A Shift In The Fueling Paradigm Is Coming, Driven By Tesla Motors

| About: Tesla Motors (TSLA)

About a year ago I wrote a bullish article on Tesla Motors (NASDAQ:TSLA), when the stock price was hovering in the mid-$30s (before it was "cool"). I acknowledged then that I wasn't writing an article on the stock price but instead why the company would succeed as a car manufacturer over the long term, and I continue to think that it will. However, in order for Tesla to continue to succeed, and especially for the mass adoption of its "Model E" car, a shift in the current fueling paradigm must occur.

The Fueling Paradigm

Source: I use a number of travel statistics from the latest (2009) National Household Travel Survey below.

Today, we fill up our cars in large bursts, driving our car down to a quarter tank before we think about refueling. Then, we head to the gas station for 5-10 minutes to refuel to a full tank. We swipe our credit card, insert the nozzle, play Angry Birds for a few minutes, pay $75 for the fill up, and then leave, only to return again later that week for another fill up once we are back below a quarter tank.

This is what I like to call "stop-and-go" fuelling. This fuelling pattern involves interrupting your day, albeit for only 5-10 minutes, and actively waiting while your car is filled with fuel. And this is what most people currently do, as necessitated by the current fueling infrastructure. These intermittent gas stops don't seem like a huge inconvenience, but only because it's the only thing we've ever known.

The big opponents to electric cars often cite long charging times as a barrier to adoption. However that argument has two primary flaws. The first flaw, which I'll address briefly, is that charging times are declining. A Model S can charge 170 miles of range in 30 minutes at a Supercharger. I am not a battery chemist of any sorts but I can only assume that over time, these charging times will continue to improve, even if only slightly. The difference between charging and refueling times is diminishing, and in the case of the Tesla's battery swap (whether or not it will be mass-adopted is another story), has already disappeared.

However the biggest flaw of the "charging time" argument is that those arguing it think very narrowly about how we will charge our electric cars. They think we will continue to make weekly or twice-weekly trips to fuelling or charging stations and wait while our car charges. This is the charging paradigm that we have known our whole lives, and the paradigm that will soon see change, because it is not the charging model that electric car users rely on.

Let's imagine the average commuter, who drives an average of 12 miles to work and 12 miles back. Let's say on the way home, our commuter stops at little Junior's ball game, and then the grocery store, and then heads home. Let's assume this adds another 30 miles (a liberal estimate, seeing as the average commuter drives under 31 miles per day overall). In his very busy day of driving, our commuter has used up 54 miles worth of fuel - less than 25% of a Model S' 85 kWh range, and about a quarter of a Model S' 60 kWh range (and the assumed 200 mile Model E range). This consumer arrives home for the night and plugs his car in - much like he does his smartphone and tablet - to charge for the night. Tesla estimates a normal 240 volt outlet will complete 58 miles of charge in an hour. It may actually take slightly longer than this as the rate of charge while topping off a battery is slower charging an empty battery, but the fact remains that the vehicle will easily be fully charged by the time our commuter wakes up and starts his day over again.

In the example above, the car never even dips below three-quarters of a charge. Never was the vehicle in danger of running out of charge. And we didn't even acknowledge the likelihood that the grocery store has a couple of charging stations parked out front, which is becoming increasingly common as a point of differentiation for grocers to attract customers. If that is the case, the car's charge level likely never dips below 80%.

In the majority of cases, the current "stop-and-go" fueling paradigm is not necessary or even realistic for electric cars. With adoption of electric cars, we won't be intermittently "filling up" our cars or giving them full charges from 0% to 100%. Charging our cars will consist of more frequent, smaller, and quicker fill ups that will consistently keep our car going.

Range Anxiety

The other primary issue electric vehicle opponents bring up is "range anxiety." Range anxiety, as I see it, is comprised of two issues:

1) Consumers do not want to be stranded in between sparse charging stations without the required charge to drive far enough to reach either of them.

2) Consumers want to be able to take long road trips.

The first issue is easily addressed and overcome with simple foresight and planning. It is not much of an issue with gasoline-powered cars because there are more gas stations on the road than public electric charging stations. However if a consumer acts rationally, as our commuter does above, this should not be an concern.

The second is a little more complicated. Road trips cause two issues for electric cars. The first arises from the sparsity of charging stations. Ten years ago most road trips with an electric car were not possible. Today, with the Supercharger network and other charging stations being built out, road trips are becoming increasingly possible. I doubt it will be long before we see charging stations of some sort (Supercharger or at least a regular 240 volt) at most highway stops. It is possible to take long road trips, but you may (for now) have to hunt a little harder to charge than if you were driving an ICE car.

(Above: Supercharger build out by end of 2014. Source: Tesla Motors)

The second issue with road trips is charging times, and I'll admit we have not yet solved this issue. The commuter scenario I described above does not apply to these road trips. You will have to take longer breaks than you otherwise would with an ICE vehicle. But with minimal planning, Tesla customers can plan to stop at Superchargers or other quicker charging options on their way.

In reality, however, these road trips are very infrequent. A fraction of a fraction of a percent of all car trips are even above 100 miles, and a far smaller amount are over 200 miles, the estimated range of the still-to-come Model E.

(Source: Green Car Reports.com and Rob van Haaren)

Still, many people will take long road trips, and will want to do it more quickly than the charging infrastructure currently allows. While I have made some assumptions above, I believe these assumptions apply to a large majority of the driving population and the majority of car trips they will take, though admittedly they are not perfect. As battery costs decline with technological progress and more mass-production (see: Gigafactory), the ranges of these cars will continue to improve over time and adoption will become more widespread.

In order to allow for this adoption, however, we as a general public need to open our minds to a shifting paradigm. The "stop-and-go" refueling model is not relevant to electric cars. Our existing infrastructure - every house is its own refueling station - does not require us to continue to anchor ourselves to the way that it has always been. It's time to move forward with a new fueling paradigm.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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