However, given that cars such as Tesla
have plans to mass produce their vehicles, we can expect high production rates of these batteries
and thus lower costs in the near future as more and more electric cars switch to this alternative.
3 Mochel, Claus . N.p.. Web. 9 Dec 2013. <http://www.atmel.com/Images/article_li-ion_batteries.pdf>.
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4. Electronic Vehicles Vs. Gasoline Vehicles
Hence to summarize, electric vehicles and gasoline vehicles have different functionality of
components that provides them separate ways of working. Firstly, a gasoline-powered car contains a
fuel tank, which provides fuel to the engine to power the vehicle. The engine powers the
transmission of the vehicle enabling the car to drive at various speeds. On the other hand, an electric
vehicle does not have a fuel tank but previously stated consists of batteries. These batteries supply
the power to the electric motor (DC or AC) that is then transferred to the transmission and
ultimately enabling the car to drive. The next section of the paper entails a quick history of the
progression of electric cars over time followed by a thorough breakdown of the actual types of
different electric vehicles.
Figure 3 – Chart displaying the characteristics of the Lead-acid battery and Lithium-ion batteries. Source: http://es.benning.de/uploads/pics/b11_en.jpg
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History of Electric Vehicles The first electric car was produced by the American Thomas Davenport in 1835. The vehicle
comprised of two electromagnets, a battery and a pivot. When it was invented, as expected it was
extremely expensive to produce and it was only until several decades later that the electric vehicle
came to be a viable mode of transportation.4
At the time of its inception, the advantage of an electric vehicle over a gasoline-powered
vehicle was the idea that there was less vibration and hence less noise associated with them. It was
also more desirable to drive electric vehicles due to the difficulty in changing gears in a conventional
gasoline powered vehicle. Several of these advantages still hold in our world today apart from the
fact that changing gears in a gasoline-powered vehicle has become more simplified. In the past, most
electric vehicles would cost under a $1,000, but most of these vehicles would be designed for the
upper strata of society as they would make use of better materials and have superior finishes. 5
Over time, electric vehicles became less appealing for a variety of different reasons. Firstly,
the infrastructure growth in the United States led to high connectivity of roads, which demanded
cars that were able to travel long distances. The electric vehicles produced at that time were unable
to compete with the gas cars in terms of longer distance travel. 6
Furthermore, the increased accessibility of oil in Texas meant that gasoline prices fell and
made it an affordable fuel for consumers to use for their vehicles. This, in turn, led to an increase in
sales for gasoline-powered vehicles. Another crucial factor that led to the decrease in popularity for
the electric car was the mass production of Henry Ford’s internal combustion engine, which is in
our gasoline-powered vehicles today. This mass-production made these gasoline cars affordable in
4 Idaho National Library, http://avt.inl.gov/pdf/fsev/history.pdf 5 Idaho National Library, http://avt.inl.gov/pdf/fsev/history.pdf 6 Idaho National Library, http://avt.inl.gov/pdf/fsev/history.pdf
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comparison to electric vehicles, which were not produced as efficiently. For example, in 1912, an
electric car was sold for $1,750 whereas as gasoline-powered car sold for only $650.5
Types of Electric Vehicles
There are several different types of electric vehicles, which include the Hybrid Electric
Vehicle (HEV), the Plug-in Electrical Vehicle (PHEV) and the Battery Electric Vehicle (BEV). All
of these consist of different modifications of the basic electric car we outlined above.
Hybrid Electrical Vehicle (HEV) The HEV or Hybrid Electric Vehicle is called a “hybrid” primarily because it is a
combination of a gasoline vehicle and an electric car. A hybrid electric vehicle makes use of the
internal combustion engine and an electric system. The car has a completely different gasoline
engine which supplies power to a generator. This engine supplies a certain threshold of power,
which allows the car to run at a reasonable cruising speed. When the car accelerates, the batteries in
the electric vehicle part of the vehicle supplies added power. Furthermore, there is also regeneration
since, when the car is not decelerating and stationary, the batteries in the system are recharged. In
other words, a hybrid car is basically an electric car with a recharger to allow for an efficient gasoline
vehicle. The Ford Fusion and Toyota Prius are examples of some of the more popular hybrid cars
used today.
Plug-in Hybrid Electrical Vehicle (PHEV)
A PHEV is a plug-in hybrid vehicle in which the batteries are rechargeable and can be
charged from an external power source. It is almost identical to a standard HEV but allows for the
vehicle to have its batteries recharged. In turn, this enables higher fuel efficiency than a standard
HEV. If a PHEV isn’t plugged in, it is simply just a normal hybrid vehicle. The Chevy Volt and
Honda Accord are two examples of PHEV’s.
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Battery Electric Vehicle (BEV) A BEV is a battery electric vehicle in which the car makes use of energy stored in a battery
pack and has no internal combustion engine and fuel tank. This is also known as an all or pure
electric vehicle as electric motors and controllers are used instead of internal combustion engines.
The Tesla that we are using in our study is a battery electric vehicle.
The Market Surrounding Electric Vehicles
Why the Pess imism?
Despite many auto companies splurging billions of dollars on new battery technology and
producing cars that are environmentally friendly, there is still a lot of pessimism surrounding the
electric vehicle. This is primarily because many car companies have faced extremely high costs, a
difficult political climate and technological collapses. Many car manufacturers like General Motors
have temporarily shut down the production of their rechargeable plug-in Chevrolet Volt as the sales
slumped. Furthermore, the Nissan Leaf is also struggling and many of the start-up electric vehicle
and battery manufacturing companies have not been able to sustain themselves in today’s
competitive market landscape.
As the Chevrolet Volt failed during a federal crash test, the manufacturers stated, “they did
not engineer the Volt to be a political punching bag. And that, sadly, is what it’s become”.
Therefore, this leaves many questioning whether government subsidies and consumer rebates are
necessities to keep the electric vehicle market afloat.7
7 Broder, J.. N.p.. Web. 9 Dec 2013. <http://www.nytimes.com/2012/03/25/sunday-review/the-electric-car-unplugged.html?pagewanted=all>.
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However, this pessimistic outlook for the electric vehicle market is certainly improving given
the increases in political support for environmentally friendly vehicles. Issues such as Global
warming, energy security and rising gas prices are shifting the popular sentiment in favor of electric
vehicles which include hybrids, plug-in, extended-range hybrids and full-battery cars. The primary
hindrance in this wave of optimism is that time required for the extensive research and development
needed to ensure innovation, and cost reduction that would spur further consumer acceptance for
the product.
Electr i c Car Market in the US
Within the United States, the market for electric and plug-in electric cars is relatively small
and amounted to less than 20,000 sales last year. In terms of the cars that are contributing to the
sales, we see that the Nissan Leaf and the Tesla Model S are shining in comparison to 2012.
Furthermore, Ford has an electric and hybrid fleet of vehicles which is also performing well due to
the introduction of new models towards the end of 2012.
Figure 4 – Chart displaying possible factors leading to the pessimism of purchasing Electric vehicles.
Source: Electric Power Research Institute
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In order to gauge the performance of Electric Vehicles in the US market, we can first take a
deeper dive and look at the year-to-date sales of cars for various big players in the industry from the
end of September 2013 as compared to the end of September 2012. The chart below illustrates the
year-to-date sales for the individual car manufacturers and lays out the market landscape for electric
vehicles within the United States.
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Figure 5 – Year-to-date sales (September 2013 and September 2012) by Car Manufacturer
Source: EVObsession
Ford Electric and Hybrid Vehicles sales September 2012: 15,708 September 2013: 67,232 Sales up 328.01%
GM Electric and Hybrid Vehicles sales September 2012: 42,445 September 2013: 38,498 Sales down 9.3%
Honda Electric and Hybrid Vehicles sales September 2012: 14,739 September 2013: 13,929 Sales down 5.5%
Nissan Electric (Nissan Leaf) sales September 2012: 5,221 September 2013: 13,929 Sales up 208.44%
Porsche Electric and Hybrid sales September 2012: 1,291 September 2013: 552 Sales down 57.24%
Toyota Electric and Hybrid sales September 2012: 247,878 September 2013: 271,538 Sales up 9.55%
Tesla sales September 2012: 160 September 2013: 13,050 Sales up 8056.25%
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The diagram above illustrates a strong growth for Ford, Nissan and Tesla. General Motors is
struggling as difficult market conditions as well as the limited launch of the Chevrolet Sparks in few
markets has lowered their total sales. Tesla’s growth is incredibly strong, however, in absolute value
in comparison to its competitors its overall volume is low, It must be noted that Tesla doesn’t
release monthly sales reports; therefore, the data above is based solely on quarterly sales. There are
two primary reasons for Tesla’s low sales. Firstly, Tesla is trying to break into the market in Europe
and so had to transfer some of its limited supply of vehicles outside of the United States. Secondly,
given that Tesla is a growing company it is constrained in terms of resources and production
capability and thus is unable to meet the excessive demand the vehicle generates.
If we take a macroscopic view of the electric vehicles market and look at their year-to-date
sales within the United States, we see that 100% electric vehicle car sales are 33,617 as compared to
6,135 in September 2012. Furthermore, both Plug-in hybrid car sales and conventional hybrid
electric car sales are also up a fair amount, averaging an increase of 28% since September 2012. If we
are to combine all the hybrid and electric car sales from January 2013 until September 2013, we get a
figure of 426,580 cars sold within the United States. This is an increase from the number of hybrid
and electric cars sold between January 2012 and September 2012, which only amounted to 327,873
cars within the United States.8
8 Zach. "100% Electric Car Sales Up 447.95% In US In 2013." EV Obsession. N.p., n.d. Web. 09 Dec. 2013.
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Global Elec tr i c Vehic l es Market
Upon investigating the Electric Vehicles market globally, a report carried out by IDTechEx
denotes that the total market for hybrid and pure electric vehicles is 38.8 million vehicles for the year
2013. With regards to pure electric car sales in 2013, IDTechEx reports that this value would be
close to 70,000 vehicles. This report also makes projections for the global electric vehicles market as
pure electric car sales are meant to rise to 2 million by 2023. On the other hand, hybrid vehicles
make up 2 million cars today and are meant to rise up to 7.6 million in 2023. Lastly, on a broader
note, IDTechEx projects the total market for electric vehicles to increase to 116 million vehicles by
2023 from the 38.8 million vehicles in 2013.9
The chart below illustrates the global light duty electric vehicle sales forecasts done
computed annually and carried out by Navigant Research. The chart distinguishes the vehicles by
various drivetrains: BEV (Battery Electric Vehicles), PHEV (Plug-in hybrid vehicles) and HEV
(Hybrid electric vehicles).
