Tesla Motors: A Model for
Innovation in the Automotive Space
Ian Muir
Introduction
American roads are home to some 250 million passenger vehicles,1 nearly twice as many as any
other nation, including car-hungry China.2 This dependence on automobile transport has long
propelled the U.S. to the top of the oil consumption tables, with the country still consuming
nearly 19 million barrels of petroleum per day, over 20 percent of worldwide demand.3,4
America’s oil addiction also results in some 1.5 billion tons of greenhouse gas emissions yearly
from on-road vehicles alone.5 But in recent years, there has been a change in the air. Growing oil
demand from the BRICS and other emerging economies has pushed up the prices of liquid fuels
and offered a market opportunity for alternative powertrains for transportation, not least electric
vehicles (EVs).
This paper addresses the launch path that Tesla Motors has followed in its efforts to be a leader
in the burgeoning EV arena. Relatedly, it highlights the direct and indirect policy support that
Tesla has received and continues to receive, as well as the challenges the company faces in the
wider effort to develop an EV that is both affordable and appealing to mainstream consumers.
More generally, it makes the case that government support has played an integral role in
supporting Tesla’s rise from niche startup to $25 billion game-changer that is rapidly
transforming the public’s perception of EVs.
Tesla Motors: from Inception to Today
Tesla Motors was founded by the Silicon Valley engineers Martin Eberhard and Marc
Tarpenning, both of whom were driven by a vision: simply, that “electric vehicles could be
awesome.”6 More fundamentally, the pair were disenchanted with the internal combustion
engine (ICE) and increasingly concerned about climate change.7 They named their nascent
company Tesla Motors, a tribute to the legendary innovator, Nikola Tesla, and their vehicles’
electric motors descend directly from his original 1882 design.8 The company was incorporated
in 2003 and, just one year later, the IT entrepreneur, Elon Musk, contributed $6.3 million of
some $7.5 million in Series A funding, handing him the role of Chairman of the Board. And
through subsequent funding events prior to its IPO, Tesla was able to raise approximately $200
million to fund its ambitious early-stage commercialization plans.9 But while Musk had a similar
short-term vision to the company founders, his long-term goal has always been far more
revolutionary: to “expedite the move from a mine-and-burn hydrocarbon economy towards a
solar electric economy.”10
Tesla’s first step towards this grander vision was to develop a high-performance premium
electric sports car, a potentially disruptive proof of concept that could, just as importantly, help
fund key research and development for future models. This was an obvious requirement given
the firm’s goal to eventually produce more affordably-priced, mass-market models.
The Tesla Roadster: Early Challenges; Lucky Breaks; and Helping Hands
In 2008, Tesla launched its first car, the two-door Roadster. The vehicle, with its $109,000 price
tag, fell in the “ultra luxury” segment (i.e., for vehicles costing more than $100,000), which
make up just a fraction of one percent of total cars sold in the U.S. annually.11 With the Roadster,
Tesla was targeting a niche market with a low-volume, high-price proof of both its technical and
commercial concept that specifically targeted early adopters. And while it believed that
customers would pay a premium for a groundbreaking product it knew that a major element
would be assuring investors that it could meet its manufacturing targets, stay financially solvent,
and identify cost-reduction pathways going forward.
