Tesla Motors (TSLA) Stock: Business Is Booming, But Can Electric Car Make a Difference?


Electric car manufacturer Tesla has had a good few months, with the company posting record earnings and its stock value surging to even higher levels. It is almost set to repay all of its debts to the Department of Energy. Steven Chu et al. will probably be glad to see some of the money they loaned out coming back after a string of flops like Solyndra. But to expand beyond the luxury car market, Tesla will have to find a way to get all Americans to use their product; and to do that, they might look to companies like Google for inspiration.

Tesla, for its part, seems confident about its future. The company is preparing to roll out a network of charging stations on the West Coast. Its battery changing program might even make it possible to reload a car in a shorter amount of time than it takes to fuel it. Nonetheless, Tesla still has a problem.

It is not a problem for marketability. There are enough people who want to drive a Tesla to pay the full $50,000-$100,000 that it takes to buy one. Nonetheless, so far, Tesla has been marketing itself as a luxury product. This may be good enough if all they want to provide a good reliable automobile and turn a profit, but it is not good enough if they want to make a social or environmental difference.

To make a social or environmental difference, they will need to get everyone using their cars (or cars like them) from college students to suburban housewives. This might seem far fetched, but it is well within the realm of the possible. Tesla's business model so far has seemed to be to start out with the 1% as their customer base and then work its market downward until the middle class will start buying their product as well. But, with upgraded technology from their Silicon Valley neighbors at Google, there is no reason why Tesla could not build its market in the opposite direction.

Once cars become driverless, they will become controllable by anyone with the appropriate access codes. It will become possible for car rental services to deliver vehicles right to people's driveway. When this is possible, who needs to own a car? While the driverless car offers a great deal of promise, one might ask why it should interest Telsa more than it should other car companies.

The reason is because, rather than catering to smaller market, it would allow Tesla to cater toward an enormous one. Teslas would no longer be driven by only the people who could afford to own one. Rather, the cars would be driving people who could not even afford to own a 1979 Chevy Nova.

The company could keep the battery exchange program if it wanted, but, once the connection between transportation and car ownership is severed, there will be no need to exchange batteries. It will be possible to exchange the car for another one at every way station.

And, more than anything, the cost of driving itself would be, for the average consumer, considerably less than it is today. The cost of electric energy for cars is, on average, around 30% less than in a conventional gas powered vehicle. Also, electric cars are not as flammable and a self-driving car would, presumably, be less likely to get into an accident; facts which should drastically reduce the overhead cost of rental insurance.

Many people are probably understandably skeptical that such a scheme could work. But, if nothing else, evidence suggests that it already is working. People who cannot afford their own vehicles or have no place to park them are still prepared to rent a Zipcar for the occasional grocery trip. With a self-driving car, this would not only be possible, but it would take away the added annoyance of always having to return the car to the same spot.

Tesla may market to Bill Gates and Mark Zuckerberg for now, but if it plays its cards right, every American could be riding in a Telsa within the next two decades. They just won't be parking it in the garage when they are done.