9 "Hybrid & Pure Electric Vehicles for Land, Water & Air 2013-2023: Forecasts, Technologies, Players." : IDTechEx. N.p., n.d. Web. 09 Dec. 2013.
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Figure 6: Annual Light Duty Electric Vehicle Sales by Drivetrain, World Markets: 2013-‐2020
Source: Navigant Research
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5. Choosing an Electric Car
Figure 7: The Newest Tesla Model S 2013
Tesla, The Gold Standard
Tesla Motors, Inc (NASDAQ: TSLA) is a quickly growing American company that designs,
manufactures and sells electric cars and electric vehicle components. In 2008, Tesla Motors
introduced the Tesla Roadster, which was the first mass produced highway capable all-electric
vehicle available in the United States. A year later, during the Frankfurt Motor Show, the company
revealed the Tesla Model S, a new and improved all electric-car. By June 2012, the Tesla Model S
was available for the general public to acquire.10 11
The Tesla Model S is the current Gold standard we are using for an electric car. This specific
model is considered the first fully electronic luxury sedan. The car boasts superior technology to its
10 "Tesla’s Stocks Soar." First to Know. N.p., n.d. Web. 09 Dec. 2013. <http://firsttoknow.com/teslas-stocks-soar/>. 11 Abreu, Pauline. n.d. n. page. <http://www.motorauthority.com/news/1044161_the-worlds-only-electric-sports-car-2010-tesla-roadster>.
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competitors, providing peak performance statistics in terms of mileage and emissions of pollution.
Tesla Model S’s Swappable Production coupled with its ever-growing Super Charger Network has
made consumers gain confidence in the efficiency and feasibility of owning an all-electric powered
car. In addition to these factors, this specific model’s chic styling and safety record has allowed the
car to quickly gain popular support, where other manufacturers have failed. With its clear
competitive advantage, Tesla Model S epitomizes the idea of a fully electric car and hence serves as
the unit of analysis for our research.
Efficiency: Technological Advantage
The Tesla Model S has been developed with superior technology that makes it a clear front-
runner among its competitors. The Model S is equipped with either a 60 kWh battery or an 85 kWh
battery. For the purpose of this study, we have chosen the base model containing 60 kWh battery
owing to the fact that it is more affordable and hence more widely accessible. According to Tesla,
the 60 kWh battery is estimated to deliver 230 miles while the United States Environmental
Protection Agency (EPA) estimated a more conservative 208 miles. The 60 kWh battery Model S
has a maximum speed of 120 mph, and can reach 0 to 60 mph within 6 seconds. Therefore, apart
from the price point it has the technology to place it in the luxury market segment. This electricity
efficiency is technology that is second to no other. 1213
Regarding the specific specifications, the base Tesla Model S uses a 362 hp (270 kW) and
325 ft.lb (440 N.M) motor. According to the car manufacturer, the Tesla Model S has a drag
coefficient of Cd=0.24 (an average car has a Cd=0.30 to 0.35). Under the rigorous five-cycle testing
done by the United States EPA, the 60 kWh model S achieved a combined fuel economy equivalent
to that of 95 Miles Per Gallon Equivalent (MPGe), an equivalent 95 MPGe within city driving and 12 "Tesla Model S 60-kWh Version: EPA Range Rated At 208 Miles." Green Car Reports. N.p., n.d. Web. 09 Dec. 2013. 13 "Model S Features | Tesla Motors." Model S Features | Tesla Motors. N.p., n.d. Web. 07 Dec. 2013.
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97 MPGe on highways. The car’s low drag design, coupled with its efficient use of battery allows the
Model S to gain a competitive advantage against its competitors and furthers elucidates why we
chose it as the gold standard for our analysis. 141516
In December 2012, Tesla furthered its energy preservation system by introducing a software
update that featured new energy-saving “sleep” functionality. The update enables the Model S
owners to choose between keeping the displays and vehicle electronics instantly available at all times
or making the displays and electronics go to “sleep” whenever the functionalities were not in use.
Even though this “sleep” state implies a modest increase in time it takes for the touchscreen and
other such panels to fully turn on, using this new software was said to improve the car’s range up to
8 miles per day. This small but significant innovations emphasis the continued innovation by Tesla’s
to further improve its energy efficiency.17
14 "Find and Compare Cars." Find and Compare Cars. N.p., n.d. Web. 08 Dec. 2013. 15 "2012 Tesla Model S." Motor Trend Magazine. N.p., n.d. Web. 09 Dec. 2013. 16 Berman, Bradley. "One Big Step for Tesla, One Giant Leap for E.V.’s." The New York Times. N.p., n.d. Web. 9 Dec. 2013. 17"Tesla Model S Will Gain Range in "sleep Mode" Software Update." AutoblogGreen. N.p., n.d. Web. 09 Dec. 2013.
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Figure 8: Tesla Model S Interior with “Sleep” Function
Convenience: Swappable Production and Super Chargers Network
The Model S, through its Swappable Production and Super Charger Network is able to
provide a convenient way of “refueling” the car, a challenge that other electronic cars still face today.
Tesla Model S cars contain a lithium-ion battery. The battery packs, as of the year 2012, are
manufactured using nickel-cobalt-aluminum cathodes and are located within the cabin floor,
providing a very low center of gravity. This battery is guaranteed by Tesla to last for eight years.
However, apart from the longevity of the battery, the convenience in charging is what enables the
Model S to be viable primary vehicle.18 19
To enable the expansion of its market, Tesla began developing supercharger stations all over
the US to ensure that its Model S would be a viable option for long distance trips. The first
18 "Leaving Baggage On the Dock, a Flagship Departs From California." Wheels Leaving Baggage On the Dock a Flagship Departs From California Comments. N.p., n.d. Web. 09 Dec. 2013. 19 "First Drive: Tesla's Model S Electric Is Spectacular." USA Today. Gannett, n.d. Web. 09 Dec. 2013.
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constructed superchargers are primarily focusing on regions with high traffic volumes. While 37
current charging stations are currently prevalent, Tesla plans to quadruple the number by 2016 and
has a long-term plan to develop 480 of these all over the country. These stations would enable
charging the vehilces to full capacity within 75 minutes and in addition to promote its use, would be
free to all owners of the Tesla Model S. To increase its international footprint, Tesla aims to develop
a similar network in Asia in the not so distant future. Therefore, with the significant capital
expenditure planned by the firm to increase the viability and hence the market share of its electric
car, Tesla has enormous potential as actually being a family’s primary vehicle.
This first step of building super chargers has allowed the Model S to be used more interchangeably
with gasoline-powered cars, which is something all precedent electronic cars have failed to do. 20 21
Recently, the company a announced that all existing stations in the supercharger network,
and all new stations being constructed, would become Tesla exclusive stations, and have facilities to
support under-two-minute battery swaps for the Tesla Model S. The Tesla Model S have been
designed to allow fast battery swapping. The swappable production allows the Tesla Model S change
its batteries from an empty battery to a fully charged battery within two minutes, which is
approximately half the time it takes to refill a gasoline-powered car. Unlike the free recharging, this
service will be priced at about 15 US gallons of gasoline, which, depending on one’s current location,
would cost an estimate range of 60-80 USD. Swappable battery allows an electronic car to refuel in
less time than a gasoline-car. This innovation with this new battery swapping system, has the
potential to help Tesla produce an electric vehicle that is more convenient than gasoline cars.2223
20"At Tesla’s Party, Superchargers and Delivery Dates." Wheels At Teslas Party Superchargers and Delivery Dates Comments. N.p., n.d. Web. 09 Dec. 2013. 21 "Supercharger | Tesla Motors." Supercharger | Tesla Motors. N.p., n.d. Web. 07 Dec. 2013. 22 Rogowsky, Mark. "Tesla 90-Second Battery Swap Tech Coming This Year." Forbes. Forbes Magazine, 21 June 2013. Web. 09 Dec. 2013.
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Figure 9: Existing and Planned Supercharger Stations by 2015
Figure 10: Swappable Battery, Core to Tesla’s Success
23 "Green Car Congress: Tesla Motors Demonstrates Battery Swap in the Model S." Green Car Congress: Tesla Motors Demonstrates Battery Swap in the Model S. N.p., n.d. Web. 09 Dec. 2013.
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Safety
Tesla Model S is considered the safest car ever tested on the streets. On August 19, 2013, the
National Highway Traffic Safety Administration (NHTSA), an independent organization, awarded
Tesla Model S a 5-star rating. This Model S also achieved the prestigious 5-star rating in every single
sub category possible. Although there is no published rating above 5, it was noted that the overall
Vehicle Safety Score (VSS) of 5.4 achieved by the Model S was a new record. The car has now set a
new record as the lowest likelihood of injury to occupants. The electric car has the advantage during
these tests due to not having a large gasoline engine block. Not only does this create a reduce chance
of injury from gasoline ignition but also creates a longer crumple zone to absorb impact. This high
level of safety is one of the primary unquantifiable benefits associated with the Model S.24
Figure 11: US New Car Assessment Program
24 "Press Release." Tesla Model S Achieves Best Safety Rating of Any Car Ever Tested. N.p., n.d. Web. 09 Dec. 2013.
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Summary
Hence, to summarize, below are the pros of cons of using the Model S as our gold standard for our
research.
Pros
- Tesla Model S contains an extremely efficient battery, offering enough fuel for a distance of 230
miles per fully charged battery.
- Has an extremely high estimated miles per gallon of around 94 MPGe.
- Continuous advancements in technology saving energy, such as the “sleep” software.
