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A Brief Summation Of The Politics Behind Tesla And Electric Cars

|Includes:Tesla Motors (TSLA)

A Brief Summation of the Politics Behind Tesla and Electric Cars

I have read countless articles over the last months speculating on the future of Tesla Motors (NASDAQ:TSLA) and the various shortcomings as well as prospects, which the company possesses. However what many of these articles avoid directly addressing is the highly relevant political elements factoring into this company's future.

The Forgotten Generation of Electric Vehicles

Personally, I feel that it is important to look at past incidents in order to understand current circumstances. As a testament to this I believe the story of the 1996 electric car, the EV1 by General Motors (NYSE:GM) should be taken into account when examining all electric car companies and Tesla Motors in particular. What I find strange is that in all the coverage and speculation of Tesla's recent progress no one has yet discussed this story and the potential implications it made on the electric car industry as a whole.

What many people have forgotten is that in 1996 electric cars began appearing all over California. These electric vehicles were created by a division of General Motors and were the first widely used and mass-produced electric cars in history. These cars known as the EV1's were leased between 1996-1999 and were capable of driving up to 120miles until their next recharge and were extremely fast as well as quiet two seat sports cars. The EV1 was available through limited lease-only agreements, which were designed to test the commercial feasibility of an electric car marketplace. Immediately after their release, consumers displayed a wide interest in the cars and in addition users of the vehicle had high retention rates as well as positive reactions to the EV1. After the EV1's initial release to market, other car companies created their own electric vehicles in an attempt to compete with the EV1: Honda came out with the EV Plus, Ford came out with the TH!NKand Ford Ranger EV, Toyota with their RAV4 EV, and Nissan with theAltra EV. As these electric vehicles began to increasingly pick up more and more momentum, resistance by oil companies immediately intensified.

How Oil Companies Destroyed the First Generation of Electric Vehicles:

One such example occurred in the building of EV1 charging stations in which an "organization" known as the Californians Against Utility Company Abuse fought to prevent the construction of charging stations in local areas across California. This organization, which was ultimately discovered as being funded almost completely by the Western States Petroleum Association would enter city council meetings convincing them not to develop charging stations, arguing that it was a waste of taxpayer dollars. The organization utilized the names of established companies, which they called "supporters" to help create resistance barriers to the development of charging stations.

In addition to attacking the electric vehicles by obstructing the development of charging stations, oil Companies began publishing editorials in widely read newspapers such as the USA Today, Time Magazine, and Newsweek, arguing that the environmental benefits of electric cars were "dubious" and that they were in fact worse for the environment then normal gasoline powered vehicles. A decade later we now realize the absurdity of such commentary.

In reaction to continued pressures from oil companies to cease their development of Electric Vehicles as well as a sudden and unexplained shift in policy General Motors began to cannibalize its own product line. Where as the EV1 division grew a growing number of potential customers, General Motors now sought to prove that there was no demand for the EV1. GM began its onslaught of the EV1 project by preventing celebrities from leasing the vehicle in addition to creating extensive and delayed background checks of people prior to allowing them to lease an EV1 model. Ultimately, GM began firing the top members of the EV1's sales force and even completely shutdown the production line of the EV1's.

GM's shift in policy occurred with the advent of the Bush Administration, which worked to develop a bond between the oil companies and automakers as well as completely diminish the development of electric vehicles. The Bush Administration (which we now know had deeply rooted ties with the oil industry) diverted energy policies in a new direction by creating a 1.2 billion dollar federal project based on the development of a completely experimental medium: Hydrogen Fuel Cells. The promise of hydrogen vehicles created a joint project between oil companies such as Shell and automakers such as GM. The purpose of the federal project was to shift focus away from electric vehicles and move it towards distant and speculative futuristic possibilities. In layman's terms, GM took one "supposed" step forward, while intentionally taking two steps back.

Although we can speculate, to this day no one knows the real reasons behind why General Motors was motivated to shut down the EV1 project. General Motors argues that it was due to a lack of demand, however it is a widely known fact that the EV1 model was on back order and had a waiting list of over 4,000 clients. Therefore, why the car was taken from the market in an aggressive fashion is still up for speculation. However if there is anything to learn from what happened to General Motors's EV1 product line, it's the impact it had on the American automaker industry as a whole. There is no doubt that a combination of oil interests brought the first generation of electric cars to a halt, the question now is whether or not it will happen again.

