Electric Car Adoption With A Focus On The Tesla Model S: A Cost Benefit Analysis

Transcription

1 Energy and Energy Policy: Electric Car Adoption With A Focus On The Tesla Model S: A Cost Benefit Analysis Prepared By: Andrew Bak Harsh Hiranandani Jameson Moriarty Pranav Gandhi Rohan Manthani Sachin Sharma Varoon Rai Prepared For: Dr. George Tolley Dr. R. Stephen Berry

2 1. Acknowledgements We would like to thank the following people: Professor George Tolley, University of Chicago Professor R. Stephen Berry, University of Chicago Jing Wu, University of Chicago 2

3 2. Table of Contents 1. Acknowledgements Table of Contents Introduction... 5 How Does an Electric Car work?... 5 Key Components Electronic Vehicles Vs. Gasoline Vehicles... 8 History of Electric Vehicles... 9 Types of Electric Vehicles Hybrid Electrical Vehicle (HEV) Plug-in Hybrid Electrical Vehicle (PHEV) Battery Electric Vehicle (BEV) The Market Surrounding Electric Vehicles Why the Pessimism? Electric Car Market in the US Global Electric Vehicles Market Choosing an Electric Car Tesla, The Gold Standard Efficiency: Technological Advantage Convenience: Swappable Production and Super Chargers Network Safety Summary Pros Cons Choosing a Gasoline Car: Comparison for The Tesla Model S Comparison for The Unreleased Tesla Comparing the Average Electric and Gasoline Cars: A Cost Benefit Analysis of a Single Electric Car Compared to a Single Gasoline Car Summary of Cost Benefit Analysis Methodology Simplifying Assumptions Upfront Cost Comparison Cost of Fuel Cost of Time True Cost of Ownership of Car External Cost of Carbon Emissions Production, Recycling, and Disposal Costs Cost of Energy Transmission Summary Unquantifiable benefits and costs: Safety Noise Pollution Energy Sustainability Other Benefits Aggregate Benefit of Tesla

4 9. Discussion Conclusion:... Error! Bookmark not defined. Considerations/Limiting Factors for Study Group Contributions

5 3. Introduction How Does an Electric Car work? Electric vehicles (EVs) are powered exclusively by electricity and driven by an electric motor(s) supported by rechargeable battery packs. These vehicles are known for providing a cleaner and safer alternative to cars with gasoline engines. To better understand the workings of an EV, we have provided an extensive breakdown of the different facets of the car. Key Components The key components of an electric car are the electric motor, the motor s controller and the rechargeable battery packs. In relation to how the car is powered, the controller uses the power stored in the batteries and delivers it to the motor. Meanwhile, as the driver presses down on the accelerator, a potentiometer that is attached to the pedal delivers signals to the controller to indicate how much power should be delivered. The controller is usually the largest part of the system and is clearly visible when the hood of an electric vehicle is opened. The Motor With regards to the motor, electric cars can use AC or DC motors. A DC motor usually runs on a voltage between 96 to 192 volts and most of these DC motors that are used in electric cars are obtained from forklift industrial vehicles. An AC motor is a three-phase motor that makes use of 240 volts AC and has a 300-volt battery pack attached. Usually DC motors have a 20,000 to 30,000 watt range and a controller will be in the range of 40,000 to 60,000 watts. DC motors are usually cheaper and have the option of going into overdrive in short bursts whereby the motor will permit 100,000 watts and supply up to five times 5

6 the regular horsepower. This enables quick bursts of acceleration in short periods of time, however also has the ability to generate significant amounts of heat that could potentially damage the motor. 1 In comparison to DC motors, AC motors have a braking regenerative quality in which the motor acts as a generator when the car is braking and subsequently enables this power to be then transferred to the rechargeable battery pack. The car that is central to our project, the Tesla Model S, makes use of a three-phase AC induction motor with a copper rotor. 2 The System Figure 2 DC controller attached to 96V batteries and the motor. Potentiometer controls the power delivered to the motor by sensing the pressure put on the accelerator pedal. Source: Figure 2 - AC controller is attached to the AC motor and uses power provided by the 300V battery. The controller takes in 240V AC in three-phase. The controller acts as a charger for the battery and provides a DC-DC conversion to recharge a 12V accessory battery. Source: 1 Brain, M.. N.p.. Web. 8 Dec < 2 "Model S." Tesla Motors. N.p., n.d. Web. 08 Dec

7 The Battery The battery is crucial to the debate regarding vehicle-type because it is the only physical component in an electric car that sets it back in comparison to a gas vehicle. The lead-acid battery and the lithium-ion battery are the two main batteries that electrics cars utilize today. There are many issues with the lead-acid battery, particularly the fact that they are heavy, slow to charge and have a very short life span of just about three to four years. Furthermore, they high a high inconvenience factor for electric cars given that they have a very limited capacity of only about kilowatt-hours of electricity. This low capacity indicates that the car requires frequent recharging and hence does not accommodate an extensive driving range. The Tesla Model S makes use of a Lithium-Iron Phosphate (LiFePO4) battery because it has several distinct advantages over the lead-acid battery. The most important differentiating factor is that fact that Lithium-Iron Phosphate has a far longer lifespan of over 6 six years that triples that of its lead-acid counterpart. Moreover, Lithium-Iron batteries have a higher power retention rate and thus charge faster. They are also about 60% lighter than the alternative. 3 One drawback of the Li-ion battery technology is that it is significantly more costly today. However, given that cars such as Tesla have plans to mass produce their vehicles, we can expect high production rates of these batteries and thus lower costs in the near future as more and more electric cars switch to this alternative. 3 Mochel, Claus. N.p.. Web. 9 Dec < 7

