Gépészet | Gépgyártástechnológia » Bak-Hiranandani-Moriarty - Electric Car Adoption With A Focus On The Tesla Model S, A Cost Benefit Analysis

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                 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     2.  Table  of  Contents     1. Acknowledgements 2 2. Table of Contents 3 3. Introduction 5 How Does an Electric Car work? . 5 Key Components . 5 4. Electronic Vehicles Vs Gasoline Vehicles 8 History of Electric Vehicles . 9 Types of Electric Vehicles . 10 Hybrid

Electrical Vehicle (HEV) . 10 Plug-in Hybrid Electrical Vehicle (PHEV). 10 Battery Electric Vehicle (BEV) . 11 The Market Surrounding Electric Vehicles . 11 Why the Pessimism? . 11 Electric Car Market in the US . 12 Global Electric Vehicles Market . 16 5. Choosing an Electric Car 18 Tesla, The Gold Standard . 18 Efficiency: Technological Advantage . 19 Convenience: Swappable Production and Super Chargers Network . 21 Safety . 24 Summary . 25 Pros . 25 Cons . 25 6. Choosing a Gasoline Car: 26 Comparison for The Tesla Model S . 26 Comparison for The Unreleased Tesla . 28 7. Comparing the Average Electric and Gasoline Cars: A Cost Benefit Analysis of a Single Electric Car Compared to a Single Gasoline Car . 30 Summary of Cost Benefit Analysis Methodology . 30 Simplifying Assumptions . 31 Upfront Cost Comparison . 32 Cost of Fuel . 34 Cost of Time . 41 True Cost of Ownership of Car . 43 External Cost of Carbon Emissions . 45 Production, Recycling, and Disposal Costs . 54 Cost of Energy

Transmission . 55 Summary . 57 Unquantifiable benefits and costs: . 57 Safety . 57 Noise Pollution . 59 Energy Sustainability . 60 Other Benefits . 61 8. Aggregate Benefit of Tesla 62 3     9. Discussion 67 Conclusion: . Error! Bookmark not defined Considerations/Limiting Factors for Study . 69 10. Group Contributions 72       4       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     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: www.howstuffworkscom 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: www.howstuffworkscom                                                                                                                     1 Brain, M. Np Web 8 Dec 2013 <http://wwwhowstuffworkscom/electric-carhtm> 2 "Model S." Tesla Motors Np, nd Web 08 Dec 2013   6     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 12-15 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 alternative3 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.                                                                                                                 Mochel, Claus . Np Web 9 Dec 2013 <http://wwwatmelcom/Images/article liion batteriespdf> 3 7     Figure 3 – Chart displaying the characteristics of the Lead-acid battery and Lithium-ion batteries. Source: http://es.benningde/uploads/pics/b11 enjpg   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     History of Electric Vehicles The first electric car was produced by the American Thomas Davenport in 1835. 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, http://avt.inlgov/pdf/fsev/historypdf 5 Idaho National Library, http://avt.inlgov/pdf/fsev/historypdf 6 Idaho National Library, http://avt.inlgov/pdf/fsev/historypdf 9     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 $650.5 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     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                                                                                                                 Broder, J. Np Web 9 Dec 2013 <http://wwwnytimescom/2012/03/25/sunday-review/theelectric-car-unpluggedhtml?pagewanted=all> 7 11     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 2012. 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 2012. 12     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 2012. 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     Ford  Electric  and  Hybrid  Vehicles  sales   September  2012:  15,708   September  2013:  67,232   Sales  up  328.01%   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  208.44%   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%   Tesla  sales   September  2012:  160   September  2013:  13,050   Sales  up  8056.25%   Figure 5 – Year-to-date sales (September 2013 and September 2012) by Car Manufacturer Source: EVObsession 14     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 2012. 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 2012. 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                                                                                                                 Zach. "100% Electric Car Sales Up 44795% In US In 2013" EV Obsession Np, nd Web 09 Dec. 2013 8 15     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 2013. 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 2023. On the other hand, hybrid vehicles make up 2 million cars today and are meant to rise up to 7.6 million in 2023 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 20139 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 2013-2023: Forecasts, Technologies, Players." : IDTechEx Np, nd Web 09 Dec 2013 16     Figure  6:  Annual  Light  Duty  Electric  Vehicle  Sales  by  Drivetrain,  World  Markets:  2013-­‐2020    Source:  Navigant  Research   17     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.10 11 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 Np, nd Web 09 Dec 2013 <http://firsttoknow.com/teslas-stocks-soar/> 11 Abreu, Pauline. nd n page <http://wwwmotorauthoritycom/news/1044161 the-worlds-onlyelectric-sports-car-2010-tesla-roadster> 18     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. 1213 Regarding the specific specifications, the base Tesla Model S uses a 362 hp (270 kW) and 325 ft.lb (440 NM) motor According to the car manufacturer, the Tesla Model S has a drag coefficient of Cd=0.24 (an average car has a Cd=030 to 035) 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 Np, nd Web. 09 Dec 2013 13 "Model S Features | Tesla Motors." Model S Features | Tesla Motors Np, nd Web 07 Dec 2013 19     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. 141516 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.17                                                                                                                 14 "Find and Compare Cars." Find and Compare Cars Np, nd Web 08 Dec 2013 15 "2012 Tesla Model S." Motor Trend Magazine Np, nd Web 09 Dec 2013 16 Berman, Bradley. "One Big Step for Tesla, One Giant Leap for EV’s" The New York Times Np, n.d Web 9 Dec 2013 17 "Tesla Model S Will Gain Range in "sleep Mode" Software Update."