How This Affects Tesla and the Second Generation of EVs:

If there is one word to describe Tesla motors it would be: maverick. The advent of Tesla Motors has completely flipped the automobile industry upside down. Not only have they generated a new method of selling vehicles to consumers, but more importantly, they've taken on big oil and gotten the attention of the entire American automobile market. Where as American automobile makers were previously afraid of the lurking influential shadow of big oil, they are now realizing that there is an emerging market of electric vehicles, which can no longer be ignored. In addition with Asian automobile goliaths such as Toyota licensing Tesla's electric engines, American car companies are now paying the toll for turning their backs on Tesla Motors back in 2008. One example of this is evident with Chevrolet's Volt, which is literally a rehashing of the EV1 model with a different body case. The Volt is representative of General Motors now attempting to get back in the ring of electric vehicles, however the past decade of regression could now prove to be impossible to overcome once Toyota comes out with a cheaper EV model of its own. Thus, this raises some interesting questions as to what will happen in the coming years.

With Tesla sales now being threatened by potential restrictions in various rightwing states such as Texas and North Carolina, and lobbyists already breathing down politician's throats about the matter, we can only wonder if the future of Tesla is not already in danger of being jeopardized for its ambitions.

Political Schisms Forming:

What is apparent now, yet no one dares discuss are the political schisms that are forming around Tesla Motors. What I mean by this is simple, red states are leaning against Tesla Motors and are progressively attempting to do anything in their power to ban them, whilst blue states are seeking to increase their presence. This schism has to do with the age-old stereotypes that conservatives are more protective of fossil fuels where as liberals seek to further the development and implementation of clean energy. Unfortunately, this stereotype is proving to be quite accurate on the national scale with states dividing on the matter of Electric Vehicle recharging stations and the implementation/methods by which they can be sold based on their political allegiance.

The Carter/Reagan Example:

This dogma of clean energy and the politics behind it came about when President Carter was elected to office. As a testament of his philosophy to make the United States less dependent on foreign fossil fuels Carter began a series of clean energy initiatives that were intended to stimulate the U.S. economy. Among these new energy initiatives was an investment in the advancement of solar power technology. For a brief moment there was boom in clean energy as Carter attempted to navigate the U.S. away from a nation dependent on Foreign Oil. However, when Reagan entered office in 1991 (a president highly indebted with big oil companies that had been the biggest donors in his campaign) the national policy reverted once more to being dependent on foreign fossil fuels and all previous energy initiatives were halted. Where as Carter had placed solar panels above the white house, Reagan (to prove a point) immediately took them down.

The Carter/Reagan example is a testament of the impact that a shift in presidential administrations can have on the energy industry as a whole. As we can see with the current administration's investments in clean energy such as Tesla Motors as well as Solar Panel Companies, a republican president will most likely be quick to eliminate those initiatives if elected in the future. In conclusion the number one detrimental force to Tesla right now are the political battles it will have to face in the near future.

Implications For the Near and Long-term Stock Price:

With Tesla shares soaring after Jefferies analyst Elaine Kwei raised her price target for the company to $130 a share, other very important positive news for the company has been grossly overlooked in the process. As a response to policy makers and auto dealerships (who as stated prior seek to prevent Tesla from selling directly to consumers) Tesla started a petition with the White House against the lawmakers that have been interfering with Tesla sales in more predominantly republican and oil rich states.

The petition's objective was to get the Obama administration to "allow Tesla Motors to sell directly to consumers in all 50 states," and required over 100,000 signatures within a limited timeframe. With two days remaining on July 3rd, Tesla Motors succeeded and garnered over 110,000 signatures, thus allowing for legislation to be passed in favor of Tesla Motors against auto dealerships. This successful petition will undoubtedly affect the stock once legislative bodies see the amount of supporters the electric carmaker has rallied. With Tesla's stock now soaring, I have no doubt that if this petition results in legislation, (which it most likely will under the Obama administration) then Tesla could easily become the world leader in luxury cars. In addition Tesla, unlike GM, has put up an extremely aggressive fight against all political resistance that has emerged. This is especially evidenced with the battleground state of North Carolina, which recently dropped all anti-competitive legislation against Tesla, and in turn, is now once again allowing Tesla motors to sell directly to consumers. With Tesla now once again allowed to sell directly to consumers in North Carolina and this petition gaining the amount of signatures necessary to go to the White House, it is only a matter of time before other states begin faltering against Tesla's sales restrictions as well. With all political resistance defeated in these key states Tesla's current price seems perfectly fair if not undervalued by $10-15 a share. That being said, investors still shorting the company should be very careful in coming months, because if political resistance continues to diminish it could mean large surges in Tesla's share prices.

Bottom Line:

Amid all the talk of Tesla's stock leaping up and down what we've forgotten to take note of are the heavy political undercurrents involved in such a position. Tesla Motors is currently single-handedly spearheading a global fight against big oil, one that can only result in either victory or defeat at the mercy of political policy makers. Therefore the success of Tesla lays not in just how many models it sells, but also in which direction the current administration is oriented. Simply put, the people in Washington will be deciding Tesla's fate in the future and for everyone's sake, lets hope the boys at Tesla can hold their ground against the political pawns of big oil.

Stocks: TSLA