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Oil Glut = Cheap Gas. What does this mean for Tesla Motors?

 

I live near Springfield, Missouri. Today I saw gas prices as low as $1.16 a gallon. That is cheap gas. Possibly too cheap for growth in the alternative fueled industry. Tesla Motors stock has been getting hammered this year…recently hitting a low of $141.05. The 52 week high was $286.65. What is driving this volatility? Is it $30 a barrel oil? Is it Tesla’s inability to post a profit (or at least a small loss)? Or is it just the characteristics of a complicated automotive startup looking to change the automotive industry?

Earnings Report February 10th, 2016

Tesla reported a loss… Read the CNBC article. The electric automaker continues to ramp up efforts to deliver its new Model 3 in 2017. In the meantime, Tesla looks to deliver up to 90,000 Model S and Model X vehicles this year. If it can, in the midst of an oil glut, it would be impressive. In addition to vehicles, remember that Tesla has another iron in the fire…the battery production facility – “Gigafactory”.

Electric Vehicle Demand

So what will drive consumers to electric vehicles if gasoline stays between $1.00 to $1.50. According to the Tesla Fourth Quarter & Full Year 2015 Update, Tesla Motors plans to increase Model X (their new SUV) production to 1,000 a week in the 2nd Quarter of this year. Does cheap gas impact sales of Tesla Models? According to the report, Tesla stated “our customers tell us they value a Tesla vehicle more for its superior performance, technology, safety, lower environmental impact and style than for its ability to save money on fuel.” Tesla is probably right. If someone is going to spend over $70,000 on a Model S or X, gas prices probably don’t matter. The key question is…will that philosophy continue to work when they sell the less expensive Model 3 in 2017?