AutoblogGreen Np, nd Web 09 Dec. 2013 20         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.18 19 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. Np, nd Web 09 Dec 2013 19 "First Drive: Teslas Model S Electric Is Spectacular." USA Today Gannett, nd Web 09 Dec 2013. 21     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. 20 21 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 60-80 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.2223                                                                                                                 "At Tesla’s Party, Superchargers and Delivery Dates." Wheels At Teslas Party Superchargers and Delivery Dates Comments. Np, nd Web 09

Dec 2013 21 "Supercharger | Tesla Motors." Supercharger | Tesla Motors Np, nd Web 07 Dec 2013 22 Rogowsky, Mark. "Tesla 90-Second Battery Swap Tech Coming This Year" Forbes Forbes Magazine, 21 June 2013. Web 09 Dec 2013 20 22     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. Np, nd Web 09 Dec 2013 23     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 Np, nd Web 09 Dec. 2013 24     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. - 37 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     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     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 21.26 Additionally, according to a study conducted by U.S News and World Report, the average price paid for a new premium vehicle in                                                                                                                 Rogowsky, Mark. "Numbers Dont Lie: Tesla Is Beginning To Put The Hurt On The Competition." Forbes Forbes Magazine, 24 Aug 2013 Web 08 Dec 2013 26 "Your Questions

Answered | Tesla Motors." Your Questions Answered | Tesla Motors Np, nd Web. 09 Dec 2013 25 27     March 2013 was $47, 791.27 Comparatively, the Mercedes E350 has a baseline price of $51,900 28 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 US News. Np, nd Web 09 Dec 2013 28 "E350 2014." Mercedes-Benz USA Np, nd Web 09 Dec 2013   28     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 $31,252. 29 Additionally, a study conducted by

Autoblog.com found that currently, the average vehicle has a city MPG of 24.930 The Toyota Camry has a cost of $23,235 and a city MPG of 2531 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 2013.32 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,                                                                                                                 "Report: Average Price of New Car Hits Record in August." USA Today Gannett, nd Web 08 Dec. 2013 30 "Average New Car Fuel Economy Hits

Record 24.9 Mpg" Autoblog Np, nd Web 08 Dec 2013 31 "Camry & Camry Hybrid 2014." Toyota Camry 2014 Np, nd Web 06 Dec 2013 32 "Good Car Bad Car" Top 20 Best-Selling Cars In America. Np, nd Web 09 Dec 2013 29 29     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     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     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     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. Vehicle Cost Upfront Cost Tax and Other On the Road Credits Cost Tesla Model S $73,570.00 $(7,500.00) $66,070.00 Mercedes E350 $51,900.00 0 $51,900.00 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    

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 $2737.15 for the year 2013 based on the following formula: (15480 miles/year) / (22 miles/gallon) * ($3.89/gallon) 34     Energy Cost Gas Cost/yr Tesla Model S 0 Mercedes E350 $2,737.15 Total Cost Savings/yr $2,737.15 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 Jan 2012