While the Roadster concept itself was a genuine success when measured by critic reviews and
consumer demand, Tesla faced regular manufacturing and cash flow challenges most clearly
evidenced by two full recalls and a rapidly dwindling cash stockpile.12 Luxury vehicle giant,
Daimler AG took a 10 percent stake by investing $50 million in Tesla in May 2009, but by the
end of the year, SEC reports indicated that the company had burned through some $37 million in
cash in just three months. Further, after injecting millions of his personal wealth into Tesla,
Musk himself admitted to being broke.13
However, the timing of Tesla’s financial problems ended up being rather fortunate. The company
was in the process of hashing out its plans for a cheaper sedan that would have much broader
appeal and thus help drive sales and reduce per unit R&D and production costs. And this played
into the January 2010 granting of a $465 million loan from the U.S. Department of Energy’s
Advanced Technology Vehicles Manufacturing (ATVM) Loan Program intended to support “the
commercial-scale deployment of advanced technologies that help keep American auto
manufacturers competitive in the growing global market for advanced vehicles.”14 The
government loan ensured the company remained temporarily solvent as it moved across the
veritable valley of death. And then in May of the same year, Toyota announced plans to invest
$50 million in Tesla15 and to sell it a production plant in the San Francisco area rumored to be
worth nearly $1 billion for just $42 million.16 The federal loan, cut-price factory acquisition, and
new partnerships began to raise investor hopes that profits were in sight.
An IPO and the Model S
In June of 2010, Tesla filed an initial public offering that raised $226 million, with shares
surging 41 percent on the first day of trading. Its IPO, the first for a U.S. automaker since Ford
went public in 1956, provided Tesla with much needed cash to move forward with late-stage
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R&D and to lay the production groundwork for its new mid-priced, mid-volume sedan, the
Model S.17
Fast forward to 2014, and Tesla is on track to deliver 35,000 Model S units to customers by
year’s end,18 up from 22,300 in 201319 and just 2,650 in 2012.20 Its stock price has risen tenfold
since its IPO, handing it a market capitalization in excess of $25 billion.21 This is due in large
part to the Model S being rated Motor Trend’s Car of the Year for 2013, and it achieving the best
safety rating of any car ever tested, as well as a range of 208 to 265 miles depending on the
battery pack chosen.22 But at a base price of roughly $70,000, the car is by no means targeted at
the masses, or even a majority of the middle class. Similarly, Tesla’s Model X crossover vehicle
which is expected to see first deliveries in the spring of 2015 will be “priced comparable to a
similarly equipped Model S.” 23,24 But while this upcoming vehicle is unlikely to be any more
financially accessible, its introduction is nevertheless expected to help Tesla scale up production
and drive down costs.
Tesla EV Production – Past & Future
Year
Production
2,650
2012
22,300
2013
35,000*
2014
100,00*
2016
500,000*
2020
*Company and Analyst Forecasts25,26
The Next Generation
In the longer-run, if electric vehicles are to seize any meaningful market share and thus play a
significant role in the decarbonization of the energy system, their upfront costs must come down
and their practicality must increase. Musk and his Tesla team have shown that they are well
aware of these two needs, and have begun addressing them in increasingly potent ways.
Following their success in demonstrating “that EVs can indeed be superior to conventional ICE
competitors” at the high end, they have now announced plans to launch a high-volume “Gen III”
vehicle with a 200-mile range and a $35,000 price tag before subsidies.27 And it is this vehicle
that would be the true global game-changer, not so much for its ability to boost Tesla sales so
much as its power to shake-up the traditional auto industry. If Tesla can drive down battery pack
costs and build a $35,000 compact luxury sport sedan with a compelling range, it implies that the
holy grail is on the horizon: cheap mass-market EVs that can compete directly with ICE-powered
models without subsidies.
But sales of Tesla’s Gen III vehicle would still remain limited without investments and
innovation in battery charging systems. One-car families that rely on a single vehicle for
commuting and long road trips would demand an extensive charging network before making the
leap to an electric vehicle. In anticipation of this, Tesla has begun rolling out a “supercharger”
network that allows owners to rapidly charge their existing Model S vehicles along key transit
corridors around the US. And it has targeted a significant expansion of this supercharger network
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in the short term.28 Tack on battery swapping capabilities, something that the company is
dabbling with,29 and good reasons for not switching to an EV may become increasingly scarce.
Tesla’s success going forward rests on its ability to scale up, but moreover, to significantly
reduce battery costs—currently the largest single contributor to overall production costs. If it can
achieve this while proving to consumers that EVs are not just practical but better than ICEpowered cars, it will merit its $25 billion valuation and then some. That said, it’s unlikely to get
there without another helping hand or two from the government, either directly or indirectly.