- 37 Current supercharger stations in existence. Expected to grow exponentially in the next 2 years.
This provides fast charging for free.
- Swappable batteries, although not free, allows a alternative to recharging that is quicker than
refueling a gasoline run car.
- Extremely safe. Tesla Model S has achieved the highest safety ranking of any car to be tested by
NHTSA
Cons
-‐ It is an expensive vehicle and only caters to the luxury car market. (Although it plans to develop
a $30,000 electric car by 2015)
-‐ The infrastructure to start its expansion is still being constructed and is not completely in
existence right now
-‐ It is a relatively new concept and hence still requires widespread public support
-‐ Given that it is a relative new company, its stock price and hence access to capital resources is
extremely volatile and this could have implications on its future research and investment
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6. Choosing a Gasoline Car:
Comparison for The Tesla Model S
In selecting a traditional gasoline car to use in the cost-benefit analysis presented in this
paper, a range of criteria was taken into account. First, we considered the set of cars that would be
considered the closest competitors of the Tesla Model S. Given that Tesla markets itself as a
“premium” or “luxury” car, it is important that we restrict our set of potential comparable cars to
others that are also categorized in this manner. This is highly important insofar as the Tesla Model S
is not being targeted towards buyers of non-premium vehicles, thereby making the comparison to a
non-premium vehicle less than insightful. Additionally, while being a premium car, the Tesla Model
S also has the functionality of being an “everyday” car - not one to be reserved for weekend use
only. This led us to consider the set of: BMW 528i, Mercedes Benz E350, and Audi A6.
At this point, we inspected which of these three cars has had the strongest sales trend in the
United States automotive market. This was considered the second most important factor in
establishing a comparable gasoline car because this would be irrefutable evidence that there are
market forces leading consumers to buy certain luxury vehicles over others. This is to say that we
took this to be evidence of the “average” or “model” luxury gasoline sedan. To this end, the
following chart is very important:
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Figure 12: New Car Sales Through June 2013
In light of this, we have decided to select the Mercedes Benz E350 as our model premium gasoline
vehicle. Additionally, the study from which this data was taken, conducted by Forbes, notes that
between the three aforementioned vehicles, the Tesla Model S is contending most directly with the
E-Class and the 5-Series. 25
Lastly, we also compared this to other standards. Tesla Motors conducted a study and
determined that the average city MPG for a gas powered vehicle comparable to a Tesla Model S is
22, whereas the Mercedes E350 has a city MPG of 21.26 Additionally, according to a study
conducted by U.S. News and World Report, the average price paid for a new premium vehicle in
25 Rogowsky, Mark. "Numbers Don't Lie: Tesla Is Beginning To Put The Hurt On The Competition." Forbes. Forbes Magazine, 24 Aug. 2013. Web. 08 Dec. 2013. 26 "Your Questions Answered | Tesla Motors." Your Questions Answered | Tesla Motors. N.p., n.d. Web. 09 Dec. 2013.
28
March 2013 was $47, 791.27 Comparatively, the Mercedes E350 has a baseline price of $51,900. 28
Therefore, in addition to competing with the Tesla in terms of lifestyle and target audience, the
Mercedes Benz E350 is also in the range of the average fuel economy and pricing for premium
vehicles. Therefore, we believe that comparing the Tesla Model S to the Mercedes Benz E350 is the
most insightful comparison for the purposes of the cost-benefit analysis presented in this paper.
Comparison for The Unreleased Tesla
Tesla Motors has projected that by 2016 or 2017 they will announce a new $30,000 Tesla
vehicle. Given that this vehicle will likely be marketed towards a very different demographic than the
target audience of the Model S, we propose that once the specifications of the new vehicle is
released a cost-benefit analysis should be performed between the new Tesla and a non-premium
gasoline vehicle. For this analysis, we propose that the point of comparison for this future Tesla
should be the Toyota Camry.
27 "Luxury Car Market Hits Six-Year High." Best Car, Truck and SUV Rankings and Reviews from U.S. News. N.p., n.d. Web. 09 Dec. 2013. 28 "E350 2014." Mercedes-Benz USA. N.p., n.d. Web. 09 Dec. 2013.
29
Figure 13: Auto Industry Average Transaction Prices by Year from 2003 to 2013
We used a variety of factors to select the Toyota Camry. First, USA Today conducted a
study that resulted in the finding that the average automobile price in 2013 was $31,252. 29
Additionally, a study conducted by Autoblog.com found that currently, the average vehicle has a city
MPG of 24.9.30 The Toyota Camry has a cost of $23,235 and a city MPG of 25.31 In this light, the
Camry is considerably less expensive than the average price of a vehicle and has a marginally better
fuel economy. Lastly, the Camry has been the best selling automobile in the United States from 2009
to 2013.32 Therefore, we believe that in order for the unreleased Tesla to gain a considerable market
share and have a strong penetration rate, it should be compared with Toyota’s Camry. In this paper,
29 "Report: Average Price of New Car Hits Record in August." USA Today. Gannett, n.d. Web. 08 Dec. 2013. 30 "Average New Car Fuel Economy Hits Record 24.9 Mpg." Autoblog. N.p., n.d. Web. 08 Dec. 2013. 31 "Camry & Camry Hybrid 2014." Toyota Camry 2014. N.p., n.d. Web. 06 Dec. 2013. 32 "Good Car Bad Car" Top 20 Best-Selling Cars In America. N.p., n.d. Web. 09 Dec. 2013.
30
we will provide a speculative cost-benefit analysis between the two vehicles by assuming some
specifications of the unreleased $30,000 Tesla vehicle.
7. Comparing the Average Electric and Gasoline Cars: A Cost Benefit
Analysis of a Single Electric Car Compared to a Single Gasoline Car
Summary of Cost Benefit Analysis Methodology
The best method to analyze the benefits of the electric car over the gasoline car is through a
simple Benefit Cost Analysis. We divided this analysis into quantitative and qualitative components.
In the former section we quantify all of the real world benefits of the electric car; this provides us
with a frame of reference to understand the topic at hand. It is emphasized here that our analysis is
not comprehensive due to the limited scope of the project and limited of data available.
Nonetheless, we have attempted to present as useful a picture of our model comparison as possible.
For reasons discussed previously the Tesla Model S sedan was used as the standard electric car
and the Mercedes Benz E350 was used sedan was used as the standard gasoline car. The analysis was
organized as follows:
• Analysis from the perspective of the consumer
o Procurement of the car
o Usage of the car
o Disposal of the car
• Analysis of the environmental and externality related benefits and costs
o Manufacture of the car
o Usage of the car
31
o Disposal of the car
Simplifying Assumptions
In order to have consistency in calculations and results, we must take into consideration some
simplifying assumptions.
1. We operated in a simple two car model in which the consumer is only given the option of
buying and electric car or buying a gasoline car
2. The consumer is assumed to use the car for the entirety of its lifespan, a period we found to
be eight years based on reliable automotive data
3. We chose the model electric car to be the Tesla Model S sedan
4. We chose the model gasoline car to be the Mercedes Benz E350 sedan
5. We assumed that the annual distance traveled in each car was 15,000 miles
6. The electric car was recharged at home 70% of the time and was recharged at a
supercharging station 30% of the time
7. The gasoline car was refueled four times a month
8. The round trip distance traveled to refuel the gasoline car was 10 miles
9. The time spent refueling the gasoline car was 10 minutes
10. Time was valued at the rate of $50 an hour
11. The cost of electricity was based on the US national average and was assumed to be 11 cents
per kWh
12. Projections of future gasoline, premium gasoline and electricity prices were obtained by
using near term projections in combination with back-calculations based on 2020
projections.
13. We assume that there are no additional costs apart from those mentioned
32
14. We will assume that car prices will not fluctuate over an 8 year period even excluding
inflationary tendencies
15. We make several assumptions regarding carbon emissions
16. We assume that the environmental cost of recycling and disposal of a car is 20% of its gas
consumption and emission cost
17. The cost of recycling 1 tonne of Lithium Ion batteries is $1000 over the next 8 years. This is
predicted to reduce to a number as low as $300 per tonne but we did not want to speculate
on the ever changing nature of battery technology
18. Since the technological advancements are rapid and the effect of technological
improvements within the timeframe we are calculating costs can be hard to predict, we
assume constant savings growth rate across years 1 through 10, beyond which we are unable
to predict or uncertain of.
19. The cost of distribution of gas is 8% of the cost of gas
20. Around 7% of electricity is lost in its transmission and distribution
21. We utilized a discount rate of 7% over an eight year horizon
The first step of the analysis was to compare the cost of the car to the consumer. It was
important for us to compare the costs and benefits the consumer faced since the direct savings to
the consumer is representative of an allocation of capital resources.
Upfront Cost Comparison
The first comparison we performed was on the upfront cost of the vehicle to the consumer.
The steps we believe will lead to mass electric car adoption are outlined below:
33
1. Begin with an ultra high cost ultra low volume electric car. This is done to fund the Research &
Development of future electric vehicles and has taken the form of the first electric sports car
– the Tesla Roadster.
2. Medium cost medium volume electric car. This is done to introduce the mass automobile market
to the radical possibility of using an electric car as a primary vehicle. This vehicle triggers the
framework for the introduction of future electric cars. The Tesla Model S an electric luxury
sedan is one of these vehicles.
3. The final step is to release a low cost high volume electric car with the intent of capturing a large
market share and transitioning the world into electric vehicles.
The medium cost medium volume electric car is the Tesla Model S. This is the most recently
launched Tesla electric car and is well representative of the medium cost electric car. The Tesla
Model S falls into the luxury car market and as outlined earlier is most closely comparable to the
Mercedes E350.
Vehicle Cost Upfront Cost
Tax and Other
Credits
On the Road
Cost
Tesla Model S $73,570.00 $(7,500.00) $66,070.00
Mercedes E350 $51,900.00 0 $51,900.00
Tesla Cost Savings $(14,170.00)
In an effort to promote sustainable, fuel-efficient vehicles, the Federal Government gives
certain cars a green tax credit of $7,500. The Tesla Model S falls under the green category and is
34
therefore included in this list. Essentially this means that the effective cost of buying a Tesla Model S
is its Retail Cost less the amount of the tax credit. Indeed, some states do offer additional benefits
and incentives to owning an electric vehicle such as state tax credits, free parking, and more, leading
to a net benefit of over $15,000 but we have retained the conservative estimate of $7,500.