3.38 2.49 0.89 Feb 2012 3.58 2.55 1.03 Mar 2012 3.85 2.64 1.21 Apr 2012 3.90 2.61 1.29 May 2012 3.73 2.46 1.27 Jun 2012 3.54 2.19 1.35 Jul 2012 3.44 2.21 1.23 Aug 2012 3.72 2.33 1.40 Sep 2012 3.85 2.43 1.42 Oct 2012 3.75 2.38 1.36 Nov 2012 3.45 2.30 1.15 Dec 2012 3.31 2.26 1.05 Jan 2013 3.32 2.40 0.92 Difference 35     Feb 2013 3.67 2.42 1.25 Mar 2013 3.71 2.41 1.30 Apr 2013 3.57 2.37 1.20 May 2013 3.61 2.39 1.23 Jun 2013 3.63 2.35 1.28 Jul 2013 3.59 2.47 1.12 Aug 2013 3.57 2.53 1.05 Sep 2013 3.53 2.57 0.97 Oct 2013 3.34 2.48 0.87 Nov 2013 3.22 2.37 0.85 Dec 2013 3.17 2.36 0.81 Jan 2014 3.24 2.37 0.87 Feb 2014 3.31 2.39 0.92 Mar 2014 3.44 2.39 1.05 Apr 2014 3.50 2.39 1.10 May 2014 3.56 2.37 1.19 Jun 2014 3.55 2.37 1.18 Jul 2014 3.51 2.39 1.12 Aug 2014 3.47 2.39 1.07 Sep 2014 3.41 2.37 1.04 Oct 2014 3.30 2.35 0.96 Nov 2014 3.24 2.32 0.92

Dec 2014 3.16 2.32 0.83 AVG 2013 3.49 AVG 2014 3.39 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     U.S Gasoline and Crude Oil Prices dollars per gallon 5.00 Price difference Forecast 4.00 3.00 2.00 1.00 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 Source: Short-Term Energy Outlook, November it for an eight-year time frame. The difference in2013 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     With all of this data we were able to arrive a price projections for premium gas from 2013 to 2020. 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 $3.89 2014 $3.39 $3.89 2015 $4.52 $5.12 2016 $5.65 $6.35 2017 $6.78 $7.58 2018 $7.91 $8.81 2019 $9.04 $10.04 2020 $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 03 kWh/mile is a calculated number for electricity economy of the Tesla Model 38     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 $346.50 for the year 2013 Energy Cost Tesla Model S Mercedes E350 Total Cost Savings/yr Gas Cost/yr Electricity Total Energy cost/yr Cost 0 $346.50 $346.50 $2,737.15 0 $2,737.15 $2,390.65 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     Energy Price Projections Regular Gas Premium Gas Electricity 2013 $3.49 $3.89 $0.11 2014 $3.39 $3.89 $0.12 2015 $4.52 $5.12 $0.13 2016 $5.65 $6.35 $0.15 2017 $6.78 $7.58 $0.16 2018 $7.91 $8.81 $0.18 2019 $9.04 $10.04 $0.19 2020 $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 $25,386.84 in present terms 40     Year Savings 2013 $2,390.65 2014 $2,356.00 2015 $3,183.35 2016 $4,006.90 2017 $4,826.25 2018 $5,640.99 2019 $6,450.66 2020 $7,254.75 NPV of Savings $25,386.84 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     (1 occurences/month) * (12 months/year) (20 minutes/occurence) / (60 minutes/hour) $50 /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 $200.00 Mercedes E350 $400.00 Total Cost Savings/yr $200.00 Therefore, the discounted present value of this benefit was found to be $1,194. Year Savings 2013 $200.00 2014 $200.00 2015 $200.00 2016 $200.00 2017 $200.00 2018 $200.00 2019 $200.00 2020 $200.00 NPV of Savings $1,194.26 42     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 calculator33 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 Np, nd Web 09 Dec 2013   43     44     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 $5,206.83 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 $17,61793 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     Carbon: Background and Results from the RICE-2011 Model” outline a neo-classical model which explains climate change in the context of economic growth theory. Nordhaus’s 2011 paper builds upon an earlier paper published in 2008, a DICE, model, a more general form of the RICE model that he developed. We also look at a review paper by Robert P Murphy, an economist for the Institute for Energy Research, titled “Rolling the DICE: William Nordhaus’ Dubious Case for a Carbon Tax”. Murphy’s review criticizes Nordhaus’s model, claiming that the model exaggerates some of the external costs. Throughout the review, Murphy offers an adjusted social cost