Technology Overview
It can be stimulating to remind ourselves that the first practical electric motor was invented
nearly 180 years ago,30 making its way into a wide range of products in subsequent decades,
including passenger vehicles. And EV prototypes were abundant throughout the second half of
the 19th century.31 The concept of the electric vehicle is quite simply not new. And despite the
fact that ICEs have dominated the auto world over the last hundred years, the advantages of EVs
remain clear. They are roughly three times more efficient than their gasoline-powered peers, emit
no tailpipe pollutants, offer greater torque (and thus rapid acceleration), and require considerably
less maintenance.32
However, from the beginning, batteries—the predominant sources of power for EVs—have
proved a significant technological and economic hurdle for manufacturers. Furthermore, on the
logistical front, the difficulty in providing public charging stations for EVs that have yet to be
produced or sold has become a veritable chicken or egg challenge. Given that these remain the
two most significant technological and economic barriers to greater EV rollout, they merit the
focus of this section.
Battery Technology
From the very beginning, Tesla has focused on making relatively cheap, high-quality battery
packs that offer those who purchase their EVs “compelling” range. Their R&D team was quick
to discard battery chemistries such as nickel metal hydride (NiMH)—which are typically used in
hybrid vehicles—and instead to embrace lithium-ion cells, which were becoming increasingly
sophisticated thanks to demand pull from the mobile telephony and computing industries. The
technology promised superior energy density and therefore less weight per mile of EV range,
greatly benefiting acceleration and handling.33 But it wasn’t Tesla’s choice of battery chemistry
that proved so innovative. Rather, it was the decision to assemble battery packs composed of
thousands of “18650” cells, with an 18 mm by 65 mm form factor. 18650 cells are a veritable
commodity with over a billion of them produced each year.34 By repurposing these existing and
increasingly cost-effective cells, the Tesla team was eschewing the large-format lithium-ion cells
that its competitors were embracing. And in doing so, they hoped to reduce the cost of the
overall battery design process, as well as final components.
The Roadster Battery
In 2008, Tesla rolled out its first EV offering, a two-door Roadster starting at $109,000. It
sported a 56 kWh lithium-ion battery pack made up of 18650 cells, handing the Roadster a range
of 245 miles with a reported pack cost of $32,000, or roughly $570/kWh.35 The battery system
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was heralded as pioneering given that, in 2008, large-format lithium-ion packs cost an average of
$1,200 per kWh.36 As late as January 2011, an analysis of four major research groups indicated a
general view that average lithium-ion battery costs would only fall below $600/kWh in 2014 or
2015 (see Fig. 1),37 corroborating the innovative nature of the 2008 Roadster’s pack.
Nevertheless, with the battery alone costing as much as a BMW 3-series, considerable progress
was clearly still required if Tesla were to ever achieve its grand vision.
Fig. 1: Estimates of EV battery costs in $/kWh38
Powering the Model S
Jump forward to the present day, where Tesla is producing nearly 700 of its Model S sedans per
week (i.e. an annualized rate of roughly 35,000 units).39 The new car offers battery packs with
capacities of either 60 or 85 kWh, which Tesla claims are manufactured at a cost of just $200$300 per kWh.40 The Model S battery pack maintains a reliance on the same 18650 cells but they
have been worked into an entirely new vehicle platform. A flat, slim-line battery pack is
positioned below the vehicle floor with the electric motor and power electronics in a compact
module between the rear wheels.41 The new system lowers the chassis’ center of gravity but,
more importantly, means future Tesla models will be able to employ the very same platform,
further leveraging economies of scale. Moreover, it will allow the battery pack to be swapped out
for a fully-charged one at specialized stations in as little as 90 seconds.42
Strategic Relationships and Supply Concerns
While Tesla sources 18650 cells for the Model S from a number of different manufacturers, it
has forged a strategic partnership with Panasonic, and the Japanese conglomerate has become its
main cell supplier. This builds off of a November 2010 announcement that Panasonic had
invested $30 million in Tesla and that the two companies would be collaborating on next
generation battery cells designed specifically for EVs.43 By June 2013, Panasonic claimed to
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have supplied Tesla with more than 100 million cells for the Model S alone.44 And this does not
include the cells Tesla uses to builds battery packs for Toyota and Daimler’s Smart Fortwo EV.45
However, by late 2013, investment analysts were becoming increasingly concerned by this
tremendous demand for 18650 cells. Notably, if, by 2016, it is producing the 100,000 vehicles
targeted,46 Tesla’s demand would amount to close to half of the total 18650 cell market today.47
So to ensure adequate battery inputs going forward, the company is planning to take matters into
its own hands.
