Markets

Will Cheap Oil Prices Cause Tesla Motors, Inc. to Tumble?

WTI Crude Oil Spot Price Chart
WTI Crude Oil Spot Price Chart

WTI Crude Oil Spot Price data by YCharts

As oil prices became more expensive, oil lost its competitive edge. In the electricity power sector, oil-fired power generation dropped 75% from 2002 to 2012. And in the automotive sector, automakers have been steadily manufacturing and marketing increasingly fuel-efficient vehicles. Or, in Tesla Motors' case, cars that don't require any fuel at all.

Source: EPA.gov.

Oil and gasoline prices are inseparable : we need oil to make gasoline. So as oil prices have declined, so have gasoline prices. Americans are currently paying an average $2.54 per gallon at the pump, on par with the prices we paid a decade ago.

WTI Crude Oil Spot Price data by YCharts

One of Tesla Motors' marketing points is the savings you'll recover by filling up from an electrical outlet rather than a pump. But using the fuel efficiency metrics and gasoline prices above, as well as Tesla Motors' own savings calculator, the times have changed. In 2010, with gas prices around $2.90 per gallon and fuel efficiency at 26 miles per gallon, Tesla owners could expect to save $2,298 per year in gasoline.

Source: Tesla Motors; assuming 30,000 miles driven per year.

Don't Sell Tesla Motors Yet

Fortunately for long-term investors, there's more to an investment thesis than real-time, cost-competitive comparisons. We'll leave going bananas to the data monkeys. There are two main reasons cheap oil prices aren't the end of Tesla Motors.

First, gasoline is something economists call an inelastic good. That's a fancy way of saying that, when gasoline prices go up, people still drive the same amount. Think about it. You may have grumbled when pump prices hit $4 per gallon, but did it stop you from going to work or running errands? Did you buy an electric car on the spot? No. You paid what you had to and got where you needed to go. Similarly, when gasoline prices are cheap, people don't necessarily drive gas guzzlers further. Are you taking twice as many trips to the grocery store because pump prices are down? Did you just trade in your Tesla Model S for a Ford F-150? I didn't think so.

Secondly (and most importantly for Tesla Motors investors), not everyone's buying Tesla vehicles to save money at the pump. Gas-powered or electric-powered, Tesla Motors makes excellent luxury vehicles. People buy Tesla cars for a variety of reasons. They're new. They're sexy. They're California. They're Consumer Reports' highest rated vehicles. They're environmentally friendly . They don't have spark plugs. Whatever the reason, Tesla Motors has built a marketing machine -- and cheap oil prices aren't about to destroy that.

Oil prices up or down: 1 great stock to buy for 2015 and beyond

2015 is shaping up to be another great year for stocks, regardless of where oil prices wander. But if you want to make sure that 2015 is your best investing year ever, you need to know where to start. That's why The Motley Fool's chief investment officer just published a brand-new research report that reveals his top stock for the year ahead. To get the full story on this year's stock -- completely free -- simply click here .

The article Will Cheap Oil Prices Cause Tesla Motors, Inc. to Tumble? originally appeared on Fool.com.

Justin Loiseau owns shares of Tesla Motors. The Motley Fool recommends Ford and Tesla Motors. The Motley Fool owns shares of Ford and Tesla Motors. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

Copyright © 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

TSLA

Other Topics

Stocks

Latest Markets Videos

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More