figure, which we also use.34 SUMMARY OF LITERATURE Nordhaus’s 2011 paper builds upon his previous 2008 paper but gives regional external costs and outlines several discounting situations which produce different estimates for the Social Cost of Carbon. The 2011 RICE model contains major elements of the DICE model developed in his 2008 paper. Briefly, the model views green house gas, but uses carbon as a proxy, as a factor affecting climate change. The model then views the change in global temperatures in the context of a Ramsey model, a neoclassical growth model that relates capital and consumptions. The DICE, and therefore RICE, models, in turn view the concentrations of GHG as “negative natural capital”. It in turn views the reduction of GHG as an investment that reduces the quantity of negative capital. It is in this context that the model argues that emission abatement reduces short- term consumption through taxation but increases long-term consumption through higher quality

of life. The model hinges on several assumptions pertaining to demographic and socioeconomic changes. It also hinges                                                                                                                 34 Nordhaus, William. Estimates Of The Social Cost Of Carbon: Background And Results From the Rice-2011 Model. Publication New Haven, CT: Cowls Foundation, Oct 2011 Print RICE stands for Regional Dynamic Integrated Model of Climate and the Economy DICE Stands for Dynamic Integrated Model of Climate and the Economy   46     on several key assumptions pertaining to the effects of carbon dioxide, namely, it tries to adjust the price of carbon by marginal effects of carbon dioxide build up. Murphy’s paper, on the other hand, is a review of Nordhaus’s 2008 paper. Murphy does not

debunk Nordhaus’s model but makes adjustments to give a more realistic value. Namely, he gives deflated values because of the existing uncertainties associated with the Nordhaus report. The main uncertainties he deals with is the possibility of overstated future GHG atmospheric concentrations, overstated temperature increase from given GHG concentration, and overstated economic damages from temperature increase. Together, he argues that Nordhaus arrives at overstated costs Through the paper, he offers his adjusted figures which we consider for our sensitivity analysis.35 COST ESTIMATES FROM THE LITERATURE Below is a table summarizing the social costs cited in the literature. Note that these prices have been adjusted into 2013 dollars.                                                                                                    

            35  Murphy, Robert P. "Rolling the DICE: William NordhausÂ’s Dubious Case for a Carbon Tax: The Independent Review: The Independent Institute." The Independent Review Fall 142 (2009): 197-217 The Independent Institute. Web 10 Mar 2013   47     2015 Source/Year 2025 (Dollars/tonne) (Dollars/tonne) Cost NORDHAUS (2011) 48.92 73.69 127.97472 11.15 14.17 29.1684 6.28 10.5 16.42848 MURPHY (2009) EU Price of a Carbon Permit EU PRICE OF CARBON PERMIT Another important metric which people use as a proxy for Carbon pricing are the already existing prices of EU carbon permits. The EU has had a cap-and-trade program in which the governing authority issues permits that are then publicly traded in the market. Since an equivalent does not exist in the same scale in the US, academics, economists, and policy makers have looked at EU prices as a general indication of how the market values the external costs associated with GHG

emissions. There are several limitations to the market pricing of carbon First of all, it is difficult for people to correctly estimate the external costs associated with carbon emissions. Moreover, the price could be severely depressed by lobbying groups which could understate the costs of carbon. For the purpose of this paper, we will use the EU spot price and the estimated future price of carbon as a benchmark to the literature on carbon pricing. Although highly uncertain, we assumed a 5% CAGR rate for the EU spot price of carbon. The 2015 figure was extrapolated from a spot reading of EUR 3.92 We then converted it to USD, adjusted it 48     to year 2015, and extrapolated the price. The all-time high price of carbon permits is higher at around $20-25 per ton of carbon. In 2013 the prices have been depressed due to high amounts of lobbying and economic conditions.36 UNCERTAINTY OF PRICING CARBON The issue of putting a market price on Carbon is indeed controversial. For

years, economists have attempted time and time again to be able to quantify the external costs associated with green house gas production (GHG), particularly CO2 or its carbon equivalent. Many economists, apart from the aforementioned ones, have tried to quantify the external costs through complex and robust modeling methods. First of all, it is extremely difficult to scale the problem social costs associated with carbon production. Defining the costs and parameters alone are problematic Nordhaus does a fairly good job in trying to estimate regional social costs in realizing that carbon emitted in different parts of the world affect different people but at the same time contributes equally to global climate change. Moreover, it is hard to quantify the cost of global warming because the costs are realized over a long period and are extremely difficult to isolate from exogenous factors. The effects of carbon on global warming are themselves an issue of debate. It is even harder to

isolate health costs associated with higher global temperatures or with high concentrations of green house gases in the atmosphere. Another issue of contention is the issue of discounting. Several academics have associated carbon emission and global warming with low discounting values which in turn suggest extremely high prices for carbon. Nordhaus, again, does a good job in dealing with this uncertainty and in fact gives                                                                                                                 36 Carbon Emission Price." Investingcom Np, nd Web 12 Mar 2013 <http://www.investingcom/commodities/carbon-emissions> 49     estimates for a situation with low discounting. The price with low discounting is estimated to be around $158.45 per ton of carbon in 2015 and