Gen III and the Gigafactory
Going forward, Tesla has two major battery concerns: the availability of supplies and achieving a
considerable reduction in pack costs. Since the production of the company’s first Roadsters in
the second half of 2008, Tesla’s battery costs have dropped by approximately half. And
comments by Tesla CTO, JB Straubel, suggest that Model S battery costs have dropped below
$250/kWh on average. For its Gen III model—a more compact luxury sedan—to achieve a 200mile range, it would likely require a 50 kWh battery pack,1 which today would cost Tesla
roughly $13,750. So if such a model is to eventually achieve a $35,000 sales price, battery costs
would need to fall even further.
In February, Tesla announced it would tackle its battery concerns head on by building a massive
factory to produce cells and assemble packs, breaking ground on it as early as summertime.48
The so-called “gigafactory” is slated to cost $4-5 billion, with Tesla investing $2 billion and yetto-be-named partners the remainder.49 Under the projected timeline, production would
commence in 2017 with full ramp-up by 2020. At full capacity, pack output would reach 50
gigawatt-hours (GWh) per annum, enough for well over 500,000 vehicles. Cell output would be
limited to 35 GWh, suggesting that Tesla expects to continue purchasing cells from existing
suppliers or to build an additional cell factory. Notably, total global cell supply in 2013
amounted to less than 35 GWh, illustrating the tremendous scale of the investment.50
While the gigafactory will certainly help allay cell supply concerns, Tesla also believes that it
will cut the per kWh cost of packs by over 30 percent.51 This suggests a reduction to
approximately $175 per kWh, or less than $9,000 for a 50 kWh pack suitable for the Gen III
model. Whether or not the factory will actually achieve these cost reductions obviously remains
to be seen. Since Tesla’s battery systems remain so far ahead of its competitors’ large-format
lithium-ion packs on the cost curve, analysts have little information with which to critique the
company’s projections. That said, it remains telling just how quickly both battery prices and
associated future price expectations have come down in recent years. Laptop battery prices
dropped at a compounded rate of 14 percent per annum over a 15 year period. And now,
Deutsche Bank analysts believe EV battery costs will decline 7.5 percent per year through
2020.52 If, going forward, Tesla were able to achieve a similar cost decline rate, its packs would
be approaching a cost of $140/kWh by 2020. This would be very much in striking distance of the
EV Everywhere goal set by DOE’s office of Energy Efficiency & Renewable Energy (EERE),
which targets battery pack costs under $125/kWh by 2022.53 Notably, at $140/kWh the price of a
50 kWh battery pack would be fully offset by the federal government’s existing $7,500 federal
tax credit for electric vehicles.
1
Based on 250 Wh/mile efficiency (vs. the 60 kWh Model S’s ~288 Wh/mile efficiency).