8 Figure 3 Chart displaying the characteristics of the Lead-acid battery and Lithium-ion batteries. Source: 4. Electronic Vehicles Vs. Gasoline Vehicles Hence to summarize, electric vehicles and gasoline vehicles have different functionality of components that provides them separate ways of working. Firstly, a gasoline-powered car contains a fuel tank, which provides fuel to the engine to power the vehicle. The engine powers the transmission of the vehicle enabling the car to drive at various speeds. On the other hand, an electric vehicle does not have a fuel tank but previously stated consists of batteries. These batteries supply the power to the electric motor (DC or AC) that is then transferred to the transmission and ultimately enabling the car to drive. The next section of the paper entails a quick history of the progression of electric cars over time followed by a thorough breakdown of the actual types of different electric vehicles. 8

9 History of Electric Vehicles The first electric car was produced by the American Thomas Davenport in The vehicle comprised of two electromagnets, a battery and a pivot. When it was invented, as expected it was extremely expensive to produce and it was only until several decades later that the electric vehicle came to be a viable mode of transportation. 4 At the time of its inception, the advantage of an electric vehicle over a gasoline-powered vehicle was the idea that there was less vibration and hence less noise associated with them. It was also more desirable to drive electric vehicles due to the difficulty in changing gears in a conventional gasoline powered vehicle. Several of these advantages still hold in our world today apart from the fact that changing gears in a gasoline-powered vehicle has become more simplified. In the past, most electric vehicles would cost under a $1,000, but most of these vehicles would be designed for the upper strata of society as they would make use of better materials and have superior finishes. 5 Over time, electric vehicles became less appealing for a variety of different reasons. Firstly, the infrastructure growth in the United States led to high connectivity of roads, which demanded cars that were able to travel long distances. The electric vehicles produced at that time were unable to compete with the gas cars in terms of longer distance travel. 6 Furthermore, the increased accessibility of oil in Texas meant that gasoline prices fell and made it an affordable fuel for consumers to use for their vehicles. This, in turn, led to an increase in sales for gasoline-powered vehicles. Another crucial factor that led to the decrease in popularity for the electric car was the mass production of Henry Ford s internal combustion engine, which is in our gasoline-powered vehicles today. This mass-production made these gasoline cars affordable in 4 Idaho National Library, 5 Idaho National Library, 6 Idaho National Library, 9

10 comparison to electric vehicles, which were not produced as efficiently. For example, in 1912, an electric car was sold for $1,750 whereas as gasoline-powered car sold for only $ Types of Electric Vehicles There are several different types of electric vehicles, which include the Hybrid Electric Vehicle (HEV), the Plug-in Electrical Vehicle (PHEV) and the Battery Electric Vehicle (BEV). All of these consist of different modifications of the basic electric car we outlined above. Hybrid Electrical Vehicle (HEV) The HEV or Hybrid Electric Vehicle is called a hybrid primarily because it is a combination of a gasoline vehicle and an electric car. A hybrid electric vehicle makes use of the internal combustion engine and an electric system. The car has a completely different gasoline engine which supplies power to a generator. This engine supplies a certain threshold of power, which allows the car to run at a reasonable cruising speed. When the car accelerates, the batteries in the electric vehicle part of the vehicle supplies added power. Furthermore, there is also regeneration since, when the car is not decelerating and stationary, the batteries in the system are recharged. In other words, a hybrid car is basically an electric car with a recharger to allow for an efficient gasoline vehicle. The Ford Fusion and Toyota Prius are examples of some of the more popular hybrid cars used today. Plug-in Hybrid Electrical Vehicle (PHEV) A PHEV is a plug-in hybrid vehicle in which the batteries are rechargeable and can be charged from an external power source. It is almost identical to a standard HEV but allows for the vehicle to have its batteries recharged. In turn, this enables higher fuel efficiency than a standard HEV. If a PHEV isn t plugged in, it is simply just a normal hybrid vehicle. The Chevy Volt and Honda Accord are two examples of PHEV s. 10

11 Battery Electric Vehicle (BEV) A BEV is a battery electric vehicle in which the car makes use of energy stored in a battery pack and has no internal combustion engine and fuel tank. This is also known as an all or pure electric vehicle as electric motors and controllers are used instead of internal combustion engines. The Tesla that we are using in our study is a battery electric vehicle. The Market Surrounding Electric Vehicles Why the Pessimism? Despite many auto companies splurging billions of dollars on new battery technology and producing cars that are environmentally friendly, there is still a lot of pessimism surrounding the electric vehicle. This is primarily because many car companies have faced extremely high costs, a difficult political climate and technological collapses. Many car manufacturers like General Motors have temporarily shut down the production of their rechargeable plug-in Chevrolet Volt as the sales slumped. Furthermore, the Nissan Leaf is also struggling and many of the start-up electric vehicle and battery manufacturing companies have not been able to sustain themselves in today s competitive market landscape. As the Chevrolet Volt failed during a federal crash test, the manufacturers stated, they did not engineer the Volt to be a political punching bag. And that, sadly, is what it s become. Therefore, this leaves many questioning whether government subsidies and consumer rebates are necessities to keep the electric vehicle market afloat. 7 7 Broder, J.. N.p.. Web. 9 Dec < 11