The upfront, on the road cost of owning an electric car was found to be $14,170 more than
that of owning a gasoline car. The price differential that the consumer is presented is not
representative of the real difference between the two vehicles. Although this may curb demand for
electric vehicles in the short run, our cost benefit analysis will shed light on the actual difference.
Cost of Fuel
The next most obvious cost comparison to the consumer was the cost of fuel. The gasoline
car, the Mercedes E350, ran on premium gasoline. The electric car was powered by pure electricity.
First, we calculated the annual cost of refueling the gasoline car. We began with the
assumption that the car would travel 15,000 miles a year. The car was assumed to require a refueling
at a gas station once a week. This equated to 48 times per year. The round trips to the gas station
were assumed to be 10 miles. This added an additional 480 miles per year to the mileage of the
gasoline car.
So the dollar value cost of gas for the gasoline car was found to be $2737.15 for the year
2013 based on the following formula:
(15480 miles/year) / (22 miles/gallon) * ($3.89/gallon)
35
Energy Cost Gas Cost/yr
Tesla Model S 0
Mercedes E350 $2,737.15
Total Cost Savings/yr $2,737.15
It was then necessary to calculate the prices of fuel for the next seven years. For the years
2013 and 2014 we used accepted month-to-month near term estimates of oil prices to calculate
prices for premium gasoline.
Prices (dollars per gallon)
Retail Refiner
Price
Month Gasoline Cost of Oil
Difference
Jan 2012 3.38 2.49
0.89
Feb 2012 3.58 2.55
1.03
Mar 2012 3.85 2.64
1.21
Apr 2012 3.90 2.61
1.29
May 2012 3.73 2.46
1.27
Jun 2012 3.54 2.19
1.35
Jul 2012 3.44 2.21
1.23
Aug 2012 3.72 2.33
1.40
Sep 2012 3.85 2.43
1.42
Oct 2012 3.75 2.38
1.36
Nov 2012 3.45 2.30
1.15
Dec 2012 3.31 2.26
1.05
Jan 2013 3.32 2.40
0.92
36
Feb 2013 3.67 2.42
1.25
Mar 2013 3.71 2.41
1.30 AVG 2013 3.49
Apr 2013 3.57 2.37
1.20
May 2013 3.61 2.39
1.23
Jun 2013 3.63 2.35
1.28
Jul 2013 3.59 2.47
1.12
Aug 2013 3.57 2.53
1.05
Sep 2013 3.53 2.57
0.97
Oct 2013 3.34 2.48
0.87
Nov 2013 3.22 2.37
0.85
Dec 2013 3.17 2.36
0.81
Jan 2014 3.24 2.37
0.87
Feb 2014 3.31 2.39
0.92
Mar 2014 3.44 2.39
1.05
Apr 2014 3.50 2.39
1.10 AVG 2014 3.39
May 2014 3.56 2.37
1.19
Jun 2014 3.55 2.37
1.18
Jul 2014 3.51 2.39
1.12
Aug 2014 3.47 2.39
1.07
Sep 2014 3.41 2.37
1.04
Oct 2014 3.30 2.35
0.96
Nov 2014 3.24 2.32
0.92
Dec 2014 3.16 2.32 0.83
Source: Short-Term Energy Outlook, November 2013
Crude oil price is composite refiner acquisition cost. Retail prices include state and federal taxes.
For the following years we used a very conservative averaged estimate of the cost of gas in
2020 and back - calculated prices for the intermediate years using a fixed rate of price growth.
37
While we were able to estimate the price of regular gasoline, we needed the price of
premium gasoline. For this, we used a historical price differential comparison and forward calculated
it for an eight-year time frame. The difference in price between regular and premium gasoline was
found to begin at with a difference of $0.40 and increase at a rate of 12% annually.
Forecast
0.00
1.00
2.00
3.00
4.00
5.00
Jan 2009 Jan 2010 Jan 2011 Jan 2012 Jan 2013 Jan 2014
U.S. Gasoline and Crude Oil Prices dollars per gallon Price difference
Source: Short-Term Energy Outlook, November 2013
Crude oil price is composite refiner acquisition cost. Retail prices include state and federal taxes.
38
With all of this data we were able to arrive a price projections for premium gas from 2013 to
2020. Due to the nature of global oil prices, there is a very large possibility that these prices will not
come to fruition. In general, the forces of a limited supply and increasing global demand indicate an
upward trend but the discovery of new oil reserves and changes in technology could have a marked
impact on oil prices.
Energy Price Projections Regular Gas Premium Gas
2013 $3.49 $3.89
2014 $3.39 $3.89
2015 $4.52 $5.12
2016 $5.65 $6.35
2017 $6.78 $7.58
2018 $7.91 $8.81
2019 $9.04 $10.04
2020 $10.17 $11.27
Using this data we are able to calculate the annual cost of fuel in the Mercedes E350 gasoline
car over its lifespan, 8 years, and arrive at a net present value for the cost of fuel.
On the other hand, for the all-electric Tesla Model S car we calculated the annual cost of
electricity as follows:
(15,000 miles/year) * (70% miles charged at home) * (0.3 kWh/mile) * ($0.11 /kWh)
In this scenario, only 70% of the 15,000 miles the car travels are charged at home, costing
the consumer. The remaining 30% of the annual mileage is powered by charging at a supercharging
station for free. The 0.3 kWh/mile is a calculated number for electricity economy of the Tesla Model
39
S, which factors in the on road energy consumption per mile traveled in real world conditions. It is
the electric equivalent to the miles per gallon metric for gasoline car. The cost of electricity for the
average American household was found to be eleven cents per kWh. The reason we did not add
round-trip mileage for visits to the supercharging stations was due to the fact the people are seen to
be using the supercharging stations only during long haul trips; the supercharging stations are on the
route and so do not add additional, unnecessary mileage to the transit.
We obtained the cost to fuel a Tesla Model S electric car to be $346.50 for the year 2013.
Energy Cost Gas Cost/yr
Electricity
cost/yr
Total Energy
Cost
Tesla Model S 0 $346.50 $346.50
Mercedes E350 $2,737.15 0 $2,737.15
Total Cost Savings/yr $2,390.65
In order to calculate the cost over the next seven years, we had to project the cost of
electricity. Similar to predicting gasoline prices, this was also a very uncertain forecast. We used
historical data to arrive at a household electricity price growth rate of 10 percent per annum.
40
Energy Price Projections Regular Gas Premium Gas Electricity
2013 $3.49 $3.89 $0.11
2014 $3.39 $3.89 $0.12
2015 $4.52 $5.12 $0.13
2016 $5.65 $6.35 $0.15
2017 $6.78 $7.58 $0.16
2018 $7.91 $8.81 $0.18
2019 $9.04 $10.04 $0.19
2020 $10.17 $11.27 $0.21
Using the annual cost of energy for the electric car over an eight-year period and the annual
cost of gasoline for the gasoline car over the same period we were able to arrive at a cost savings of
$25,386.84 in present terms.
41
Year Savings
2013 $2,390.65
2014 $2,356.00
2015 $3,183.35
2016 $4,006.90
2017 $4,826.25
2018 $5,640.99
2019 $6,450.66
2020 $7,254.75
NPV of Savings $25,386.84
Cost of Time
The time one spends refueling can be treated as time lost. Using the principle of the
opportunity cost of time, we calculated the cost of the time wasted during the process of refueling
the car. The cost of time was assumed to be $50 per hour. Keeping with the assumption that a
gasoline car is refueled once a week, and it takes 10 minutes to fill gas, we arrive at a number for the
cost of time per year for the gasoline car.
(4 occurences/month) * (12 months/year) * (10 minutes/occurence) / (60 minutes/hour) * $50
/hour)
Similarly for the electric car, we assume that recharging at a supercharger takes 20 minutes
and that the car owner would charge at the supercharging station 30% of the time we would at a gas
station, or once a month.
42
(1 occurences/month) * (12 months/year) * (20 minutes/occurence) / (60 minutes/hour) *
$50 /hour)
We obtain that the benefit of an electric car is $200 each year for eight years.
Opp. Cost - Refuel Cost of time
Tesla Model S $200.00
Mercedes E350 $400.00
Total Cost Savings/yr $200.00
Therefore, the discounted present value of this benefit was found to be $1,194.
Year Savings
2013 $200.00
2014 $200.00
2015 $200.00
2016 $200.00
2017 $200.00
2018 $200.00
2019 $200.00
2020 $200.00
NPV of Savings $1,194.26
43
True Cost of Ownership of Car
Of course, there are other factors that come into play when calculating the true cost of
ownership of a car. Depreciation, maintenance and repair costs and insurance also affect the
consumer’s price burden. We used an established cost of ownership calculator33 to calculate the cost
of ownership for the Mercedes Benz E350 over a five-year period. We then projected this out over
the eight-year lifespan of the car. Similarly, we also calculated the true cost of ownership for the
Tesla Model S.
33 "2013 Toyota Camry." 5 Year Cost of Ownership. N.p., n.d. Web. 09 Dec. 2013.
44
45
As indicated in the table above, the total present value benefit in ownership of the Tesla
Model S over the Mercedes E350 was found to be $5,206.83. This is largely due to the guarantee
program that Tesla operates which prevents any serious depreciation of the car.
Taking all of these factors into account, the total benefit for the consumer, or car owner is
the sum of the individual benefits of the upfront costs, the gas and energy costs, the time costs, and
the costs of ownership. This aggregate benefit to the consumer was found to be $17,617.93 for each
Tesla Model S sold in place of a Mercedes Benz E350.
Now we will discuss the environmental and externality related benefits of the car. Although it
may seem counter intuitive, instead of following the organizational structure listed above:
• Manufacture of the car
• Usage of the car
• Disposal of the car
We will first calculate the environmental cost of usage of the car and then calculate the
combined cost of manufacture and disposal.
