The Tesla Motors Electric Vehicle Strategy for South Korea

I am working on two essays, but it is going to be a couple more days before I have either one of them finished. One is about the recent USDA report on the energy return of corn ethanol. This essay will include a look back at how the USDA’s methodology of allocating energy inputs has changed over the years, and how that impacted upon the calculated energy return for ethanol.

In the second essay, I will discuss in some detail my graduate school work (which I have never done on this blog), and report on where the process stands today. The process in question is the MixAlco Process and was developed in the lab of my former research advisor, Professor Mark Holtzapple at Texas A&M.

In the meantime, it is time to put up some new material. Kevin Kane, author of the Energy Fanatic Blog, has provided guest essays here before:

Energy Security Populism: Oil Prices, American Leaders, and Media

Iraq Oil & Gas Production: Geopolitical Compromises and Kurdish Autonomy

American Freedom from Oil: A Bipartisan Pipedream

His most recent piece touches on a topic that is frequently discussed here: The potential of electric cars. It was written for a South Korean audience, but some of the issues Kevin mentions are topics frequently debated here, and should provide some basis for discussion while I finish up these next two essays.


The Tesla Motors Electric Vehicle Strategy for South Korea:

Luxurious, Sexy, and Fast Electric Vehicles

By Kevin Kane

Energy Market Analyst

On occasion, electric vehicle critics suggest that they are too expensive to compete with combustion engine vehicles, but this is not true. In fact, high-end, 500-kilometer range, luxury electric vehicles such as the Tesla Motors Model S, priced at $57,000 ($49,000 after tax incentives), set for production in early 2012, are very competitive, if not superior, to gasoline and diesel engine vehicles in the same performance class. With a 0-96 kilometer hour time of 5.6 seconds, the Tesla Model S performs like a Mercedes E550, offers a base price in the same range, and looks as beautiful as a Hyundai Genesis.

If successful as a start-up company backed with hundreds of millions of dollars in private capital and a $465 million dollar low-interest loan from the U.S. Department of Energy, Tesla will prove that the future of electricity-fueled vehicles will not be in slow moving city-cars, but instead it will be in sexy and luxurious electric sports cars and sedans that fully substitute gasoline and diesel-powered vehicles in each class.

The image of electric vehicles being small and slow should be removed from all policy directions and discussions for the following reasons:

(1) Battery costs are presently too high to profit from a low cost compact electric vehicle;

(2) Sedan-size electric vehicles offer companies more profit than small vehicles due to battery costs that can range from $12,000 to $36,000 depending on size and financial scheme;

(3) Smaller electric cars have smaller batteries that increase the frequency of charging, which increases the chance for exceeding peak load capacity if they eventually number in the millions; Thus, short range, small electric vehicles can result in electricity black outs while long-range sedan-size highway-capable vehicles may not; and

(4) Korean people like large size cars, not small ones. Smart companies only give people what they want, not what out-of-touch elites think would be good for them.

Electric vehicles that are profitable should be very fast, sexy, and luxurious. Goldman Sachs, JPMorgan, Deutsche Bank and Morgan Stanley all agree, evidenced by the fact they all are serving as underwriters for Tesla Motors.

In 2012, Tesla will start producing approximately 20,000 Model S sedans per year that cost $57,000 each ($49,000 after a $7,500 U.S. government tax credit). By 2013, Tesla may produce a long-range electric sedan that costs $30,000. Rather than wait for costs to come down to produce compact electric vehicles, Korean car companies may want to begin producing high-end luxury electrical sedans today while the rest of us will just have to wait until prices fall; otherwise, Korean car companies could fall behind their emerging competition, Tesla Motors, a company often called the Apple iPhone of cars.