12 However, this pessimistic outlook for the electric vehicle market is certainly improving given the increases in political support for environmentally friendly vehicles. Issues such as Global warming, energy security and rising gas prices are shifting the popular sentiment in favor of electric vehicles which include hybrids, plug-in, extended-range hybrids and full-battery cars. The primary hindrance in this wave of optimism is that time required for the extensive research and development needed to ensure innovation, and cost reduction that would spur further consumer acceptance for the product. Figure 4 Chart displaying possible factors leading to the pessimism of purchasing Electric vehicles. Source: Electric Power Research Institute Electric Car Market in the US Within the United States, the market for electric and plug-in electric cars is relatively small and amounted to less than 20,000 sales last year. In terms of the cars that are contributing to the sales, we see that the Nissan Leaf and the Tesla Model S are shining in comparison to Furthermore, Ford has an electric and hybrid fleet of vehicles which is also performing well due to the introduction of new models towards the end of

13 In order to gauge the performance of Electric Vehicles in the US market, we can first take a deeper dive and look at the year-to-date sales of cars for various big players in the industry from the end of September 2013 as compared to the end of September The chart below illustrates the year-to-date sales for the individual car manufacturers and lays out the market landscape for electric vehicles within the United States. 13

14 Ford Electric and Hybrid Vehicles sales September 2012: 15,708 September 2013: 67,232 Sales up % GM Electric and Hybrid Vehicles sales September 2012: 42,445 September 2013: 38,498 Sales down 9.3% Honda Electric and Hybrid Vehicles sales September 2012: 14,739 September 2013: 13,929 Sales down 5.5% Nissan Electric (Nissan Leaf) sales September 2012: 5,221 September 2013: 13,929 Sales up % Porsche Electric and Hybrid sales September 2012: 1,291 September 2013: 552 Sales down 57.24% Toyota Electric and Hybrid sales September 2012: 247,878 September 2013: 271,538 Sales up 9.55% September 2012: 160 September 2013: 13,050 Sales up % Tesla sales Figure 5 Year-to-date sales (September 2013 and September 2012) by Car Manufacturer Source: EVObsession 14

15 The diagram above illustrates a strong growth for Ford, Nissan and Tesla. General Motors is struggling as difficult market conditions as well as the limited launch of the Chevrolet Sparks in few markets has lowered their total sales. Tesla s growth is incredibly strong, however, in absolute value in comparison to its competitors its overall volume is low, It must be noted that Tesla doesn t release monthly sales reports; therefore, the data above is based solely on quarterly sales. There are two primary reasons for Tesla s low sales. Firstly, Tesla is trying to break into the market in Europe and so had to transfer some of its limited supply of vehicles outside of the United States. Secondly, given that Tesla is a growing company it is constrained in terms of resources and production capability and thus is unable to meet the excessive demand the vehicle generates. If we take a macroscopic view of the electric vehicles market and look at their year-to-date sales within the United States, we see that 100% electric vehicle car sales are 33,617 as compared to 6,135 in September Furthermore, both Plug-in hybrid car sales and conventional hybrid electric car sales are also up a fair amount, averaging an increase of 28% since September If we are to combine all the hybrid and electric car sales from January 2013 until September 2013, we get a figure of 426,580 cars sold within the United States. This is an increase from the number of hybrid and electric cars sold between January 2012 and September 2012, which only amounted to 327,873 cars within the United States. 8 8 Zach. "100% Electric Car Sales Up % In US In 2013." EV Obsession. N.p., n.d. Web. 09 Dec

16 Global Electric Vehicles Market Upon investigating the Electric Vehicles market globally, a report carried out by IDTechEx denotes that the total market for hybrid and pure electric vehicles is 38.8 million vehicles for the year With regards to pure electric car sales in 2013, IDTechEx reports that this value would be close to 70,000 vehicles. This report also makes projections for the global electric vehicles market as pure electric car sales are meant to rise to 2 million by On the other hand, hybrid vehicles make up 2 million cars today and are meant to rise up to 7.6 million in Lastly, on a broader note, IDTechEx projects the total market for electric vehicles to increase to 116 million vehicles by 2023 from the 38.8 million vehicles in The chart below illustrates the global light duty electric vehicle sales forecasts done computed annually and carried out by Navigant Research. The chart distinguishes the vehicles by various drivetrains: BEV (Battery Electric Vehicles), PHEV (Plug-in hybrid vehicles) and HEV (Hybrid electric vehicles). 9 "Hybrid & Pure Electric Vehicles for Land, Water & Air : Forecasts, Technologies, Players." : IDTechEx. N.p., n.d. Web. 09 Dec