External Cost of Carbon Emissions
Below, we present a table summarizing unit costs of carbon estimated by two important
pieces of literature and estimates of the EU Price of Carbon Permits. We will use these estimates or
average in our subsequent quantitative analysis. In particular, we will use these estimates to calculate
the externality saving of carbon emission abatement through efficiency gain. For purposes of
consistency, all estimates were converted to 2013 dollars using the US Consumer Price Index
established by the US Department of Labor.
For the purpose of this paper, we focused on Yale Economist William Nordhaus’ 2011
paper on the Social Cost of Carbon (SCC). The study, titled “Estimates of the Social Cost of
46
Carbon: Background and Results from the RICE-2011 Model” outline a neo-classical model which
explains climate change in the context of economic growth theory. Nordhaus’s 2011 paper builds
upon an earlier paper published in 2008, a DICE, model, a more general form of the RICE model
that he developed. We also look at a review paper by Robert P. Murphy, an economist for the
Institute for Energy Research, titled “Rolling the DICE: William Nordhaus’ Dubious Case for a
Carbon Tax”. Murphy’s review criticizes Nordhaus’s model, claiming that the model exaggerates
some of the external costs. Throughout the review, Murphy offers an adjusted social cost figure,
which we also use.34
SUMMARY OF LITERATURE
Nordhaus’s 2011 paper builds upon his previous 2008 paper but gives regional external costs and
outlines several discounting situations which produce different estimates for the Social Cost of
Carbon. The 2011 RICE model contains major elements of the DICE model developed in his 2008
paper. Briefly, the model views green house gas, but uses carbon as a proxy, as a factor affecting
climate change. The model then views the change in global temperatures in the context of a Ramsey
model, a neoclassical growth model that relates capital and consumptions. The DICE, and therefore
RICE, models, in turn view the concentrations of GHG as “negative natural capital”. It in turn
views the reduction of GHG as an investment that reduces the quantity of negative capital. It is in
this context that the model argues that emission abatement reduces short- term consumption
through taxation but increases long-term consumption through higher quality of life. The model
hinges on several assumptions pertaining to demographic and socioeconomic changes. It also hinges
34 Nordhaus, William. Estimates Of The Social Cost Of Carbon: Background And Results From the Rice-2011 Model. Publication. New Haven, CT: Cowls Foundation, Oct 2011. Print. RICE stands for Regional Dynamic Integrated Model of Climate and the Economy DICE Stands for Dynamic Integrated Model of Climate and the Economy
47
on several key assumptions pertaining to the effects of carbon dioxide, namely, it tries to adjust the
price of carbon by marginal effects of carbon dioxide build up.
Murphy’s paper, on the other hand, is a review of Nordhaus’s 2008 paper. Murphy does not debunk
Nordhaus’s model but makes adjustments to give a more realistic value. Namely, he gives deflated
values because of the existing uncertainties associated with the Nordhaus report. The main
uncertainties he deals with is the possibility of overstated future GHG atmospheric concentrations,
overstated temperature increase from given GHG concentration, and overstated economic damages
from temperature increase. Together, he argues that Nordhaus arrives at overstated costs. Through
the paper, he offers his adjusted figures which we consider for our sensitivity analysis.35
COST ESTIMATES FROM THE LITERATURE
Below is a table summarizing the social costs cited in the literature. Note that these prices have been
adjusted into 2013 dollars.
35 Murphy, Robert P. "Rolling the DICE: William NordhausÂ’s Dubious Case for a Carbon Tax: The Independent Review: The Independent Institute." The Independent Review Fall 14.2 (2009): 197-217. The Independent Institute. Web. 10 Mar. 2013
48
Source/Year
2015
(Dollars/tonne)
2025
(Dollars/tonne) Cost
NORDHAUS
(2011) 48.92 73.69 127.97472
MURPHY
(2009) 11.15 14.17 29.1684
EU Price of a
Carbon
Permit 6.28 10.5 16.42848
EU PRICE OF CARBON PERMIT
Another important metric which people use as a proxy for Carbon pricing are the already existing
prices of EU carbon permits. The EU has had a cap-and-trade program in which the governing
authority issues permits that are then publicly traded in the market. Since an equivalent does not
exist in the same scale in the US, academics, economists, and policy makers have looked at EU
prices as a general indication of how the market values the external costs associated with GHG
emissions. There are several limitations to the market pricing of carbon. First of all, it is difficult for
people to correctly estimate the external costs associated with carbon emissions. Moreover, the price
could be severely depressed by lobbying groups which could understate the costs of carbon. For the
purpose of this paper, we will use the EU spot price and the estimated future price of carbon as a
benchmark to the literature on carbon pricing.
Although highly uncertain, we assumed a 5% CAGR rate for the EU spot price of carbon. The 2015
figure was extrapolated from a spot reading of EUR 3.92. We then converted it to USD, adjusted it
49
to year 2015, and extrapolated the price. The all-time high price of carbon permits is higher at
around $20-25 per ton of carbon. In 2013 the prices have been depressed due to high amounts of
lobbying and economic conditions.36
UNCERTAINTY OF PRICING CARBON
The issue of putting a market price on Carbon is indeed controversial. For years, economists have
attempted time and time again to be able to quantify the external costs associated with green house
gas production (GHG), particularly CO2 or its carbon equivalent. Many economists, apart from the
aforementioned ones, have tried to quantify the external costs through complex and robust
modeling methods.
First of all, it is extremely difficult to scale the problem social costs associated with carbon
production. Defining the costs and parameters alone are problematic. Nordhaus does a fairly good
job in trying to estimate regional social costs in realizing that carbon emitted in different parts of the
world affect different people but at the same time contributes equally to global climate change.
Moreover, it is hard to quantify the cost of global warming because the costs are realized over a long
period and are extremely difficult to isolate from exogenous factors. The effects of carbon on global
warming are themselves an issue of debate. It is even harder to isolate health costs associated with
higher global temperatures or with high concentrations of green house gases in the atmosphere.
Another issue of contention is the issue of discounting. Several academics have associated carbon
emission and global warming with low discounting values which in turn suggest extremely high
prices for carbon. Nordhaus, again, does a good job in dealing with this uncertainty and in fact gives
36 Carbon Emission Price." Investing.com. N.p., n.d. Web. 12 Mar. 2013. <http://www.investing.com/commodities/carbon-emissions>.
50
estimates for a situation with low discounting. The price with low discounting is estimated to be
around $158.45 per ton of carbon in 2015 and $234.16 per ton of carbon in 2025. This can be
explained by the fact that there is higher weight on future damages caused. For the purpose of the
paper, we stuck to the adjusted figures with higher discounting for consistency.
It is important to note, however, that external costs have been proven to exist with the production
of greenhouse gases. For this project, is therefore important to attempt to quantify the benefits
received as externality savings. In our analysis, we calculated the total carbon emissions for the
gasoline car based on its reported emission rating of 0.1744 kg/mile and the total distance traveled
annually. Once we arrived at the total quantity of CO2 emitted, we multiplied this number by the
cost of carbon based on an average of the Nordhaus, EU, and Murphy yearly costs. We then
discounted over a period of eight years and arrived at an externality cost of $404.65.
51
52
In order to calculate the carbon emissions of the electric Tesla Model S, we would have to
examine the sources of electricity. First, 30% of the energy consumed by the Model S originated
from supercharging stations – these stations are completely solar and energy neutral. In fact, they
put in more power into the grid than they consume. However, for the purposes of this analysis we
will take the conservative stance that they have no carbon emissions.
70% of energy consumed is powered by household charging (overnight charging). Based on
data from the Energy Information Administration, we are able to breakdown the sources of
electricity generation for the average American household.
53
Average Household
Electricity Source Percentage
Coal 37%
Natural Gas 30%
Nuclear 19%
Hydropower 7%
Other Renewable 5%
Biomass 1%
Geothermal 0%
Solar 0%
Wind 3%
Petroleum 1%
Other Gases
<1
From these two data sources, we were able to calculate the amount of carbon emitted per
kWh of electricity consumed. Coal, natural gas, and petroleum were sources that generated carbon
and the others did not. We found that 0.532524568 kg of carbon was emitted for each kWh
consumed by the average household.
With this information, along with the annual home energy consumption by the Model S
(3150 kWh), we were able to calculate the annual carbon emissions due to the Model S.
Annual CO2 Emissions 1677.452389
54
Armed with this knowledge, we are able to calculate the total cost of the emissions of the Tesla
Model S based on our three estimates for the price of carbon.
We find the present value of the cost of carbon emissions based on the average of the EU,
Nordhaus, and Murphy costs to be $251.43. This gives us a net benefit for the Model S of $153.22
in terms of the carbon externality.
Production, Recycling, and Disposal Costs
It is very difficult to estimate the production, recycling and disposal costs of a car to the
environment. A rule of thumb, however, is to take twenty percent of the sum of the costs of gas
over the lifetime of the car and the cost of its carbon emissions.37
So, in our analysis, we have:
General production,
recycling and disposal Environmental cost
Mercedes E350 $628.36
Tesla Model S $50.29
37 "Battery Recycling as a Business." - Battery University. N.p., n.d. Web. 09 Dec. 2013.
55
In addition to this, we also have the batteries of each of the cars. Once again, it is difficult to
calculate the cost of recycling lithium ion batteries. The easiest method to calculate this is based on
weight. Although estimates range from $1000 to $300 per tonne of battery to be recycled, we chose
the more conservative estimate of $1000.
Given the weight of the battery in the Mercedes E350, 0.020638436 tonnes, we found the
cost of recycling its battery. Similarly, given the weight of the battery in the Tesla Model S, a rather
sizable 0.545, we were able to calculate its cost of recycling.
General production,
recycling and disposal Environmental cost
Battery
Disposal
Cost
Mercedes E350 $628.36 $20.64
Tesla Model S $50.29 $545.00
Model S Benefits $53.71
The net benefit of the Model S electric sedan in terms of Manufacture, Materials, recycling
and disposal was found to be $53.71.
