What The Presidential Elections Mean For Tesla Motors And The EV Industry

by Trefis Team
Tesla Motors
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Tesla Motors (NYSE:TSLA) and the US electric vehicle industry have witnessed a series of negative developments lately as Tesla has needed to raise additional capital through an equity offering following the delay of its Model S production ramp up plans while the EV industry has been subject to a critical review by the Congressional Budget Office.

Obama and Romney, the two candidates for the upcoming Presidential elections, have demonstrated, either by actions or statements, their respective viewpoints on the EV industry. Here we discuss the implications of the Presidential elections on the future of Tesla Motors and the EV industry as a whole.

See our full analysis for Tesla

Obama Support for EVs in Bid to Reduce America’s Dependency on Fossil Fuels

The Obama Administration believes that the ideal way to reduce America’s dependence on OPEC and fossil fuels is through the development of alternative energy sources and advanced fuel technology transportation.

President Obama had earlier outlined a goal of getting 1 million electric vehicles on the road by 2015. In order to achieve this, he offered tax benefits to electric car consumers and initiated a loan program to support the development of advanced technology vehicles. Under this program, Tesla took out a loan of $465 million in 2009, for which it recently reneged on terms due to the threat of a liquidity crunch.

In August this year, the Obama Administration issued new rules regarding fuel efficiency and tailpipe emissions where all auto manufacturers’ fleets must have an average fuel economy of 54.5 miles per gallon by 2025. The idea behind this strict mandate is that auto manufacturers will be forced to either make their vehicles’ conventional fuel engines more efficient or to develop and manufacture more electric and other alternative energy vehicles.

There are several question marks on the feasibility of these ambitious plans. It is already pretty clear that Obama’s target of 1 million EVs by 2015 cannot be reached. Also, based on a new report by the Congressional Budget Committee, the tax incentives will not lead to reduced greenhouse gas emissions in the short term and may not be cost efficient in the long term. However, in the case the Obama Administration continues into its second term, we can be fairly certain that the EV industry will continue to receive support and maintain at least its current rate of growth.

Romney Against EV Industry – Prefers Fossil Fuels

Mitt Romney has aggressively opposed Obama’s support for the alternative energy and advanced technology vehicles industries. He says that the tax incentives and the CAFE mandate interfere with the smooth functioning of the free market, while the alternative energy loan programs have lost the US government billions of dollars in bankruptcies and failed projects. He may have a point with these arguments, considering the bankruptcy of government backed solar company Solyndra and the repeated delays faced by electric car manufacturers such as Fisker and Tesla.

Mr. Romney aims to make energy affordable to the American public and for America to reduce its dependence on OPEC, primarily through further liberalization and deregulation of the fossil fuel industry. Effectively, this would lead to lower conventional fuel prices. This in turn would deter consumers from purchasing electric or other advanced technology vehicles, leading to a slower growth, or decline, in the industry’s growth rate.

To conclude, the short-medium term outlook for the EV industry is heavily linked to the result of the upcoming Presidential elections. While the Obama Administration would support its growth through tax incentives and loans, the Romney administration would do just the opposite through cutbacks and support of the fossil fuel industry.

In the long term, however, the success of the industry will be determined not by the governing administration and the associated legislation, but on more fundamental factors such as the development of competing advanced technology vehicles, long term conventional fuel supply and demand trends, and R&D in battery technology which would reduce EV costs.

We currently have a Trefis price estimate of $37 for Tesla Motors, which is about 25% above the market price.

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  • commented 7 years ago
  • I agree with Matt. As for Craig, I am against the govt picking companies, but in favor of picking industries to support. I think part of the problem was that money was so tight that loans just weren't available. I am seriously considering buying a Tesla, but worry about battery life and replacement costs. I have yet to read a bad review of the car or it's performance. We may look back and see it as the Model T of the past that changed everything.
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  • commented 7 years ago
  • ''...the repeated delays faced by electric car manufacturers such as Fisker and Tesla.'' Tesla has a delay of just five weeks in ramping up production (on a project of many years, with highly advanced technology). That can hardly be called 'repeated delays'.
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  • commented 7 years ago
  • i thoroughly believed in tesla motor right up until the company decided to take government funding. i have been astounded by Nicola Tesla's intellect. it started my interest in tesla motor. tesla wrote its own demise.