17 Figure 6: Annual Light Duty Electric Vehicle Sales by Drivetrain, World Markets: Source: Navigant Research 17

18 5. Choosing an Electric Car Figure 7: The Newest Tesla Model S 2013 Tesla, The Gold Standard Tesla Motors, Inc (NASDAQ: TSLA) is a quickly growing American company that designs, manufactures and sells electric cars and electric vehicle components. In 2008, Tesla Motors introduced the Tesla Roadster, which was the first mass produced highway capable all-electric vehicle available in the United States. A year later, during the Frankfurt Motor Show, the company revealed the Tesla Model S, a new and improved all electric-car. By June 2012, the Tesla Model S was available for the general public to acquire The Tesla Model S is the current Gold standard we are using for an electric car. This specific model is considered the first fully electronic luxury sedan. The car boasts superior technology to its 10 "Tesla s Stocks Soar." First to Know. N.p., n.d. Web. 09 Dec < 11 Abreu, Pauline. n.d. n. page. < 18

19 competitors, providing peak performance statistics in terms of mileage and emissions of pollution. Tesla Model S s Swappable Production coupled with its ever-growing Super Charger Network has made consumers gain confidence in the efficiency and feasibility of owning an all-electric powered car. In addition to these factors, this specific model s chic styling and safety record has allowed the car to quickly gain popular support, where other manufacturers have failed. With its clear competitive advantage, Tesla Model S epitomizes the idea of a fully electric car and hence serves as the unit of analysis for our research. Efficiency: Technological Advantage The Tesla Model S has been developed with superior technology that makes it a clear frontrunner among its competitors. The Model S is equipped with either a 60 kwh battery or an 85 kwh battery. For the purpose of this study, we have chosen the base model containing 60 kwh battery owing to the fact that it is more affordable and hence more widely accessible. According to Tesla, the 60 kwh battery is estimated to deliver 230 miles while the United States Environmental Protection Agency (EPA) estimated a more conservative 208 miles. The 60 kwh battery Model S has a maximum speed of 120 mph, and can reach 0 to 60 mph within 6 seconds. Therefore, apart from the price point it has the technology to place it in the luxury market segment. This electricity efficiency is technology that is second to no other Regarding the specific specifications, the base Tesla Model S uses a 362 hp (270 kw) and 325 ft.lb (440 N.M) motor. According to the car manufacturer, the Tesla Model S has a drag coefficient of C d =0.24 (an average car has a C d =0.30 to 0.35). Under the rigorous five-cycle testing done by the United States EPA, the 60 kwh model S achieved a combined fuel economy equivalent to that of 95 Miles Per Gallon Equivalent (MPGe), an equivalent 95 MPGe within city driving and 12 "Tesla Model S 60-kWh Version: EPA Range Rated At 208 Miles." Green Car Reports. N.p., n.d. Web. 09 Dec "Model S Features Tesla Motors." Model S Features Tesla Motors. N.p., n.d. Web. 07 Dec

20 97 MPGe on highways. The car s low drag design, coupled with its efficient use of battery allows the Model S to gain a competitive advantage against its competitors and furthers elucidates why we chose it as the gold standard for our analysis In December 2012, Tesla furthered its energy preservation system by introducing a software update that featured new energy-saving sleep functionality. The update enables the Model S owners to choose between keeping the displays and vehicle electronics instantly available at all times or making the displays and electronics go to sleep whenever the functionalities were not in use. Even though this sleep state implies a modest increase in time it takes for the touchscreen and other such panels to fully turn on, using this new software was said to improve the car s range up to 8 miles per day. This small but significant innovations emphasis the continued innovation by Tesla s to further improve its energy efficiency "Find and Compare Cars." Find and Compare Cars. N.p., n.d. Web. 08 Dec "2012 Tesla Model S." Motor Trend Magazine. N.p., n.d. Web. 09 Dec Berman, Bradley. "One Big Step for Tesla, One Giant Leap for E.V. s." The New York Times. N.p., n.d. Web. 9 Dec "Tesla Model S Will Gain Range in "sleep Mode" Software Update." AutoblogGreen. N.p., n.d. Web. 09 Dec

21 Figure 8: Tesla Model S Interior with Sleep Function Convenience: Swappable Production and Super Chargers Network The Model S, through its Swappable Production and Super Charger Network is able to provide a convenient way of refueling the car, a challenge that other electronic cars still face today. Tesla Model S cars contain a lithium-ion battery. The battery packs, as of the year 2012, are manufactured using nickel-cobalt-aluminum cathodes and are located within the cabin floor, providing a very low center of gravity. This battery is guaranteed by Tesla to last for eight years. However, apart from the longevity of the battery, the convenience in charging is what enables the Model S to be viable primary vehicle. To enable the expansion of its market, Tesla began developing supercharger stations all over the US to ensure that its Model S would be a viable option for long distance trips. The first 18 "Leaving Baggage On the Dock, a Flagship Departs From California." Wheels Leaving Baggage On the Dock a Flagship Departs From California Comments. N.p., n.d. Web. 09 Dec "First Drive: Tesla's Model S Electric Is Spectacular." USA Today. Gannett, n.d. Web. 09 Dec