Cost of Energy Transmission
While electricity transmission channels are set up and only require power generation and a
voltage differential, fuel transmission costs money – transportation costs. Without considering the
carbon emissions simply from the transportation of gasoline, the cost of transportation of gas is 8%
of the price of gasoline. Thus, we are able to calculate a cost for the transportation of gasoline that
can be attributed to the Mercedes E350 gasoline car. Knowing the total amount of gasoline used by
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the E350 and the cost of transportation of this gasoline we calculate the transmission cost of
gasoline to be $218.97 in 2013. Based on our future gas price predictions, we are able to find a NPV
for total transmission cost of gasoline. On the other hand, electricity transmission suffers its own
losses, with around 7% of all electricity generated being lost during transmission and distribution.
Based on the total energy used by the Tesla per year and the cost of electricity we are able to
attribute the cost of transmission of electricity to the Tesla Model S to be $24.26 per year.
Energy Transmission Tesla Model S Costs Mercedes E350
2013 $24.26 $218.97
2014 $26.68 $218.97
2015 $29.35 $288.21
2016 $32.28 $357.45
2017 $35.51 $426.69
2018 $39.06 $495.92
2019 $42.97 $565.16
2020 $47.27 $634.40
NPV $200.18 $2,259.72
The net benefit of electric cars was found to be $2,259.72 in terms of energy transmission.
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Summary
Benefit Cost Analysis NPV Cost
Consumer $17,617.93
Emissions $153.22
Production, Recycling, Distribution $53.71
Energy Transmission Savings $2,059.54
Net Benefit $19,884.41
Although the upfront cost of the electric car is currently higher than its gasoline counterpart, there is
still a large benefit to the mass adoption of the electric car in the long run. Each electric car used
instead of a gasoline car results in a quantifiable benefit of $19,884. With the advent of newer
generations of electric cars such as the Generation 3 Tesla, this benefit will further increase. We have
included a comparison of the Gen3 Tesla to the fuel efficient, cheap, mass market Toyota Camry in
the appendix since we are working on speculative data on an unannounced vehicle. For now, we will
discuss the unquantifiable benefits of the Model S over the Mercedes E350 in the next section.
Unquantifiable benefits and costs:
Safety
Cars are responsible for over 30,000 deaths each year in the United States alone38. In an era
where firms such as Tesla are witnessing the potential to profitably produce electric cars, safety
becomes a key point of debate for consumers considering the switch to electric cars.
38 "Traffic Safety Facts: 2010 Data." US Department of Transportation, n.d. Web. 9 Dec. 2013.
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The first aspect to consider when debating the safety of electric vehicles and gasoline-
powered vehicles is the source of energy fuelling the respective engines. Electric vehicles, by virtue
of not carrying a tank full of substance that can catch fire and explode, are safer than cars with
internal combustion engines in this aspect. With the attention the Chevrolet Volt received in 2011
over battery pack fires and the Tesla Model S received over similar fires in 2013, the Li-On batteries
being packed under the hood of Tesla cars has been a major point of concerns for potential
consumers. Similar fires, however, were responsible for several million laptops being recalled in
2006. Experience with Li-ion batteries has led to several technological improvements, such as the
use of new nanomaterials that are less prone to shorting out like the graphite used as an electrolyte
in traditional Li-ion batteries39. In addition to new materials, precautionary devices like fuses and
circuit breakers that disconnect the batteries in the event of any damage to the battery pack are
enhancing the safety of electric vehicles in a manner similar to the impact of airbags and seatbelts on
cars40.
Another aspect of electric vehicles that makes them safer is their weight. The typical Li-on
battery used in electric vehicles has a theoretical specific energy of 120 Wh/kg, significantly lower
than the estimated gasoline specific energy of 13,000 Wh/kg41. While this means that it would be
highly inefficient to install a battery pack with the same amount of energy as a conventional ICE, the
significantly higher efficiency of the electric propulsion means that lesser energy is needed to propel
an EV. Despite the efficiency of the electric propulsion, the typical gasoline-fuelled vehicle can be
over 50% lighter than the average electric vehicle. The additional weight, while resulting in longer
braking distances and lower ranges, has been shown to have a negative association with injuries – i.e.
39 Bullis, Kevin. "The Lithium-Ion Car." MIT Technology Review. N.p., n.d. Web. 09 Dec. 2013. 40 Lampton, Christopher. “Are Electric Cars Safe in Accidents?” 2011. 09 Dec 2013 41 Kwo, Young. “Electric Vehicle Battery Technologies” 09 Dec. 2013.
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a 2000lb vehicle will, on average, cause about 50% more injuries to its occupants than a 3000lb
vehicle42.
The National Highway Traffic Safety Administration (NHTSA) has issued common-sense
guidelines for consumers with electric vehicles, similar to the guidelines of not smoking while
refueling a gasoline-powered vehicle43, while the International Organization for Standardization has
set forth standards for electrically propelled road vehicles. The aforementioned technological
improvements, regulations and guidelines will play a pivotal role in the coming decades in enhancing
the safety of electric vehicles and making them significantly more safe than gasoline powered
vehicles.
Noise Pollution
Roadway noise contributes more to environmental noise exposure than any other source in
the United States44. Roadway noise is dominated by cars, except at night along large trunk roads.
This phenomenon exists in regions outside the United States too, with 20% of the European
Union’s population exposed to unhealthy noise levels. Noise pollution has severe health
consequences, which include but are not limited to hearing impairment, hypertension, heart disease,
changes in the immune system and birth defects45.
In traditional vehicles, sound energy roughly doubles for each additional ten miles per hour
in vehicle speed. This sound energy is in addition to noise from braking and acceleration. Despite
technological enhancements in almost every other aspect of motor vehicle engineering, vehicle fleet
noise has remain largely unchanged over the last three decades. Several approaches have been
proposed over the course of time to mitigate the impact of roadway noise globally, including lower 42 “Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards” Impa Committee on the Effectiveness and National Research Council, 2002. 09 Dec. 2013 43 "The Truth About Electric Car Safety." Mother Earth News. N.p., n.d. Web. 09 Dec. 2013. 44 Senate Public Works Committee, “Noise Pollution and Abatement Act of 1972” 09 Dec. 2013 45 Paschier-Vermeer, Passchier WF, “Noise Exposure and public health” 2000. 09 Dec. 2013
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noise cars and trucks, lower noise tires and lower noise road surfaces. The aforementioned
approaches have had limited to no impact on reducing roadway noise, despite regulations being
enacted periodically46.
In sharp contrast to vehicles powered by internal combustion engines, electric vehicles do
not emit any noise, and can play a pivotal role in reducing roadway noise. While the advantage that
electric vehicles possess in reducing noise is very apparent, there exists a caveat – there are several
groups of people that believe electric vehicles are too quiet. Essentially, by not emitting any noise,
electric vehicles run the risk of becoming a potential hazard for cyclists, pedestrians and blind
people. The risks posed by the lack of noise emitted by these electric vehicles is, however, something
that can be easily mitigated and is expected to be resolved through regulation within the coming
year.
Energy Sustainability
One of the largest benefits of electric vehicles is the sustainability that results from using
electricity as a source of fuel. While the United States is now able to produce over half of the oil it
consumes, the cost of electricity as a source of power is far lesser.
Electricity generated to power vehicles is increasingly being generated using natural gas,
owing to the explosion of shale gas in the country and the consequent low cost of natural gas47. One
of the most telling examples of natural gas being viewed as a cheaper and lower-cost alternative to
coal/gasoline is the plans of long-distance shipping companies to switch their trucks to natural gas
instead of gasoline within the next five years48. Natural gas is only expected to grow in availability
46 http://www.transportenvironment.org/sites/default/files/publications/presentations/2005/2005-01_clean_car_seminar/2005-01_p6_reducing_noise_pollution_from_cars_brouwer.pdf 47 "U.S. Energy Information Administration - EIA - Independent Statistics and Analysis."Coal Regains Some Electric Generation Market Share from Natural Gas. N.p., n.d. Web. 09 Dec. 2013. 48 Ramsey, Mike. "Truckers Tap Into Gas Boom." The Wall Street Journal, n.d. Web. 9 Dec. 2013.
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and as a source of power generation, especially if Chinese shale gas reserves can be extracted
profitably in the coming decades. As a consequence, the use of vehicles powered by electricity
generated from natural gas will help promote energy independence for the United States.
Other Benefits
Electric vehicles are being received with acclaim in a manner similar to when motorized
vehicles replaced horse-drawn carriages at the turn of the twentieth century. The prestige associated
with an electric car is driven by people’s desires to be seen as environmentally conscious, a trait that
is viewed as desirable by certain sections of the population, and the positioning of electric vehicles as
‘premium’ vehicles in the market. Additionally, technology advancements driven primarily by the
advent of electric vehicles have resulted in significant benefits in other fields too. An example of this
would be the development of new nanomaterials as a consequence of the need for safer electric
vehicle batteries and their application to other products such as laptop and cellphone batteries.
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8. Aggregate Benefit of Tesla
After calculating the benefit of using the Tesla Model S on a per car basis, we extended our
results further to aggregate the impact of the benefits of using this electric car for the US automobile
sector as a whole. The conduct this analysis we created a model that would help us extrapolate the
benefits of a single electric car to the US as a whole. The first step entailed sizing the automobile
sector in its entirety. Below are the assumptions and calculations we conducted to size the market:
Using Year to Date information of unit sales of cars and light-duty trucks from the Wall
Street Journal Automobile Database, we estimated the total number of vehicles that would be sold
in 2013 and subsequently using the average transaction price per vehicle (USA Today, 2013), we
valued the automobile sector at just under $500 Billion in 2013.