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Charging Systems
The EV battery cost challenge is flanked by the ongoing question of charging infrastructure
rollout. In 2008, when the Tesla Roadster was first launched, public charging stations were few
and far between and thus seen as a significant roadblock to large-scale EV rollout. Today, while
there are now over 8,000 charging stations nationwide,54 they are far from ubiquitous, and the
notion of “range anxiety,” whereby EV operators fear running out of juice miles from the nearest
charging station remains widespread. To alleviate this concern, extensive investment in charging
infrastructure is required. And even if range anxiety dissipates over time thanks to a prevalence
of larger capacity batteries, the issue of how to deal with the load spikes from charging EVs will
likely remain. But Tesla has taken steps to deal with all of these issues, at least for owners of its
vehicles.
Home Charging
Like rival manufacturers, Tesla offers a range of home charging solutions to customers. Both the
Roadster and Model S come standard with the ability to charge using a typical 110 or 220/240
volt wall socket. But customers of both models instead tend to opt for a $1,200 high-power
charger that can reduce charging times to as little as 3.5 hours.55 However, a federal tax credit
that helped offset 30 percent of the equipment and installation cost expired at the end of 2013.56
Given its target market, Tesla can afford to charge its customers a premium for these devices.
However, going forward, they are another component whose price will need to come down if EV
solutions are to become cost-competitive with ICE-powered vehicles on the showroom floor.
Thanks to the over 200 mile range of Tesla’s vehicles, home charging systems are likely
responsible for the vast majority of Roadster and Model S battery top-ups. Since Americans have
round-trip vehicle commutes of just 25 miles on average, these vehicles have significant excess
range for daily activities.57 Therefore Tesla’s business model benefits from rather little inherent
need for public charging infrastructure. But that’s by no means the end of the story.
Public Charging, Superchargers, and Battery Swapping
In September 2012, Tesla announced its solution for existing or future Model S drivers with
range anxiety or road-tripping desires. While customers already had access to an increasing
number of public charging stations, the company decided it would build out a network of solarpowered “supercharger” stations in high-traffic areas across the continental U.S. that would
charge a Model S battery to 80 percent in just forty minutes.58,59 Today, ninety four of these
stations are up and running, providing completely free charging to Model S owners. By the end
of 2014, it aims to provide coverage to 80 percent of the U.S. population, rising to 98 percent in
2015. Tesla also now has seventeen supercharging stations in Europe and three in China.
Notably, the company determined that the appeal of free charging stations and its associated
impact on EV sales would more than offset the additional costs of building and operating the
stations.
7
Fig. 2: Tesla’s U.S. supercharger network as of May 23, 2014.60
Fig. 3: Tesla’s proposed U.S. supercharger network by the end of 2015.61
However, by fitting its supercharger stations with proprietary charging connectors rather than
those following the CHAdeMO or SAE standards, Tesla is arguably propagating market
inefficiencies.62 The stations preclude use by drivers of other EVs, unless auto manufacturers
eventually opt to license the standard Tesla connector technology. Thus, if one also considers the
exclusive high-speed battery swapping initiative Tesla is piloting at its supercharger stations, the
company’s brand premium becomes increasingly apparent.
Tesla and the Future of Charging
By opting to only produce EVs with “compelling” range, Tesla has so far managed to help
reduce its customers’ range anxiety fears. Further, by the time the more mass-market Gen III
model is released, these fears will likely have faded somewhat on the back of greater public
familiarity with EVs. Nevertheless, if the Gen III is to seize significant market share, a robust
8
charging network will be required both as backup and to allow longer-distance travel options.
And the government—at both the federal and state level—should support these efforts,
particularly those that are inclusive and thus of the greatest benefit to the states and country as a
whole.
EV Policy Support: the Past; Present; and Future
The U.S. government has, for some time, shown a considerable interest in electric vehicles,
mostly due to their potential to reduce transport sector oil demand as well as greenhouse gas and
local pollutant emissions. A number of government policies and initiatives have emerged in
recent years to catalyze everything from EV component R&D to purchases of the vehicles
themselves and associated charging equipment. A number of these are high-level, top-down
approaches such as President Obama’s 2011 State of the Union target of getting one million EVs
on the road by 2015.63 Others are bottom-up and focus on directly or indirectly reducing the
costs or effective prices of EV technology.