22 constructed superchargers are primarily focusing on regions with high traffic volumes. While 37 current charging stations are currently prevalent, Tesla plans to quadruple the number by 2016 and has a long-term plan to develop 480 of these all over the country. These stations would enable charging the vehilces to full capacity within 75 minutes and in addition to promote its use, would be free to all owners of the Tesla Model S. To increase its international footprint, Tesla aims to develop a similar network in Asia in the not so distant future. Therefore, with the significant capital expenditure planned by the firm to increase the viability and hence the market share of its electric car, Tesla has enormous potential as actually being a family s primary vehicle. This first step of building super chargers has allowed the Model S to be used more interchangeably with gasoline-powered cars, which is something all precedent electronic cars have failed to do. Recently, the company a announced that all existing stations in the supercharger network, and all new stations being constructed, would become Tesla exclusive stations, and have facilities to support under-two-minute battery swaps for the Tesla Model S. The Tesla Model S have been designed to allow fast battery swapping. The swappable production allows the Tesla Model S change its batteries from an empty battery to a fully charged battery within two minutes, which is approximately half the time it takes to refill a gasoline-powered car. Unlike the free recharging, this service will be priced at about 15 US gallons of gasoline, which, depending on one s current location, would cost an estimate range of USD. Swappable battery allows an electronic car to refuel in less time than a gasoline-car. This innovation with this new battery swapping system, has the potential to help Tesla produce an electric vehicle that is more convenient than gasoline cars "At Tesla s Party, Superchargers and Delivery Dates." Wheels At Teslas Party Superchargers and Delivery Dates Comments. N.p., n.d. Web. 09 Dec "Supercharger Tesla Motors." Supercharger Tesla Motors. N.p., n.d. Web. 07 Dec Rogowsky, Mark. "Tesla 90-Second Battery Swap Tech Coming This Year." Forbes. Forbes Magazine, 21 June Web. 09 Dec

23 Figure 9: Existing and Planned Supercharger Stations by 2015 Figure 10: Swappable Battery, Core to Tesla s Success 23 "Green Car Congress: Tesla Motors Demonstrates Battery Swap in the Model S." Green Car Congress: Tesla Motors Demonstrates Battery Swap in the Model S. N.p., n.d. Web. 09 Dec

24 Safety Tesla Model S is considered the safest car ever tested on the streets. On August 19, 2013, the National Highway Traffic Safety Administration (NHTSA), an independent organization, awarded Tesla Model S a 5-star rating. This Model S also achieved the prestigious 5-star rating in every single sub category possible. Although there is no published rating above 5, it was noted that the overall Vehicle Safety Score (VSS) of 5.4 achieved by the Model S was a new record. The car has now set a new record as the lowest likelihood of injury to occupants. The electric car has the advantage during these tests due to not having a large gasoline engine block. Not only does this create a reduce chance of injury from gasoline ignition but also creates a longer crumple zone to absorb impact. This high level of safety is one of the primary unquantifiable benefits associated with the Model S. 24 Figure 11: US New Car Assessment Program 24 "Press Release." Tesla Model S Achieves Best Safety Rating of Any Car Ever Tested. N.p., n.d. Web. 09 Dec

25 Summary Hence, to summarize, below are the pros of cons of using the Model S as our gold standard for our research. Pros - Tesla Model S contains an extremely efficient battery, offering enough fuel for a distance of 230 miles per fully charged battery. - Has an extremely high estimated miles per gallon of around 94 MPGe. - Continuous advancements in technology saving energy, such as the sleep software Current supercharger stations in existence. Expected to grow exponentially in the next 2 years. This provides fast charging for free. - Swappable batteries, although not free, allows a alternative to recharging that is quicker than refueling a gasoline run car. - Extremely safe. Tesla Model S has achieved the highest safety ranking of any car to be tested by NHTSA Cons - It is an expensive vehicle and only caters to the luxury car market. (Although it plans to develop a $30,000 electric car by 2015) - The infrastructure to start its expansion is still being constructed and is not completely in existence right now - - It is a relatively new concept and hence still requires widespread public support Given that it is a relative new company, its stock price and hence access to capital resources is extremely volatile and this could have implications on its future research and investment 25

26 6. Choosing a Gasoline Car: Comparison for The Tesla Model S In selecting a traditional gasoline car to use in the cost-benefit analysis presented in this paper, a range of criteria was taken into account. First, we considered the set of cars that would be considered the closest competitors of the Tesla Model S. Given that Tesla markets itself as a premium or luxury car, it is important that we restrict our set of potential comparable cars to others that are also categorized in this manner. This is highly important insofar as the Tesla Model S is not being targeted towards buyers of non-premium vehicles, thereby making the comparison to a non-premium vehicle less than insightful. Additionally, while being a premium car, the Tesla Model S also has the functionality of being an everyday car - not one to be reserved for weekend use only. This led us to consider the set of: BMW 528i, Mercedes Benz E350, and Audi A6. At this point, we inspected which of these three cars has had the strongest sales trend in the United States automotive market. This was considered the second most important factor in establishing a comparable gasoline car because this would be irrefutable evidence that there are market forces leading consumers to buy certain luxury vehicles over others. This is to say that we took this to be evidence of the average or model luxury gasoline sedan. To this end, the following chart is very important: 26