Given that the lowest base Tesla prices itself at is $66,070 for the Model S, it falls into the
luxury car segment of the automobile industry. To determine the average transaction price for this
segment, we used the Mercedes’ E-Class price of $51,900. To reiterate, this car was chosen based on
two primary characteristics. The first is that along with the BMW 5 Series and Audi A6, the E-Class
is one of the closest competitors to Tesla. The second reason is that amongst these competitors, it
had the greatest sales volume and subsequently the highest market share. Based on this information,
Automobile Industry Metrics Cars (YTD) 7,148,098 Light-Duty Trucks (YTD) 7,091,799 Total Number of Vehicles Sold (YTD) 14,239,897 Total Number of Vehicles Sold 2013* 15,534,433 Average Transaction Price per Vehicle $31,252 Car Market Valuation $485,482,102,957 *Projections are based on YTD Estimates
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we sized the luxury car segment at approximately $59 Billion or 12.26% of the entire industry. Using
the IHS LV Production Data Set, we were also able to project that over the next 5 years, this
segment was expected to grow at about 6.52%. The calculations were conducted along the lines as
those for the previous automobile valuation and are displayed below.
Finally, to size the market for Tesla, we first used information from their 10-K and 10-Q
reports to determine the year the number of units sold from January until September. To estimate
the cars sold from the final quarter of the year, we utilized the average number of vehicles sold from
the first three quarters of the year. In total, we estimated that Tesla would sell 20876 cars in 2013.
For the price, we used the cost of the base model S which is $66,070 and estimated that Tesla’s total
2013 market value is roughly $1.37 Billion Dollars. This equates to 0.28% of the total automobile
industry or 2.32% of the luxury car segment. As illustrated in our previous cost benefit analysis, the
per vehicle benefit of a Tesla is $19884.41 and given that Tesla plans to double its production next
year, we estimated a 100% growth in car sales. The table summarizing the information is shown
below
Luxury Car Market MetricsLuxury Cars Sold (YTD) 1,049,258Total Number Sold 2013* 1,144,645Average Transaction Price per Vehicle $51,900Luxury Car Market Valuation $59,407,080,218Luxury Car Market Share 12.24%% Growth in Segment 6.52%*Projections are based on YTD Estimates
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Tesla Metrics Car Sales Breakdown January - March 5000 March - June 5150 July - September 5500 October - December* 5217 Total Car Sales 20867 Price of Tesla Model S $66,070 Tesla Market Valuation $1,378,682,690 Tesla Auto industry Market Share 0.28% Tesla Luxury Market Share 2.32% Benefit of Using Tesla ** $19,884 % Growth in Car Sales 100% *Average of previous quarter used for estimate **Based on previous calculation
Based on the previous assumptions and calculations and using 2013 as our base year, we
projected the increase in valuation of the luxury car market using the 6.52% segment growth rate up
until 2017. Since the Fed has set a target inflation rate of 2%, we increased the average transaction
price for the E Class by the same amount every year. Based on the above information, we were also
able to extrapolate the number of vehicles actually sold. After completing this calculation, we then
followed the same procedure to calculate the number of Tesla’s sold. The calculations showing the
results are displayed hereafter:
LUXURY CAR CALCULATIONS 2013 2014 2015 2016 2017 Luxury Car Market Valuation $59,407,080,218 $64,546,030,285 $70,129,520,089 $76,196,004,095 $82,787,263,233 Avg Transaction Price per vehicle $51,900 $52,938 $53,997 $55,077 $56,178 1,144,645 1,219,276 1,298,773 1,383,453 1,473,654
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Number of Luxury Vehicles Sold TESLA CAR CALCULATIONS Tesla Car Market Valuation $1,378,682,690 $2,812,512,688 $5,737,525,883 $11,704,552,801 $23,877,287,713 Price of Tesla Model S $66,070 $67,391 $68,739 $70,114 $71,516 Number of Teslas Sold 20,867 41,734 83,468 166,936 333,872
Hence, as evident by the results based on our projections the number of Tesla’s sold will
increase from 20,867 in 2013 to 333,872 by 2017. To better understand the alterations this would
have on the broader luxury car market segment, we calculated the number of gas cars sold and then
determined the increase in percentage of the total luxury car market share Tesla would have if it
increased production by 100% every year, while the luxury car segment itself grew at a stable 6.52%.
AGGREGATE COMPARISON 2013 2014 2015 2016 2017 Number of Gas Vehicles Sold 1,123,778 1,177,542 1,215,305 1,216,517 1,139,782 Tesla/Luxury Car Unit Ratio 1.86% 3.54% 6.87% 13.72% 29.29%
Hence, the above table illustrates the increase in the production of Tesla and thus an increase in its
overall share in the luxury car segment.
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Based on all of the above calculations, we then estimated the aggregate cost benefit the
purchasing a Tesla Model S would have for the entire US market. To calculate this value, we
multiplied the number of individual Tesla’s sold by the benefit per vehicle of using the Model S.
Implicit in this calculation is the assumption that for a consumer buying a car in the luxury car
market segment, he has two alternatives: a gas luxury car or an electric luxury car (i.e. Tesla). Hence,
if the consumer chooses to buy the Tesla, he recognizes the $19884.41 benefit of purchasing the
electric car rather than buying a gas car. Thus, using this methodology, we projected the increase in
aggregate benefit of using Tesla based on the vehicle’s projected growth until 2017.
COST/BENEFIT ANALYSIS 2013 2014 2015 2016 2017
Aggregate Benefit of Buying Tesla $414,927,983 $829,855,967 $1,659,711,934 $3,319,423,868 $6,638,847,736
Net Present Value $10,414,534,795
Hence, the calculation illustrates the potential scale of benefit that electric cars, and
specifically Tesla has for the US. From a benefit of $414Billion in 2013 If Tesla continuously
double’s it production it has a total benefit of $6.6 Billion by 2017. Using a discount rate of 7% we
also calculated the total NPV of switching to Telsa for the entire US at $10.4 Billion.
Therefore, as evident in the model, the benefits of using an electric car do not exist only on a
per vehicle basis for also for the entire US a whole. Moreover, if Tesla increases its production and
is able to drive significant consumer demand, it has the potential to take a significant portion of the
luxury car market segment as well as have a net benefit for the economy as a whole.
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9. Discussion
Conclusion:
In conclusion, the Tesla Model S is a more cost efficient and environmentally friendly
alternative to its average gasoline counterpart. Based on our findings from the cost benefit analysis,
each additional Tesla Model S vehicle inserted into the US market will result in an average net
present value savings of $19,884 to the consumer, as compared to its primary gasoline counterpart,
the Mercedes E350. The CBA took into account factors such as the purchase price and annual
expenditures and upkeep of the Tesla Model S to that of the E350. Additionally, the CBA analyzed
the various energy inputs that could be used to generate the electricity to power the Model S and
compared their respective operating costs and more importantly, their subsequent environmental
costs. We broke down the electricity sources for an average American household and calculated the
quantity of carbon emitted per kWh. From this we were able to arrive at a portion of the
environmental cost for regular electricity consumption and used it in our Model S energy
consumption. Through our analysis, we can see that most of the overall savings that are reaped from
transitioning to the Tesla Model S is primarily achieved through environmental benefits and the
reduction of harmful emissions. On a per car basis savings to the consumer, however, tax credits
and lack of gas fuel expenditure provide the bulk of upfront savings. Thus we can see that through
the Tesla’s monetary incentive of lower costs to the consumer, one day we can hopefully see a
beneficial impact to the environment.
Our analysis was conducted by assigning a monetary value to the majority of the costs and
benefits being analyzed in order to achieve the most robust and thorough evaluation of the Model
S’s impact on the US market as a whole. In doing so, we were able to analyze the various effects that
each cost and benefit had on the consumer and environment, on a granular level. In the end, we
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simply sought to reveal what the exact monetary gain or loss would be after injecting a Tesla Model
S into the US market, taking into account any and all costs and benefits.
Using the results from this per-car CBA, we then conducted an analysis to understand these
effects on an aggregate level. In order to do this, we created a model that forecasts future growth for
the Model S and assumed an eventual 100% market share of the electric luxury automobile market.
This yielded a projection wherein Tesla will hold 2.32% of the overall luxury automobile market.
Additionally, we project that the Model S’s yearly sales will exceed 333,872 units by 2017, grossing
over 23 billion dollars in total revenue.
We then took a deeper glance at some of the more unquantifiable costs and benefits of the
electric car. While these factors were fairly few in number, we still addressed the electric car’s current
lack of safety precautions for bikers due to the fact that it emits no sound, its rather inconvenient
hassle of having to plan ahead on which charging stations to stop at for longer trips, and the chore
of having to remind oneself to plug one’s car in when one is at home. Similarly we acknowledged
Tesla’s intricate use of cutting edge technology for media features in the car, its incredibly quiet
cabin while driving, and the fact that it has the best consumer safety rating ever given. While these
sorts of costs do have an effect on the average consumer’s purchasing decision, they do little to
reveal the global impact that the Model S will have on the automobile market and on the
environment in comparison to the Mercedes E350.
Ultimately, the Tesla Model S far surpasses its gasoline counterpart in almost all aspects,
both quantifiable and unquantifiable. Boasting a sleek luxury design, a sport-enthusiast performance
and environmentally friendly impact of zero emissions, the Model S just makes sense as the next
step in automotive innovation. Along the way there will surely be many road bumps, from
detrimental changes in policy to lack of proper infrastructure and the eventual presence of
threatening competition, Tesla will meet adversity as it always has. Only time will tell just how
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quickly Tesla will grab hold of the automotive market; but one thing is for certain, the future is
Tesla.
Considerations/Limiting Factors for Study
While we sought to perform a fully comprehensive analysis of the impact of the Tesla Model
S on the automobile market we naturally ran into some limiting factors that affected the credibility
of our study. We controlled for as many of these limiting factors as possible, however, there remain
factors that we can’t fully account for and must simply address for future consideration.
One such factor arises from the current lack of appropriate energy grid infrastructure.
Specifically there is worry that the current electricity grid system is not designed to withstand the
future influx and dependency on green energy. Electricity derived from wind and solar power is too
volatile in its supply and intensity. Because mass surplus one day and desperate shortage the next day
can occur when electricity is derived from wind power or sunlight, consistency is almost impossible
to attain with the usage of green energy. This essentially renders the electricity grid useless because
the entire point of the electricity grid is to provide sustainable and consistent electricity power to
everyone in the nation and if stability cannot be ensured then complete meltdowns can occur in the
form of widespread blackouts and complete power failures. The implications of this potential fault
on our study are quite large. Assuming that the market share of Tesla does grow to what we have
estimated, we would be putting extreme amounts of stress on these power grids across the nation
and would heavily depend on their consistency to supply power in order for Tesla to remain a viable
automotive option. While there is evidence of precautions being taken against this threat of
instability of the grid via natural gas backup systems, the threat still remains as an important
consideration to keep in mind moving forward.