The Innovation Adoption Lifecycle and Government Involvement
EV manufacturers looking to break into the U.S. auto market are fortunate in the sense that it
remains one of the largest in the world, with sales of 15.6 million in 2013.64 Therefore from the
time between when Obama announced his goal and end-2015, it would’ve required that EVs
make up just over one perfect of annual sales to be achieved. Going by Everett Rogers’
innovation adoption lifecycle model (Fig. 4 below) suggests that reaching such a level of EV
sales could be achieved by targeting just innovators and early adopters.
Fig. 4: Visualization of Everett Rogers’ Innovation Adoption Lifecycle model.65
However, given the high cost of electric vehicles relative to traditional ICEs, moreover, as a
percentage of median annual income, Rogers’ model may not hold up for EV sales. Many
Americans potentially would like to purchase an EV but simply cannot afford one. And in light
9
of the myriad benefits that EVs offer to both consumers and the public as a whole, it is
unsurprising that government policies are aiming to reduce the costs to produce, own, and
operate them.
Research and Development
On the R&D front, the federal government has played an important role in supporting the
advancement of the manufacture of EVs and their components in the United States. The highrisk, capital-intensive nature of advanced automotive manufacturing makes market entry
particularly challenging for new firms such as Tesla. And during the financial crisis, even
existing manufacturers relied on government incentives to support expansion plans.
Advanced Technology Vehicles Manufacturing Loan Program
The Department of Energy’s $25 billion Advanced Technology Vehicles Manufacturing
(ATVM) Loan Program is the most notable support mechanism available to the EV
manufacturing industry. It was created under the George W. Bush administration and funded by
congress in the fall of 200866 with the intention of aiding “companies making cars and
components in U.S. factories that increase fuel economy at least 25 percent above 2005 fuel
economy levels.”67
Since its inception, the program has depleted roughly 40 percent of its funding through loans to a
range of different firms including Ford, Nissan, and, of course, Tesla. The latter’s terms were
finalized in January 2010, entitling it to a $465 million loan,68 $365 million of which was slated
for the production and engineering of the Model S sedan, with the remaining $100 million
funding a powertrain manufacturing plant.69 Despite Tesla’s recent success, many conservatives
have criticized the program for funding “losers” such as Fisker Automotive Inc., which drew
$193 million from a $529 million ATVM loan before going under in 2012. In contrast,
proponents argue that these types of government programs exist to give risky but important ideas
the chance to succeed. Tesla is surely a testament to this, having repaid its $465 million loan in
May, fully nine years early.70
The ATVM loan program has, however, played little role in impacting Tesla’s battery sourcing
practices. The company continues to purchase 18650 cells from Asia, assembling them into
packs at its drivetrain facility in California. And though the future battery gigafactory will be
located in the United States, Tesla is opting to fund its construction through the issuance of
convertible bonds rather than seeking additional government loans.71 The firm has seemingly
entered a phase in which direct government support is seen as no longer necessary and
potentially even detrimental to the firm’s reputation as a serious auto manufacturer.
Sales
What has always been clear is that, without interested buyers, EVs could never take off. Tesla
addressed this problem by producing an electric sports car that performed remarkably and then
marketed it to only a sliver of society. But on the back end, along with other EV manufacturers,
it is benefiting increasingly from government-supported demand pull as it begins producing
vehicles for a wider audience.