$23416 per ton of carbon in 2025 This can be explained by the fact that there is higher weight on future damages caused. For the purpose of the paper, we stuck to the adjusted figures with higher discounting for consistency. It is important to note, however, that external costs have been proven to exist with the production of greenhouse gases. For this project, is therefore important to attempt to quantify the benefits received as externality savings. In our analysis, we calculated the total carbon emissions for the gasoline car based on its reported emission rating of 0.1744 kg/mile and the total distance traveled annually. Once we arrived at the total quantity of CO2 emitted, we multiplied this number by the cost of carbon based on an average of the Nordhaus, EU, and Murphy yearly costs. We then discounted over a period of eight years and arrived at an externality cost of $404.65 50     51     In order to calculate the carbon emissions of the electric Tesla Model

S, we would have to examine the sources of electricity. First, 30% of the energy consumed by the Model S originated from supercharging stations – these stations are completely solar and energy neutral. In fact, they put in more power into the grid than they consume. However, for the purposes of this analysis we will take the conservative stance that they have no carbon emissions. 70% of energy consumed is powered by household charging (overnight charging). Based on data from the Energy Information Administration, we are able to breakdown the sources of electricity generation for the average American household. 52     Average Household Electricity Source Percentage Coal 37% Natural Gas 30% Nuclear 19% Hydropower 7% Other Renewable 5% Biomass 1% Geothermal 0% Solar 0% Wind 3% Petroleum 1% Other Gases <1 From these two data sources, we were able to calculate the amount of carbon emitted per kWh of electricity consumed. Coal, natural gas, and

petroleum were sources that generated carbon and the others did not. We found that 0532524568 kg of carbon was emitted for each kWh consumed by the average household. With this information, along with the annual home energy consumption by the Model S (3150 kWh), we were able to calculate the annual carbon emissions due to the Model S. Annual CO2 Emissions 1677.452389 53     Armed with this knowledge, we are able to calculate the total cost of the emissions of the Tesla Model S based on our three estimates for the price of carbon. We find the present value of the cost of carbon emissions based on the average of the EU, Nordhaus, and Murphy costs to be $251.43 This gives us a net benefit for the Model S of $15322 in terms of the carbon externality. Production, Recycling, and Disposal Costs It is very difficult to estimate the production, recycling and disposal costs of a car to the environment. A rule of thumb, however, is to take twenty percent of the sum of the costs of

gas over the lifetime of the car and the cost of its carbon emissions.37 So, in our analysis, we have: General production, recycling and disposal Environmental cost Mercedes E350 $628.36 Tesla Model S $50.29                                                                                                                 37 "Battery Recycling as a Business." - Battery University Np, nd Web 09 Dec 2013 54     In addition to this, we also have the batteries of each of the cars. Once again, it is difficult to calculate the cost of recycling lithium ion batteries. The easiest method to calculate this is based on weight. Although estimates range from $1000 to $300 per tonne of battery to be recycled, we chose the more conservative estimate of $1000. Given the weight of the battery in the Mercedes E350,

0.020638436 tonnes, we found the cost of recycling its battery. Similarly, given the weight of the battery in the Tesla Model S, a rather sizable 0.545, we were able to calculate its cost of recycling Battery General production, recycling and disposal Disposal Environmental cost Cost Mercedes E350 $628.36 $20.64 Tesla Model S $50.29 $545.00 Model S Benefits $53.71 The net benefit of the Model S electric sedan in terms of Manufacture, Materials, recycling and disposal was found to be $53.71 Cost of Energy Transmission While electricity transmission channels are set up and only require power generation and a voltage differential, fuel transmission costs money – transportation costs. Without considering the carbon emissions simply from the transportation of gasoline, the cost of transportation of gas is 8% of the price of gasoline. Thus, we are able to calculate a cost for the transportation of gasoline that can be attributed to the Mercedes E350 gasoline car. Knowing the

total amount of gasoline used by 55     the E350 and the cost of transportation of this gasoline we calculate the transmission cost of gasoline to be $218.97 in 2013 Based on our future gas price predictions, we are able to find a NPV for total transmission cost of gasoline. On the other hand, electricity transmission suffers its own losses, with around 7% of all electricity generated being lost during transmission and distribution. Based on the total energy used by the Tesla per year and the cost of electricity we are able to attribute the cost of transmission of electricity to the Tesla Model S to be $24.26 per year Energy Transmission NPV Tesla Model S Costs Mercedes E350 2013 $24.26 $218.97 2014 $26.68 $218.97 2015 $29.35 $288.21 2016 $32.28 $357.45 2017 $35.51 $426.69 2018 $39.06 $495.92 2019 $42.97 $565.16 2020 $47.27 $634.40 $200.18 $2,259.72 The net benefit of electric cars was found to be $2,259.72 in terms of energy transmission 56  