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Additionally, we made several assumptions in our Benefit Cost Analysis comparing the single
electric car to the single gasoline car. These assumptions though grounded on solid data may not be
representative of the real world scenario. For instance, the price projections of premium petrol as
well as average electricity costs are difficult to verify. Also, the annual mileage traveled for each car
and the type of usage of car were simplified to the greatest extent.
Another thing that we must keep in mind for our study is the fact that Tesla is likely to
release a cheaper, more affordable electric car in the future. There is news that the new electric car
will be made much more available to the general public sitting at a MSRP of around $30,000. We can
expect many of the same efficiency features to be present, minus the sports-like performance and
extreme luxury that the Model S brings to the table. Such a vehicle being introduced to the market
would greatly change the way that our growth projections are set, not to mention the difference in a
CBA that the new electric car would have against a similarly priced gasoline automobile. More than
likely, the introduction of such a car would actually increase Tesla’s market share even more than the
Model S will, due to its easier to swallow price point and mass production scale. This would,
however, likely result in fewer sales of the Model S as most people are seeking to make the transition
to electric cars to maximize their savings which will more than likely be achieved more optimally
with the purchase of the cheaper Tesla vehicle. It is important to keep this in mind when we
question the excessive price of the Model S and realize that that price reflects a premium luxury
vehicle, and must be compared to a like vehicle such as the Mercedes E350 for fairness sake.
One of the main issues within our growth projection model is the assumption that Tesla will
have 100% market share of electric premium vehicles. For the purpose of our growth projections we
used the 100% figure so that we could estimate more precisely the exact growth rate of Tesla Model
S cars sold in the next 5 years and how that figure would compare to the growth and sales of
gasoline-powered luxury automobiles. Due to lack of existing data, we were not able to come up
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with a more accurate market share growth rate for Tesla in the luxury electric vehicle market. The
Model S is simply too new, so we chose to set the Model S as the global standard for the luxury
electric vehicle and then project our future sales and market share values based off of that
assumption. Obviously, this is not the case in reality, however, for the purpose of this study it lets us
focus on more of a comparison between gasoline and electric vehicle sales as opposed to getting
caught up in the micro details of how many of those new luxury electric vehicles are likely to be
Tesla Model S’s. The implication of this assumption is that our growth projections and sales figures
for the Model S in the next 5 years are likely to be marginally overstated.
Similar to what was hinted at above, Tesla is not guaranteed to have a monopoly on the
luxury electric car market. In fact, competition is already beginning to heat up between Tesla and
some major automobile industry players such as BMW. BMW has recently announced the release of
the i8 and i3 hybrid and fully electric car, respectively. The i8 is a luxury sports hybrid and is
reportedly sold out for its first year’s release while the i3 electric car is already sold on over 10,000
orders. This not only poses a threat to Tesla’s market share in the electric vehicle sector but more
importantly, may pose a major threat to Tesla’s basic ability to even stay in business. Due to the
massive scaling opportunities of a large company like BMW, they can easily cut costs way below
what Tesla can keep up with. This may drive prices too low for Tesla to match and could eventually
force them completely out of the market across all their electric car models and ultimately out of
business entirely. Tesla must continue to differentiate themselves from the competition with new
features and upgraded infrastructure across the US if they hope to stay relevant. As mentioned
earlier if the abundance of supercharge stations can continue to increase and the battery swapping
stations can be more widely implemented, then Tesla will have a massive advantage and head start to
winning over the share of this initial electric car market surge.
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Although some of these limiting factors hold this study back from its full potential, as long
as they are acknowledged as close considerations moving forward, I believe time will allow some of
them to be resolved in the future. Ultimately, however, the limitations are outweighed by the
relevance and usefulness of the study in trying to determine the impact of the Tesla Model S on the
automotive industry and environment, making the paper a step in the right direction moving
forward.
10. Group Contributions Andrew Bak – Double majoring in Economics & East Asian Studies. Andrew contributed to the section entitled “Choosing an Electric Car”. Pranav Gandhi – Majoring in Economics. Pranav contributed to the section entitled “Introduction”. Harsh Hiranandani – Double majoring in Economics & Political Science. Harsh contributed to the section entitled “Aggregate Benefit of Tesla”. Rohan Manthani – Double majoring in Economics & Biology. Rohan contributed to the section entitled “Comparing the Average Electric and Gasoline Cars: A Cost Benefit Analysis of a Single Electric Car Compared to a Single Gasoline Car”. Jameson Moriarty – Double majoring in Economics & Natural Science. Jameson contributed to the sections entitled “Aggregate Befit of Tesla” and “Discussion”. Varoon Rai – Double majoring in Economics & Political Science. Varoon contributed to the section entitled “Comparing the Average Electric and Gasoline Cars: A Cost Benefit Analysis of a Single Electric Car Compared to a Single Gasoline Car”. Sachin Sharma – Double majoring in Economics & Philosophy. Sachin contributed to the sections entitled “Choosing a Gasoline Car” and “Aggregate Benefit of Tesla”.
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Appendices
Comparing the Toyota Camry to the Generation 3 Tesla: A Speculative comparison Tesla Gen 3 Toyota Camry Upfront Cost $30,000.00 $23,235.00 Taxes and Credits $7,500.00 $1,277.00 Annual Miles Travelled 15000 15,720 Fuel Economy of Gas Car (mpg) NA 29 Price of Electricity ($/kWh) 0.11 NA Electricity Economy (Wh/mile) 380 NA Percentage Miles powered by gas station/supercharging station 30% 100% Annual Home Electricity Usage (kWh) 3990 -‐ Monthly Gas/Supercharger Stops 1 6 Time Per Refuel Stop (minutes) 20 10 Value of Time(/hr) $50.00 $50.00 Lifespan of Car (years) 8 8 CO2 Emissions (kg/mile) 0 0.3728 Discount Rate 7% Energy Price Projections Regular Gas Premium Gas Electricity
2013 $3.49 $3.89 $0.11 2014 $3.39 $3.89 $0.12 2015 $4.52 $5.12 $0.13 2016 $5.65 $6.35 $0.15 2017 $6.78 $7.58 $0.16 2018 $7.91 $8.81 $0.18 2019 $9.04 $10.04 $0.19 2020 $10.17 $11.27 $0.21
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Benefit Cost Analysis NPV Cost Consumer $3,889.12 Emmissions $559.92 Production, Recycling, Distribution $(34.01) Energy Transmission Savings $1,302.23 Net Benefit $5,717.26 Discount Rate Benefit
3% $9,825.11 5% $7,632.28 7% $5,717.26 9% $4,038.73
11% $2,562.28
Vehicle Cost Upfront Cost Tax and Other Credits On the Road Cost
Tesla Gen3 $30,000.00 $7,500.00 $37,500.00 Toyota Camry $23,235.00 $1,277.00 $24,512.00
Tesla Cost Savings $(12,988.00) Energy Cost Gas Cost/yr Electricity cost/yr Total Energy Cost Tesla Gen3 0 $438.90 $438.90 Toyota Camry $1,891.82 0 $1,891.82
Total Cost Savings/yr $1,452.92 Year Savings
2013 $1,452.92 2014 $1,354.82 2015 $1,919.08 2016 $2,478.51 2017 $3,032.63 2018 $3,580.91 2019 $4,122.77 2020 $4,657.55
NPV of Savings $15,825.14
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Opp. Cost -‐ Refuel Cost of time Tesla Gen3 $200.00 Toyota Camry $600.00 Total Cost Savings/yr $400.00 Year Savings
2013 $400.00 2014 $400.00 2015 $400.00 2016 $400.00 2017 $400.00 2018 $400.00 2019 $400.00 2020 $400.00
NPV of Savings $2,388.52
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Total Present Value Benefit to Consumer $3,889.12
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CO2 Emmissions: Based on Fuel Source Lbs of CO2 per Million Btu
Heat Rate (Btu per kWh)
Lbs CO2 per kWh
Coal
Bituminous 205.3 10,128 2.08 Sub-‐bituminous 212.7 10,128 2.15 Lignite 215.4 10,128 2.18 Natural gas 117.08 10,414 1.22 Distillate Oil (No. 2) 161.386 10,414 1.68 Residual Oil (No. 6) 173.906 10,414 1.81
Average Household Electricity Source Percentage Coal 37% Natural Gas 30% Nuclear 19% Hydropower 7% Other Renewable 5% Biomass 1% Geothermal 0% Solar 0% Wind 3% Petroleum 1% Other Gases <1
Average Household CO2 emmissions per kWh electricity consumed(kgs) 0.532524568
Tesla Gen3 Annual CO2 Emmissions 2124.773026
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Benefit of Tesla Model S $559.92
General production, recyling and disposal Environmental cost
Battery Disposal Cost
Toyota Camry $554.04 $20.64 Tesla Gen3 $63.69 $545.00
Tesla Gen3 Benefits $(34.01) Cost to Recycle 1 tonne of battery $1,000.00
Weight of Toyota Camry Battery (tonnes) 0.020638436 Weight of Tesla Gen3 Battery 0.545
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Energy Transmission Tesla Model S Costs Toyota Camry
2013 $30.72 $151.35 2014 $33.80 $147.01 2015 $37.17 $196.01 2016 $40.89 $245.02 2017 $44.98 $294.02 2018 $49.48 $343.02 2019 $54.43 $392.02 2020 $59.87 $441.03
NPV $253.56 $1,555.79
Tesla Gen3 Benefits $1,302.23
Electricity Lost in Transmission 7% Cost of Distribution of Gas 8%
![[Group1] Vocabulary](https://static.fdocuments.net/doc/165x107/55cf9187550346f57b8e23d6/group1-vocabulary.jpg)