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The Federal Tax Credit for EVs
The most significant government support system for EVs remains the federal tax credit which,
when rolled out in 2009, applied only to the Tesla Roadster. The full $7,500 credit can now be
claimed by purchasers of new vehicles with battery capacities of 17 kWh or greater.72 The credit
therefore reduces the cost of a Tesla Model S by roughly 10 percent. However, its impact is
much more significant for lower-cost vehicles such as the 2013 Nissan Leaf, whose effective
price drops by over 25 percent to $21,480. And so this type of program could be the difference
between a Gen III Tesla costing $35,000 and $27,500. However, the credit is currently set to
phase out for a manufacturer’s vehicles when 200,000 of its EVs have been sold for use in the
United States since December 31, 2009.73 For Tesla, this milestone could be hit as early as
2016,74 likely challenging the federal government to determine both the need and value of
extending such strong demand-side support for EVs.
State-Level Rebate Programs
At the state-level, dozens of governments have provided support for the purchase of EVs. A
number of them, including but not limited to Colorado, Georgia, West Virginia, Illinois, South
Carolina, and Oklahoma offer significant tax credits in addition to that offered by the federal
government. In West Virginia—one of the more generous states—a total of $7,500 of tax credits
are available to the purchaser of a Model S, feasibly reducing its effective cost by over 10
percent. Other states, including California, offer cash rebates or sales tax exemptions for EVs.
And others still are employing indirect incentives to encourage EV purchases. The most common
of these include HOV lane access and exemptions from public parking meters and emissions
inspections.75 These exemptions attempt to boost the appeal of EVs at a very low cost to
municipalities.
Additionally, California has a long-running Zero Emission Vehicle (ZEV) Program that sets
long-term requirements for the deployment of electric-drive vehicles. In 2012, the program was
amended to require ZEVs and plug-in hybrid electric vehicles (PHEV) to account for over 15
percent of new vehicle sales by 2025. Large-scale auto companies are thus required to sell a
minimum percentage of ZEVs or else must purchase credits from manufacturers that enjoy an
excess.76 Given that Tesla is small and produces only EVs, it is able to sell ZEV credits to
manufacturers that are not meeting their requirements. And in 2013, Tesla netted just shy of
$130 million from ZEV credit sales.77
Charging
While Tesla’s business model currently does not rely heavily on government incentives for
charging infrastructure, it has benefited from a number of tax incentives both consumers and
businesses. Lowering the costs of these charging systems will further reduce barriers to EV
uptake by making their ownership more affordable and practical.
Support for Public Charging Systems
While Tesla’s 94 U.S. supercharger stations are open only to owners of their Model S vehicles,
that did not prevent the company from collecting a federal tax credit for up to $30,000 of their
installed costs through December 31st, 2013. While the program has since expired, Tesla’s
supercharger rollout shows little signs of slowing. Moreover, the government still subsidizes the
11
stations since they are powered, in part, by solar PV systems, which qualify for considerable tax
credits.
Though non-Tesla EVs cannot charge up at the company’s supercharger stations, the opposite
does not apply to Model S sedans and future Tesla models, which can be charged at most public
stations using an adapter. The company therefore benefits going forward from any additional
public charging infrastructure spurred by federal and state-level incentives and programs.
Support for Home Charging Systems
As mentioned earlier, consumers who purchased home charging systems through December 31,
2013, qualified for a federal tax credit of up to $1,000.78 But with funding for the program
lapsing, future federal government support for both private and public charging infrastructure is
in question. Regardless, as EV sales grow, increased competition from charging system suppliers
is bound to reduce system costs, making government support less important.
Conclusion
Tesla has followed a fascinating trajectory for a company entering a high-risk, capital-intensive
industry. Its small-scale, niche-market approach has allowed it to chart a more evolutionary
course towards profitability. However, without the federal government’s support via the ATVM
loan program and a range of incentives for EVs and charging systems, it is highly unlikely that
Tesla would be valued at the level it is today. Moreover, it may not have survived at all—such is
the risk that all innovators face.
Going forward, Tesla’s success will depend on a vast number of factors ranging from battery
production cost and availability to the price of commodities such as gasoline, whose march
upwards has already made EVs more competitive relative to their ICE-powered brethren. The
federal and state governments will have varying power to influence these factors, but they ought
to eventually take firmer, longer-term policy positions to ensure internalization of the positive
and negative externalities of the different technologies at play.
