Tesla Model 3: Fuel Savings Estimated At 30-40%

| About: Tesla Motors (TSLA)

Summary

Cheap gas is reducing the fuel savings from Model 3 ownership. However, one can probably still save 30-40%, including upfront costs, over a 100,000-mile driving period.

The Model 3 is lighter and has a lower drag coefficient than the Model S, resulting in less power consumption per mile.

Estimated fuel savings in the US are much higher than in Germany, while fuel savings in Norway are equivalent to the US savings with 2013 US gas prices.

Electric car adoption in Europe is higher than what fuel savings levels would seemingly indicate, probably due to upfront incentives (such as in Norway) and a higher interest in environmentalism.

For example, the fuel savings in Germany might be under 5%, including upfront costs, but electric vehicles still have a slightly higher market share there compared to the US.

There has been some discussion that cheap gas will result in limited fuel savings for the Tesla (NASDAQ:TSLA) Model 3 compared to a gasoline powered car. However, a look at the data indicates that fuel savings should still be fairly substantial (30-40%) even after allocating some upfront costs for home charging equipment and supercharger access.

Model 3 Electricity Usage

The Model 3 will be a lighter car than the Model S, so that is one reason that it will get more miles of range per kWh. As well, the Model 3's drag coefficient target is 0.21, which is lower than the Model S's 0.24 drag coefficient. This will also help with range per kWh.

Tesla has mentioned that the Model 3 will have a battery that is under 60 kWh, although no exact number has been specified yet. For the purposes of this exercise, we will go with a 55 kWh battery and 215 miles of range.

Assuming 10% Supercharger usage and a charging efficiency of 82% at home (for simplicity the Model 3 is only being charged at home and at Superchargers) would result in an average usage of 60.37 kWh in home electricity per 215 miles of range.

Battery (kWh)

55

Supercharger Usage

10%

Charging Efficiency

82%

Home Electricity per Charge (kWh)

60.37

Click to enlarge

This results in an estimate of 28,077 kWh in home electricity used per 100,000 miles.

Electricity And Gasoline Costs

The cost of this electricity is approximately $4,641 based on YTD 2016 California electricity prices, $3,442 based on YTD 2016 average US electricity prices.

$ Per 100,000 Miles

California

$4,641

US Average

$3,442

Click to enlarge

The BMW 3 Series has been discussed as a competitor to the Model 3 in terms of target market. The BMW 328i gets estimated fuel mileage of 26 miles per gallon. This translates into 3,846 gallons used per 100,000 miles. At California fuel costs of $3.139 per gallon for premium gasoline (recommended for the BMW 3 Series), that would translate into $12,073 in fuel costs for 100,000 miles. The US average for premium gasoline is $2.802 per gallon, leading to an estimated $10,776 in fuel costs per 100,000 miles.

$ Per 100,000 Miles

California

$12,073

US Average

$10,776

Click to enlarge

Thus the savings on fuel would be approximately $7,432 per 100,000 miles in California, and $7,334 per 100,000 miles based on average US pricing. Although savings would have been around $4,000 greater based on 2013 gasoline prices, the savings based on current prices is still fairly substantial. It should be noted that supercharger access and the installation of home charging requirements could add several thousands to the upfront costs. Some may consider the home charging equipment a long-term investment, though, if they plan on continuing to purchase electric cars in the future.

Basically in the end, one would save around 30-40% on fuel costs over 100,000 miles. I believe this will still be substantial enough not to seriously affect Model 3 interest, although the examples from Europe indicate that other factors may play a larger part in electric vehicle adoption than just pure fuel savings.

A Look At Europe

European data indicates that general attitudes toward environmental concerns, as well as government incentives (both monetary and non-monetary) may play large roles in determining electric vehicle penetration.

Germany is an interesting case since it has high electricity costs, comparatively reasonable diesel costs and some very fuel efficient and popular diesel cars. For example the BMW 320d (the US version with the same engine is the 328d) has fuel consumption of 37 miles per gallon using the US stats. That results in an estimated cost of $12,559 USD per 100,000 miles. The Tesla Model 3 would have electricity costs of around $9,160 USD for the same distance. The savings of $3,399 per 100,000 miles is significantly less than in the US, yet the market share for electric vehicles is slightly higher in Germany than in the US. I'm using the Tesla Model 3/BMW comparison to keep things consistent, but we can also assume that the savings for other diesel/electric car comparisons would also be lower in Germany than it would be in the US.

German electric vehicle demand has been relatively low compared to Europe in general due to limited financial incentives. This is changing, though, so demand should pick up. The higher electric vehicle share in Germany than the US despite the limited financial incentives is probably due to factors such as a greater interest in green issues in Germany and potentially less concern about issues such as range as the average driving distance is less in Germany.

Norway on the other hand has lower electricity costs and higher diesel costs. The savings from the Tesla Model 3 over a BMW 320d would be around $11,700 USD per 100,000 miles, similar to the savings in the US for a Tesla Model 3 vs. a BMW 328i based on 2013 gasoline prices. The electric vehicle share of new sales is over 20% in Norway due to many government incentives, though.

Conclusion

Even with cheap gasoline, the expected savings for the Tesla Model 3 vs. a comparable gasoline powered car is significant enough so that low gas prices should not have a major impact on projected demand. Certainly higher gas prices would increase demand, but there's still a major savings from the Tesla Model 3, so fuel savings should still be considered a key selling point.

As shown in Europe, though, US demand for the Model 3 and electric cars in general will be significantly affected by government incentives as well as the general perception about electric cars (such as whether the range is sufficient). The estimated fuel savings from electric cars in Norway is similar to that in the US several years ago. However, electric cars have gained over 20% of the new car market share as the government offers massive initial subsidies as well as a range of other incentives. Attention should be paid to the party platforms ahead of the 2016 election, as well as 2016 election polling to determine what government attitudes to electric vehicles will likely be in the next few years.

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