Superchargers As A Profit Center For Tesla

| About: Tesla Motors (TSLA)

Recently many comments on my Tesla (NASDAQ:TSLA) articles are calling out Superchargers and the "free" power they provide to Tesla cars as not profitable and sometimes even a "loss leader". With this article, I hope to establish that not only is this false, but the Superchargers can actually be a moneymaker for Tesla. There are also secondary intangible benefits to Tesla, such as Superchargers and the superbly designed Model S's standing there charging, being basically advertising billboards for their brand.

Tesla charges $2000 to enable Supercharger access on its cars. For an Electric car, most charging is done at home. The Superchargers are intended to be longer trips. For the sake of simplicity, I will assume that an average user will use the Supercharger 10 times a year, which is most probably an overestimation.

Currently a majority of Tesla sales are for its 85kWh model (based on the average selling price from quarterly results), which have Supercharger access included in the cost of the car. A safe lower end assumption is that 75% of cars have Supercharger access and on the high end we can assume that all cars sold have supercharger access.

So far, Tesla has sold an estimate of just under 25,000 cars. With my numbers above, it has collected between $37.5 million to $50 million for Supercharger access. So far it has built 65 superchargers (51 in the US and 14 in Europe). The cost to build a supercharger ranges from $150,000 (without solar) to $300,000 (with solar). Taking the mid-point of $225,000, so far it has cost Tesla only $14.7 million for Superchargers. Even if every car has already charged 10 times and every charge was a full charge for an 85kWh battery, it has cost Tesla $2.5 million in electricity (at $10/charge). In reality, the cost is a lot less because most batteries are not completely empty when they stop at a supercharger and not all are 85kWh batteries either. If we assume Tesla spends another $2.5 million in maintenance and other expenses (referred to as just maintenance for the rest of the article), we have a maximum total so far of about $5 million.

So, Tesla raked in $37.5 to $50 million for Supercharging but spent under $20 million.

Next let's look at 2014. A rough estimate for total number of superchargers built by the end of 2014 is 250. Total cumulative cost of Superchargers would be about $56 million. Total revenues from Supercharger access would be (total cumulative sales of 56,000 cars) 84 million to 112 million (75% - 100% opting for Supercharging). If again, as an upper bound, we assume that all cars charge 10 times, cost of electricity in 2014 would be $5.6 million and if we add in another $5.6 million for maintenance, we have a total cumulative charging and maintenance expense of about $16 million. This gives us a total Supercharger cost to Tesla of about $72 million.

From the above calculations, it is possible that the Supercharger network is already profitable. Next, lets look at how many Superchargers Tesla needs in the US. There are about 4 million highway miles in the US of which 1% are Interstates. If Tesla were to build one Supercharger for every 100 miles of Interstate, it would need 400 superchargers in the US. Let's say they build double that number, 800 in the US. That would essentially satisfy the needs of almost all Americans. It could cost Tesla about $180 million to build out this network of Superchargers. Even if we assume that they need to build superchargers with double the number of bays at all locations, the costs would be $360 million. Spread over 10 years, this is just $36 million a year.

Now, lets look at long term economics of Superchargers in the US. For the calculation, I'm assuming longer term that Tesla sells 40,000 Model S + Model X and 100,000 Gen III vehicles (on par with the BMW 3) in the US. I will assume that 75% of those are Supercharger enabled. At this rate Tesla would bring in $210 million a year in Supercharger access fees. If Tesla builds/expands 100 superchargers a year, that costs them $22.5 million/year. Even if we assume that there are 500,000 Tesla vehicles on the road it only costs Tesla at the most $100 million (0.5 million * 10 charges per year * $10/charge, double that to include maintenance).


It is easy to see how Supercharging can be a profit center for Tesla. It is unknown what maintenance and other expenses are for Superchargers and it is also unknown how much Solar power will offset the cost of electricity of the Superchargers but what I have presented above is a worst case scenario and even in that case, the Superchargers should already be profitable and can easily be longer term. In fact, GM (NYSE:GM), in the first half of 2013, sold 4.8 million cars and made a net profit of $2.16 billion. This gives us a net profit of just $450/car. Using the Supercharger numbers above, it is possible for Tesla to make more profit per car than GM just from Supercharging

Disclosure: I am long TSLA. 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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