|
|
| Fig. 1: Tesla Supercharger Station. (Source: Wikimedia Commons) |
In 2013, President Barack Obama laid out his Climate Action Plan which called for an increase in fuel economy to the equivalent of 54.5 mpg by the model year 2025. [1] When the plan was released, it was the first significant improvement in fuel efficiency standards in over three decades. Over the course of the program, the Obama administration estimated that they would save consumers $1.7 trillion. [1] The plan never wound up coming to fruition because the Trump administration rolled back the guidelines by freezing them at the model year 2020. Trump ran for President on a policy that overregulation was stymieing economic growth. [2] With the presidential election coming up, it is possible that if Joe Biden wins, car emission standards will be raised and car manufacturers will be pushed towards making electric vehicles. The government could try to encourage this change by reinstating the Obama emission standards or subsidizing electric automotive research and development. Tesla is the premier name in the electric automotive industry and will benefit from this type of regulation.
Since the Climate Action Plan came out in 2013, most automobile manufacturers haven't made significant improvements in their fuel efficiency. [3] No combustion engine automobile makers are close to having a car that runs at 54.5 mpg. [3] Electric cars circumvent the regulations put onto automobiles because they don't run on fossil fuels and can't truly be measured in miles per gallon. If regulation is increased in the automotive industry, companies will be intrigued by the idea of using electric solutions to get around the regulation.
Tesla's stock price has been indicative of the advantage they have over other car manufacturers in terms of fuel efficiency. The company has a market capitalization of $395 billion in Q3 2020. Tesla also anticipates an increase in legislation in the automotive industry. [4] This legislation is likely to be centered around subsidizing electric automotive research and development. Tesla's market capitalization is especially interesting when compared to companies like Toyota that sells more cars, but is worth $200 B + rather than $350 B +.
One reason Tesla's stock has significant value is because they have an advantage over any other car manufacturer. If the government continues to try to put pressure on car manufacturers to increase their efficiency, Tesla will have a first to market advantage over the other car manufacturers as they shift to electric vehicles. Tesla also is well-positioned if other manufacturers start to move to electric vehicles because they have already built out charging infrastructure. Tesla currently has over 2,000 charging locations. [4] Tesla could monetize this network in the future by letting all cars charge at their stations. The recent increase in market capitalization for Tesla can be attributed to their expertise in electric automotive which seems to be the future of the automotive industry.
© Scooter Harrington. The author warrants that the work is the author's own and that Stanford University provided no input other than typesetting and referencing guidelines. The author grants permission to copy, distribute, and display this work in unaltered form, with attribution to the author, for noncommercial purposes only. All other rights, including commercial rights, are reserved to the author.
[1] "Improving the Efficiency of American Trucks," The White House, February 2014.
[2] M. Mehling, Michael and A. Vihma, "'Mourning for America' - Donald Trump's Climate Change Policy," Finnish Institute of International Affairs, October 2017.
[3] "The 2019 EPA Automotive Trends Report - Executive Summary," U.S. Environmental Protection Agency, EPA-420-S-20-001, March 2020.
[4] "Tesla, Inc., Annual Report on Form 1-K For the Year Ended December 31, 2019," Tesla Inc, February 2020.
.jpg){kind=link}