  Summary Benefit Cost Analysis NPV Cost Consumer $17,617.93 Emissions $153.22 Production, Recycling, Distribution Energy Transmission Savings Net Benefit $53.71 $2,059.54 $19,884.41 Although the upfront cost of the electric car is currently higher than its gasoline counterpart, there is still a large benefit to the mass adoption of the electric car in the long run. Each electric car used instead of a gasoline car results in a quantifiable benefit of $19,884. With the advent of newer generations of electric cars such as the Generation 3 Tesla, this benefit will further increase. We have included a comparison of the Gen3 Tesla to the fuel efficient, cheap, mass market Toyota Camry in the appendix since we are working on speculative data on an unannounced vehicle. For now, we will discuss the unquantifiable benefits of the Model S over the Mercedes E350 in the next section. Unquantifiable benefits and costs: Safety Cars are responsible for over 30,000 deaths each year in

the United States alone38. In an era where firms such as Tesla are witnessing the potential to profitably produce electric cars, safety becomes a key point of debate for consumers considering the switch to electric cars.                                                                                                                 38 "Traffic Safety Facts: 2010 Data." US Department of Transportation, nd Web 9 Dec 2013 57     The first aspect to consider when debating the safety of electric vehicles and gasolinepowered vehicles is the source of energy fuelling the respective engines. Electric vehicles, by virtue of not carrying a tank full of substance that can catch fire and explode, are safer than cars with internal combustion engines in this aspect. With the attention the Chevrolet Volt received in

2011 over battery pack fires and the Tesla Model S received over similar fires in 2013, the Li-On batteries being packed under the hood of Tesla cars has been a major point of concerns for potential consumers. Similar fires, however, were responsible for several million laptops being recalled in 2006. Experience with Li-ion batteries has led to several technological improvements, such as the use of new nanomaterials that are less prone to shorting out like the graphite used as an electrolyte in traditional Li-ion batteries39. In addition to new materials, precautionary devices like fuses and circuit breakers that disconnect the batteries in the event of any damage to the battery pack are enhancing the safety of electric vehicles in a manner similar to the impact of airbags and seatbelts on cars40. Another aspect of electric vehicles that makes them safer is their weight. The typical Li-on battery used in electric vehicles has a theoretical specific energy of 120 Wh/kg, significantly

lower than the estimated gasoline specific energy of 13,000 Wh/kg41. While this means that it would be highly inefficient to install a battery pack with the same amount of energy as a conventional ICE, the significantly higher efficiency of the electric propulsion means that lesser energy is needed to propel an EV. Despite the efficiency of the electric propulsion, the typical gasoline-fuelled vehicle can be over 50% lighter than the average electric vehicle. The additional weight, while resulting in longer braking distances and lower ranges, has been shown to have a negative association with injuries – i.e                                                                                                                 39 Bullis, Kevin. "The Lithium-Ion Car" MIT Technology Review Np, nd Web 09 Dec 2013 40

Lampton, Christopher. “Are Electric Cars Safe in Accidents?” 2011 09 Dec 2013 41 Kwo, Young. “Electric Vehicle Battery Technologies” 09 Dec 2013 58     a 2000lb vehicle will, on average, cause about 50% more injuries to its occupants than a 3000lb vehicle42. The National Highway Traffic Safety Administration (NHTSA) has issued common-sense guidelines for consumers with electric vehicles, similar to the guidelines of not smoking while refueling a gasoline-powered vehicle43, while the International Organization for Standardization has set forth standards for electrically propelled road vehicles. The aforementioned technological improvements, regulations and guidelines will play a pivotal role in the coming decades in enhancing the safety of electric vehicles and making them significantly more safe than gasoline powered vehicles. Noise Pollution Roadway noise contributes more to environmental noise exposure than any other source in the United States44. Roadway noise is

dominated by cars, except at night along large trunk roads This phenomenon exists in regions outside the United States too, with 20% of the European Union’s population exposed to unhealthy noise levels. Noise pollution has severe health consequences, which include but are not limited to hearing impairment, hypertension, heart disease, changes in the immune system and birth defects45. In traditional vehicles, sound energy roughly doubles for each additional ten miles per hour in vehicle speed. This sound energy is in addition to noise from braking and acceleration Despite technological enhancements in almost every other aspect of motor vehicle engineering, vehicle fleet noise has remain largely unchanged over the last three decades. Several approaches have been proposed over the course of time to mitigate the impact of roadway noise globally, including lower                                                  

