In this article, I explain why falling oil prices didn't affect Tesla or EV sales last year and why, up to a point, they are not likely to do so in the future.
Following my latest contribution to Seeking Alpha, in the context of global warming and climate change, one of the causes of the current oil price downfall might be a diminution of demand for major petroleum derivatives (i.e. gasoline and diesel) due to a process of electrification in the global automotive industry. To the extent that falling prices are meant to be a structural phenomenon, they shouldn't result in a substantial market rebound in the form of a decrease of EV sales. One way to verify my reasoning would be to find no strong positive statistical correlation between oil prices and Tesla or EV sales in general.
In what follows, I test this hypothesis in turn for Tesla, the U.S. EV market and the world EV market.
As for Tesla, in Chart 1 both WTI and Brent oil prices (as obtained from the U.S. Energy Information Administration) and Tesla sales (as obtained from both Hybridcars.com and InsideEVs.com) are shown for the period June-December 2014. I chose this lapse of time on the grounds that the downward price movement started around mid-June 2014 and continued throughout the year until the present time.
As can clearly be seen, there doesn't seem to be a strong positive statistical correlation between oil prices and Tesla sales in the period under consideration. Indeed, the opposite appears to be the case. In the second and third columns of Table 1, I present the corresponding computed correlation coefficients, as well as their statistical significance, which was determined following a standard procedure. Other things being equal, these results mean at least two things. First, that Tesla's sales are not dependent on oil prices in the way we could expect to occur when referring to other electric vehicles and, second, that there are additional factors influencing Tesla sales.
In the first case, it is my presumption that Tesla's Model S is mostly demanded by people whose level of income is far beyond that of those who use cars primarily as a means of transportation and not as, for example, a source of prestige or reputation. In the second, I would suggest that Tesla's shoppers are probably more concerned than ordinary car buyers about the effects of global warming and climate change and firmly believe that by purchasing a Model S they are making a positive contribution to surmount these pervasive phenomena. It goes without saying that in neither of these circumstances oil prices should matter much when deciding to buy a car.
In Charts 2 and 3 I extend my analysis to U.S. EV sales and world EV sales. Even though now the charts reflect at times a parallel movement between oil prices and EV sales, which is an indication of an underlying positive relation, their calculated correlation coefficients are too low (or not statistically significant at any reasonable level) to arrive at any definitive conclusion in this regard (See the fourth, fifth, and sixth columns of Table 1).
Thus far, the analysis does seem to provide considerable support to my contention that the current downward oil price movement might be much more than a simple temporary phenomenon.
However, since I am also of the opinion that oil prices won't last forever, the question remains as to whether the oil price downfall would end up being so pronounced that it finally affects Tesla's prospects to introduce its Model 3 (to be priced at $35,000) in 2017 inaugurating a process of massive electrification of the global automotive industry.
This is not a trivial question as it pertains to the future of EVs as a real alternative to Internal Combustion Engine (ICE) cars in the world. The reason why I bring this up is that I found some evidence that falling oil prices might have already hurt - albeit in varying degrees - sales of 6 (out of 19) EV models included in the U.S. EV market. Those are the only EV models (in yellow) which reflect a strong positive statistical correlation (See: Table 2).
Somewhat surprisingly, most of these models (actually, 5 out of 6) were priced at less than $36,000 in 2014. At first glance, this finding would imply that, other things being equal, a falling oil price scenario such as the current one may not do much a favor to Tesla and its prospects to sell half a million EVs (most of which to be priced similarly) by 2020.
Yet there are also other two puzzling results that make us believe that, even in the event that oil prices continue to fall, consumers could still be willing to buy a lot of (both low and high-priced) EVs from Tesla so long as this disrupting company keeps producing high-quality products.
One is that sales of the most popular EV nowadays, the Nissan (OTCPK:NSANY) Leaf, priced at $29,830, and oil prices reflected a low negative correlation which means that falling oil prices didn't stop Leaf sales growth. And the other is that one of the least popular EVs, the Porsche Panamera, priced at almost $100,000, showed a high positive correlation coefficient between oil prices and sales which means exactly the opposite.
There is of course a world of difference between these two models. The Leaf was introduced into the market in December 2010 and today is the best-selling EV not only in the U.S., but in the world, whereas the Panamera plug-in hybrid was introduced in January 2014, following Porsche's decision to discontinue its preceding conventional hybrid in November 2013 due to lousy sales, and has thus far achieved only moderate results, which seems to have prompted the German automaker to consider going now for a full-electric car.
These two findings validate a previous presumption of mine that outstanding quality at reasonable price may be the key to success for most firms producing consumer goods, including EVs. But they also seem to suggest that in the absence of extraordinary quality, consumers may be more inclined to take into consideration other factors, such as the price of oil for example, in their decisions to buy a car. In this sense, the Leaf and the Model S are quite similar products. Unlike the Panamera, they are good examples of exceptional quality in their corresponding price segments which amply explains why they have been so triumphant in the marketplace, regardless of the oil price downfall.
By Juan Carlos Zuleta
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