27 Figure 12: New Car Sales Through June 2013 In light of this, we have decided to select the Mercedes Benz E350 as our model premium gasoline vehicle. Additionally, the study from which this data was taken, conducted by Forbes, notes that between the three aforementioned vehicles, the Tesla Model S is contending most directly with the E-Class and the 5-Series. 25 Lastly, we also compared this to other standards. Tesla Motors conducted a study and determined that the average city MPG for a gas powered vehicle comparable to a Tesla Model S is 22, whereas the Mercedes E350 has a city MPG of Additionally, according to a study conducted by U.S. News and World Report, the average price paid for a new premium vehicle in 25 Rogowsky, Mark. "Numbers Don't Lie: Tesla Is Beginning To Put The Hurt On The Competition." Forbes. Forbes Magazine, 24 Aug Web. 08 Dec "Your Questions Answered Tesla Motors." Your Questions Answered Tesla Motors. N.p., n.d. Web. 09 Dec

28 March 2013 was $47, Comparatively, the Mercedes E350 has a baseline price of $51, Therefore, in addition to competing with the Tesla in terms of lifestyle and target audience, the Mercedes Benz E350 is also in the range of the average fuel economy and pricing for premium vehicles. Therefore, we believe that comparing the Tesla Model S to the Mercedes Benz E350 is the most insightful comparison for the purposes of the cost-benefit analysis presented in this paper. Comparison for The Unreleased Tesla Tesla Motors has projected that by 2016 or 2017 they will announce a new $30,000 Tesla vehicle. Given that this vehicle will likely be marketed towards a very different demographic than the target audience of the Model S, we propose that once the specifications of the new vehicle is released a cost-benefit analysis should be performed between the new Tesla and a non-premium gasoline vehicle. For this analysis, we propose that the point of comparison for this future Tesla should be the Toyota Camry. 27 "Luxury Car Market Hits Six-Year High." Best Car, Truck and SUV Rankings and Reviews from U.S. News. N.p., n.d. Web. 09 Dec "E " Mercedes-Benz USA. N.p., n.d. Web. 09 Dec

29 Figure 13: Auto Industry Average Transaction Prices by Year from 2003 to 2013 We used a variety of factors to select the Toyota Camry. First, USA Today conducted a study that resulted in the finding that the average automobile price in 2013 was $31, Additionally, a study conducted by Autoblog.com found that currently, the average vehicle has a city MPG of The Toyota Camry has a cost of $23,235 and a city MPG of In this light, the Camry is considerably less expensive than the average price of a vehicle and has a marginally better fuel economy. Lastly, the Camry has been the best selling automobile in the United States from 2009 to Therefore, we believe that in order for the unreleased Tesla to gain a considerable market share and have a strong penetration rate, it should be compared with Toyota s Camry. In this paper, 29 "Report: Average Price of New Car Hits Record in August." USA Today. Gannett, n.d. Web. 08 Dec "Average New Car Fuel Economy Hits Record 24.9 Mpg." Autoblog. N.p., n.d. Web. 08 Dec "Camry & Camry Hybrid 2014." Toyota Camry N.p., n.d. Web. 06 Dec "Good Car Bad Car" Top 20 Best-Selling Cars In America. N.p., n.d. Web. 09 Dec

30 we will provide a speculative cost-benefit analysis between the two vehicles by assuming some specifications of the unreleased $30,000 Tesla vehicle. 7. Comparing the Average Electric and Gasoline Cars: A Cost Benefit Analysis of a Single Electric Car Compared to a Single Gasoline Car Summary of Cost Benefit Analysis Methodology The best method to analyze the benefits of the electric car over the gasoline car is through a simple Benefit Cost Analysis. We divided this analysis into quantitative and qualitative components. In the former section we quantify all of the real world benefits of the electric car; this provides us with a frame of reference to understand the topic at hand. It is emphasized here that our analysis is not comprehensive due to the limited scope of the project and limited of data available. Nonetheless, we have attempted to present as useful a picture of our model comparison as possible. For reasons discussed previously the Tesla Model S sedan was used as the standard electric car and the Mercedes Benz E350 was used sedan was used as the standard gasoline car. The analysis was organized as follows: Analysis from the perspective of the consumer o Procurement of the car o Usage of the car o Disposal of the car Analysis of the environmental and externality related benefits and costs o Manufacture of the car o Usage of the car 30

31 o Disposal of the car Simplifying Assumptions In order to have consistency in calculations and results, we must take into consideration some simplifying assumptions. 1. We operated in a simple two car model in which the consumer is only given the option of buying and electric car or buying a gasoline car 2. The consumer is assumed to use the car for the entirety of its lifespan, a period we found to be eight years based on reliable automotive data 3. We chose the model electric car to be the Tesla Model S sedan 4. We chose the model gasoline car to be the Mercedes Benz E350 sedan 5. We assumed that the annual distance traveled in each car was 15,000 miles 6. The electric car was recharged at home 70% of the time and was recharged at a supercharging station 30% of the time 7. The gasoline car was refueled four times a month 8. The round trip distance traveled to refuel the gasoline car was 10 miles 9. The time spent refueling the gasoline car was 10 minutes 10. Time was valued at the rate of $50 an hour 11. The cost of electricity was based on the US national average and was assumed to be 11 cents per kwh 12. Projections of future gasoline, premium gasoline and electricity prices were obtained by using near term projections in combination with back-calculations based on 2020 projections. 13. We assume that there are no additional costs apart from those mentioned 31