                                                              42 “Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards” Impa Committee on the Effectiveness and National Research Council, 2002. 09 Dec 2013 43 "The Truth About Electric Car Safety." Mother Earth News Np, nd Web 09 Dec 2013 44 Senate Public Works Committee, “Noise Pollution and Abatement Act of 1972” 09 Dec. 2013 45 Paschier-Vermeer, Passchier WF, “Noise Exposure and public health” 2000. 09 Dec 2013 59     noise cars and trucks, lower noise tires and lower noise road surfaces. The aforementioned approaches have had limited to no impact on reducing roadway noise, despite regulations being enacted periodically46. In sharp contrast to vehicles powered by internal combustion engines, electric vehicles do not emit any noise, and can play a pivotal role in reducing roadway noise. While

the advantage that electric vehicles possess in reducing noise is very apparent, there exists a caveat – there are several groups of people that believe electric vehicles are too quiet. Essentially, by not emitting any noise, electric vehicles run the risk of becoming a potential hazard for cyclists, pedestrians and blind people. The risks posed by the lack of noise emitted by these electric vehicles is, however, something that can be easily mitigated and is expected to be resolved through regulation within the coming year. Energy Sustainability One of the largest benefits of electric vehicles is the sustainability that results from using electricity as a source of fuel. While the United States is now able to produce over half of the oil it consumes, the cost of electricity as a source of power is far lesser. Electricity generated to power vehicles is increasingly being generated using natural gas, owing to the explosion of shale gas in the country and the consequent low cost of

natural gas47. One of the most telling examples of natural gas being viewed as a cheaper and lower-cost alternative to coal/gasoline is the plans of long-distance shipping companies to switch their trucks to natural gas instead of gasoline within the next five years48. Natural gas is only expected to grow in availability                                                                                                                 46 http://www.transportenvironmentorg/sites/default/files/publications/presentations/2005/200501 clean car seminar/2005-01 p6 reducing noise pollution from cars brouwerpdf   47 "U.S Energy Information Administration - EIA - Independent Statistics and Analysis"Coal Regains Some Electric Generation Market Share from Natural Gas. Np, nd Web 09 Dec 2013 48 Ramsey, Mike.

"Truckers Tap Into Gas Boom" The Wall Street Journal, nd Web 9 Dec 2013 60     and as a source of power generation, especially if Chinese shale gas reserves can be extracted profitably in the coming decades. As a consequence, the use of vehicles powered by electricity generated from natural gas will help promote energy independence for the United States. Other Benefits Electric vehicles are being received with acclaim in a manner similar to when motorized vehicles replaced horse-drawn carriages at the turn of the twentieth century. The prestige associated with an electric car is driven by people’s desires to be seen as environmentally conscious, a trait that is viewed as desirable by certain sections of the population, and the positioning of electric vehicles as ‘premium’ vehicles in the market. Additionally, technology advancements driven primarily by the advent of electric vehicles have resulted in significant benefits in other fields too. An example of this

would be the development of new nanomaterials as a consequence of the need for safer electric vehicle batteries and their application to other products such as laptop and cellphone batteries. 61     8. Aggregate Benefit of Tesla After calculating the benefit of using the Tesla Model S on a per car basis, we extended our results further to aggregate the impact of the benefits of using this electric car for the US automobile sector as a whole. The conduct this analysis we created a model that would help us extrapolate the benefits of a single electric car to the US as a whole. The first step entailed sizing the automobile sector in its entirety. Below are the assumptions and calculations we conducted to size the market: Automobile Industry Metrics Cars (YTD) Light-Duty Trucks (YTD) Total Number of Vehicles Sold (YTD) Total Number of Vehicles Sold 2013* Average Transaction Price per Vehicle Car Market Valuation *Projections are based on YTD Estimates 7,148,098 7,091,799