Tesla’s approach to innovation is not first of its kind, but it will hopefully serve as a model for
actors looking to upend other legacy sectors. It remains to be seen whether—with the right
government support—it could be applied in commodity sectors such as electricity, where price
need not be the sole differentiating factor between providers. However, for the time being, Tesla
has done a great service by propagating the idea that EVs can transform the U.S. transport sector
in the not-so-distant future.
United States Department of Transportation, “Table 1-11: Number of U.S. Aircraft, Vehicles, Vessels, and
Other Conveyances,” accessed October 12, 2013,
http://www.rita.dot.gov/bts/sites/rita.dot.gov.bts/files/publications/national_transportation_statistics/htm
l/table_01_11.html.
2 “Chinese Auto Ownership Rose to 114 Million - ChinaAutoWeb,” accessed October 12, 2013,
http://chinaautoweb.com/2012/07/chinese-auto-ownership-rose-to-114-million/.
3 “Supply and Disposition of Crude Oil and Petroleum Products,” US Energy Information Administration,
accessed May 23, 2014, http://www.eia.gov/dnav/pet/pet_sum_snd_d_nus_mbblpd_a_cur.htm.
4 “Oil Market Report” (International Energy Agency, April 11, 2014).
1
12
“Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2012” (US Environmental Protection Agency,
April 15, 2014).
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7 Viaintermedia, “Tesla Motors’ Electric Vision - Energías Renovables, El Periodismo de Las Energías
Limpias.,” December 27, 2007, http://www.energias-renovables.com/articulo/tesla-motors-rsquo-electricvision.
8 “Long-Dead Inventor Nikola Tesla Is Electrifying Hip Techies,” accessed October 12, 2013,
http://online.wsj.com/news/articles/SB10001424052748704362004575000841720318942.
9 David F. Larcker and Brian Tayan, “Tesla Motors : The Evolution of Governance from Inception to IPO”
(Stanford Closer Look Series, May 16, 2011).
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15 Alan Ohnsman, “Toyota’s $50 Million Tesla Investment Boosts Nissan Rivalry,” May 21, 2010,
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16 Alan Ohnsman, “Tesla Motors Cuts Factory Cost to Try to Generate Profit,” Bloomberg, April 12, 2012,
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34 Ibid.
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37 Tommy McCall, “The Price of Batteries” (Technology Review, January 2011).
38 Ibid.
39 “First Quarter 2014 Shareholder Letter.”
40 Jeff Evanson, “Tesla Motors Investor Presentation” (Tesla, Autumn 2013).
41 “Model S Innovations,” Tesla Motors, accessed October 15, 2013,
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42 Sparks, “Tesla’s Batteries Are Downright Superior.”
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47 Motavalli, “As It Increases Production, Tesla Worries About Battery Supply.”
48 “Gigafactory,” Tesla Motors, February 26, 2014, http://www.teslamotors.com/blog/gigafactory.
49 “Tesla Gigafactory Information Sheet” (Tesla Motors, February 26, 2014).
50 Ibid.
51 Ibid.
52 Andrew Meggison, “The Changing Price Of Electric Cars,” Gas 2, June 13, 2013,
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59 “Supercharger.”
60 Ibid.
61 Ibid.
62 Nikki Gordon-Bloomfield, “Why the Auto Industry Should Consider Tesla’s Supercharger Network,”
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Data,” The Washington Post, February 8, 2011, sec. Business, http://www.washingtonpost.com/wpdyn/content/article/2011/02/07/AR2011020705616.html.
64 Chris Isidore, “Car Sales Make a Strong Comeback in 2013,” CNN Money, January 3, 2014,
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“Supercharger.”
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73 Ibid.
74 LeBeau, “Elon Musk: Tired but Optimistic about Tesla’s Future.”
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65
15