32 14. We will assume that car prices will not fluctuate over an 8 year period even excluding inflationary tendencies 15. We make several assumptions regarding carbon emissions 16. We assume that the environmental cost of recycling and disposal of a car is 20% of its gas consumption and emission cost 17. The cost of recycling 1 tonne of Lithium Ion batteries is $1000 over the next 8 years. This is predicted to reduce to a number as low as $300 per tonne but we did not want to speculate on the ever changing nature of battery technology 18. Since the technological advancements are rapid and the effect of technological improvements within the timeframe we are calculating costs can be hard to predict, we assume constant savings growth rate across years 1 through 10, beyond which we are unable to predict or uncertain of. 19. The cost of distribution of gas is 8% of the cost of gas 20. Around 7% of electricity is lost in its transmission and distribution 21. We utilized a discount rate of 7% over an eight year horizon The first step of the analysis was to compare the cost of the car to the consumer. It was important for us to compare the costs and benefits the consumer faced since the direct savings to the consumer is representative of an allocation of capital resources. Upfront Cost Comparison The first comparison we performed was on the upfront cost of the vehicle to the consumer. The steps we believe will lead to mass electric car adoption are outlined below: 32

33 1. Begin with an ultra high cost ultra low volume electric car. This is done to fund the Research & Development of future electric vehicles and has taken the form of the first electric sports car the Tesla Roadster. 2. Medium cost medium volume electric car. This is done to introduce the mass automobile market to the radical possibility of using an electric car as a primary vehicle. This vehicle triggers the framework for the introduction of future electric cars. The Tesla Model S an electric luxury sedan is one of these vehicles. 3. The final step is to release a low cost high volume electric car with the intent of capturing a large market share and transitioning the world into electric vehicles. The medium cost medium volume electric car is the Tesla Model S. This is the most recently launched Tesla electric car and is well representative of the medium cost electric car. The Tesla Model S falls into the luxury car market and as outlined earlier is most closely comparable to the Mercedes E350. Tax and Other On the Road Vehicle Cost Upfront Cost Credits Cost Tesla Model S $73, $(7,500.00) $66, Mercedes E350 $51, $51, Tesla Cost Savings $(14,170.00) In an effort to promote sustainable, fuel-efficient vehicles, the Federal Government gives certain cars a green tax credit of $7,500. The Tesla Model S falls under the green category and is 33

34 therefore included in this list. Essentially this means that the effective cost of buying a Tesla Model S is its Retail Cost less the amount of the tax credit. Indeed, some states do offer additional benefits and incentives to owning an electric vehicle such as state tax credits, free parking, and more, leading to a net benefit of over $15,000 but we have retained the conservative estimate of $7,500. The upfront, on the road cost of owning an electric car was found to be $14,170 more than that of owning a gasoline car. The price differential that the consumer is presented is not representative of the real difference between the two vehicles. Although this may curb demand for electric vehicles in the short run, our cost benefit analysis will shed light on the actual difference. Cost of Fuel The next most obvious cost comparison to the consumer was the cost of fuel. The gasoline car, the Mercedes E350, ran on premium gasoline. The electric car was powered by pure electricity. First, we calculated the annual cost of refueling the gasoline car. We began with the assumption that the car would travel 15,000 miles a year. The car was assumed to require a refueling at a gas station once a week. This equated to 48 times per year. The round trips to the gas station were assumed to be 10 miles. This added an additional 480 miles per year to the mileage of the gasoline car. So the dollar value cost of gas for the gasoline car was found to be $ for the year 2013 based on the following formula: (15480 miles/year) / (22 miles/gallon) * ($3.89/gallon) 34

35 Energy Cost Gas Cost/yr Tesla Model S 0 Mercedes E350 $2, Total Cost Savings/yr $2, It was then necessary to calculate the prices of fuel for the next seven years. For the years 2013 and 2014 we used accepted month-to-month near term estimates of oil prices to calculate prices for premium gasoline. Prices (dollars per gallon) Retail Refiner Price Month Gasoline Cost of Oil Difference Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan

36 Feb Mar AVG Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr AVG May Jun Jul Aug Sep Oct Nov Dec Source: Short-Term Energy Outlook, November 2013 Crude oil price is composite refiner acquisition cost. Retail prices include state and federal taxes. For the following years we used a very conservative averaged estimate of the cost of gas in 2020 and back - calculated prices for the intermediate years using a fixed rate of price growth. 36

37 U.S. Gasoline and Crude Oil Prices dollars per gallon Price difference Forecast 0.00 Jan 2009 Jan 2010 Jan 2011 Jan 2012 Jan 2013 Jan 2014 While we were able to estimate the price of regular gasoline, we needed the price of premium gasoline. For this, we used a historical price differential comparison and forward calculated Crude oil price is composite refiner acquisition cost. Retail prices include state and federal taxes. it for Source: an eight-year Short-Term time Energy frame. Outlook, The difference November in 2013 price between regular and premium gasoline was found to begin at with a difference of $0.40 and increase at a rate of 12% annually. 37

