Tesla's (NASDAQ:TSLA) much-anticipated China launch is finally here, with Elon Musk beginning to make deliveries of its Model S. The car is a super-luxury offering in any country, but particularly one like China, so its customer base is somewhat limited. What may increase the customer base over what it otherwise would be is the idea that the S is an all-electric vehicle, offering "zero emissions" and cleaning up China's horrendous smog problem. To that end, this article by Terracotta Capital perpetuates the myth that the S is a zero-emissions vehicle and that it, and other electric vehicles, will help to clear up China's smog problem. In this article, I intend to debunk that myth and why it's a problem for Tesla.
I'll just jump right into it here: it takes a whopping 35 kg of coal to charge a Model S one time in China. Imagine that; 75+ pounds of coal needed every single time a Model S needs a full charge in China is the cost of its "zero emissions." That is a truly astounding amount of perhaps the dirtiest, least environmentally-friendly fuel on the planet, and anyone who thinks the Model S is zero-emissions is sadly misinformed or naïve. Burning 75 pounds of coal to charge one car, one time is sustainable from a coal supply perspective, as coal is plentiful and cheap, but when you consider the environmental cost, I doubt those who want the S for its environmental impact would be happy to learn this. I am not someone who is overly worried about environmental impact of my daily life, but I find this to be reprehensible.
Yes, fueling a car with coal is much cheaper to the consumer than fueling it with gasoline or diesel, but what happens when electric cars are mainstream in China? China's pollution problem is unlike the world has ever seen, and that is with virtually no electric cars to speak of; if Musk's vision of selling thousands upon thousands of cars in China becomes a reality, that means other manufacturers will have begun selling much cheaper, mainstream cars to Chinese consumers. This means that potentially millions of pounds of coal will need to be burned every day simply to fuel a very small percentage of Chinese consumers' vehicles, further exacerbating an environmental crisis that has been spiraling out of control for years.
This presents a problem for Tesla, not only because it currently has virtually nowhere for its customers to charge their $100K+ vehicles, but when it does (finally) have some place for them to charge their cars, tons upon tons of coal will be the fuel. This is the worst possible environmental outcome for China and for Tesla, and I think it will present a problem given Tesla's supposed zero emissions. For those consumers that buy a Tesla because of other factors it will not matter, but for those that want the zero emissions, learning it takes 75 pounds of coal to charge their car is likely not a desirable outcome.
Finally, the Chinese government is embarking on some measures to curtail air pollution given its current crisis state. How do you think the country's government feels about cars that are fueled by 75 pounds of coal each week, per car? If you had to take your Model S to the fueling station and throw 75 pounds of coal into the gas tank equivalent so that you could continue to drive it, would you do it? No, you wouldn't, and neither would anyone else. However, that is exactly what Musk is asking Chinese consumers to do, and I'm thinking this is not going to work out for him given China's air pollution crisis. If consumers are willing to look past this, and I'm thinking they aren't, then the government is the next hurdle for Musk, as they are looking to remove pollutants from the air just as Tesla is looking to make the problem worse.
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.