38 With all of this data we were able to arrive a price projections for premium gas from 2013 to Due to the nature of global oil prices, there is a very large possibility that these prices will not come to fruition. In general, the forces of a limited supply and increasing global demand indicate an upward trend but the discovery of new oil reserves and changes in technology could have a marked impact on oil prices. Energy Price Projections Regular Gas Premium Gas 2013 $3.49 $ $3.39 $ $4.52 $ $5.65 $ $6.78 $ $7.91 $ $9.04 $ $10.17 $11.27 Using this data we are able to calculate the annual cost of fuel in the Mercedes E350 gasoline car over its lifespan, 8 years, and arrive at a net present value for the cost of fuel. On the other hand, for the all-electric Tesla Model S car we calculated the annual cost of electricity as follows: (15,000 miles/year) * (70% miles charged at home) * (0.3 kwh/mile) * ($0.11 /kwh) In this scenario, only 70% of the 15,000 miles the car travels are charged at home, costing the consumer. The remaining 30% of the annual mileage is powered by charging at a supercharging station for free. The 0.3 kwh/mile is a calculated number for electricity economy of the Tesla Model 38

39 S, which factors in the on road energy consumption per mile traveled in real world conditions. It is the electric equivalent to the miles per gallon metric for gasoline car. The cost of electricity for the average American household was found to be eleven cents per kwh. The reason we did not add round-trip mileage for visits to the supercharging stations was due to the fact the people are seen to be using the supercharging stations only during long haul trips; the supercharging stations are on the route and so do not add additional, unnecessary mileage to the transit. We obtained the cost to fuel a Tesla Model S electric car to be $ for the year Electricity Total Energy Energy Cost Gas Cost/yr cost/yr Cost Tesla Model S 0 $ $ Mercedes E350 $2, $2, Total Cost Savings/yr $2, In order to calculate the cost over the next seven years, we had to project the cost of electricity. Similar to predicting gasoline prices, this was also a very uncertain forecast. We used historical data to arrive at a household electricity price growth rate of 10 percent per annum. 39

40 Energy Price Projections Regular Gas Premium Gas Electricity 2013 $3.49 $3.89 $ $3.39 $3.89 $ $4.52 $5.12 $ $5.65 $6.35 $ $6.78 $7.58 $ $7.91 $8.81 $ $9.04 $10.04 $ $10.17 $11.27 $0.21 Using the annual cost of energy for the electric car over an eight-year period and the annual cost of gasoline for the gasoline car over the same period we were able to arrive at a cost savings of $25, in present terms. 40

41 Year Savings 2013 $2, $2, $3, $4, $4, $5, $6, $7, NPV of Savings $25, Cost of Time The time one spends refueling can be treated as time lost. Using the principle of the opportunity cost of time, we calculated the cost of the time wasted during the process of refueling the car. The cost of time was assumed to be $50 per hour. Keeping with the assumption that a gasoline car is refueled once a week, and it takes 10 minutes to fill gas, we arrive at a number for the cost of time per year for the gasoline car. (4 occurences/month) * (12 months/year) * (10 minutes/occurence) / (60 minutes/hour) * $50 /hour) Similarly for the electric car, we assume that recharging at a supercharger takes 20 minutes and that the car owner would charge at the supercharging station 30% of the time we would at a gas station, or once a month. 41

42 $50 /hour) (1 occurences/month) * (12 months/year) * (20 minutes/occurence) / (60 minutes/hour) * We obtain that the benefit of an electric car is $200 each year for eight years. Opp. Cost - Refuel Cost of time Tesla Model S $ Mercedes E350 $ Total Cost Savings/yr $ Therefore, the discounted present value of this benefit was found to be $1,194. Year Savings 2013 $ $ $ $ $ $ $ $ NPV of Savings $1,

43 True Cost of Ownership of Car Of course, there are other factors that come into play when calculating the true cost of ownership of a car. Depreciation, maintenance and repair costs and insurance also affect the consumer s price burden. We used an established cost of ownership calculator 33 to calculate the cost of ownership for the Mercedes Benz E350 over a five-year period. We then projected this out over the eight-year lifespan of the car. Similarly, we also calculated the true cost of ownership for the Tesla Model S. 33 "2013 Toyota Camry." 5 Year Cost of Ownership. N.p., n.d. Web. 09 Dec

44 44

45 As indicated in the table above, the total present value benefit in ownership of the Tesla Model S over the Mercedes E350 was found to be $5, This is largely due to the guarantee program that Tesla operates which prevents any serious depreciation of the car. Taking all of these factors into account, the total benefit for the consumer, or car owner is the sum of the individual benefits of the upfront costs, the gas and energy costs, the time costs, and the costs of ownership. This aggregate benefit to the consumer was found to be $17, for each Tesla Model S sold in place of a Mercedes Benz E350. Now we will discuss the environmental and externality related benefits of the car. Although it may seem counter intuitive, instead of following the organizational structure listed above: Manufacture of the car Usage of the car Disposal of the car We will first calculate the environmental cost of usage of the car and then calculate the combined cost of manufacture and disposal. External Cost of Carbon Emissions Below, we present a table summarizing unit costs of carbon estimated by two important pieces of literature and estimates of the EU Price of Carbon Permits. We will use these estimates or average in our subsequent quantitative analysis. In particular, we will use these estimates to calculate the externality saving of carbon emission abatement through efficiency gain. For purposes of consistency, all estimates were converted to 2013 dollars using the US Consumer Price Index established by the US Department of Labor. For the purpose of this paper, we focused on Yale Economist William Nordhaus 2011 paper on the Social Cost of Carbon (SCC). The study, titled Estimates of the Social Cost of 45