14,239,897 15,534,433 $31,252 $485,482,102,957 Using Year to Date information of unit sales of cars and light-duty trucks from the Wall Street Journal Automobile Database, we estimated the total number of vehicles that would be sold in 2013 and subsequently using the average transaction price per vehicle (USA Today, 2013), we valued the automobile sector at just under $500 Billion in 2013. Given that the lowest base Tesla prices itself at is $66,070 for the Model S, it falls into the luxury car segment of the automobile industry. To determine the average transaction price for this segment, we used the Mercedes’ E-Class price of $51,900. To reiterate, this car was chosen based on two primary characteristics. The first is that along with the BMW 5 Series and Audi A6, the E-Class is one of the closest competitors to Tesla. The second reason is that amongst these competitors, it had the greatest sales volume and subsequently the highest market share. Based on this information, 62  

  we sized the luxury car segment at approximately $59 Billion or 12.26% of the entire industry Using the IHS LV Production Data Set, we were also able to project that over the next 5 years, this segment was expected to grow at about 6.52% The calculations were conducted along the lines as those for the previous automobile valuation and are displayed below. Luxury  Car  Market  Metrics Luxury  Cars  Sold  (YTD) Total  Number  Sold  2013* Average  Transaction  Price  per  Vehicle Luxury  Car  Market  Valuation Luxury  Car  Market  Share %  Growth  in  Segment *Projections  are  based  on  YTD  Estimates 1,049,258 1,144,645 $51,900 $59,407,080,218 12.24% 6.52% Finally, to size the market for Tesla, we first used information from their 10-K and 10-Q reports to determine the year the number of units sold from January until September. To estimate the cars sold from the final quarter of the year, we

utilized the average number of vehicles sold from the first three quarters of the year. In total, we estimated that Tesla would sell 20876 cars in 2013 For the price, we used the cost of the base model S which is $66,070 and estimated that Tesla’s total 2013 market value is roughly $1.37 Billion Dollars This equates to 028% of the total automobile industry or 2.32% of the luxury car segment As illustrated in our previous cost benefit analysis, the per vehicle benefit of a Tesla is $19884.41 and given that Tesla plans to double its production next year, we estimated a 100% growth in car sales. The table summarizing the information is shown below 63     Tesla Metrics Car Sales Breakdown January - March 5000 March - June 5150 July - September 5500 October - December* 5217 Total Car Sales 20867 Price of Tesla Model S $66,070 Tesla Market Valuation $1,378,682,690 Tesla Auto industry Market Share 0.28% Tesla Luxury Market Share 2.32% Benefit of Using Tesla * $19,884 % Growth in

Car Sales 100% *Average of previous quarter used for estimate *Based on previous calculation Based on the previous assumptions and calculations and using 2013 as our base year, we projected the increase in valuation of the luxury car market using the 6.52% segment growth rate up until 2017. Since the Fed has set a target inflation rate of 2%, we increased the average transaction price for the E Class by the same amount every year. Based on the above information, we were also able to extrapolate the number of vehicles actually sold. After completing this calculation, we then followed the same procedure to calculate the number of Tesla’s sold. The calculations showing the results are displayed hereafter: LUXURY CAR CALCULATIONS Luxury Car Market Valuation Avg Transaction Price per vehicle 2013 2014 2015 2016 2017 $59,407,080,218 $64,546,030,285 $70,129,520,089 $76,196,004,095 $82,787,263,233 $51,900 1,144,645 $52,938 1,219,276 $53,997 1,298,773 $55,077 1,383,453 $56,178

1,473,654 64     Number of Luxury Vehicles Sold TESLA CAR CALCULATIONS Tesla Car Market Valuation $1,378,682,690 $2,812,512,688 $66,070 $67,391 $68,739 $70,114 $71,516 20,867 41,734 83,468 166,936 333,872 Price of Tesla Model S Number of Teslas Sold $5,737,525,883 $11,704,552,801 $23,877,287,713 Hence, as evident by the results based on our projections the number of Tesla’s sold will increase from 20,867 in 2013 to 333,872 by 2017. To better understand the alterations this would have on the broader luxury car market segment, we calculated the number of gas cars sold and then determined the increase in percentage of the total luxury car market share Tesla would have if it increased production by 100% every year, while the luxury car segment itself grew at a stable 6.52% AGGREGATE   COMPARISON   Number  of  Gas   Vehicles  Sold   Tesla/Luxury  Car   Unit  Ratio   2013   2014   2015   1,123,778   1,177,542  

1,215,305       1.86%   3.54%   6.87%   2016   2017   1,216,517   1,139,782   13.72%   29.29%   Hence, the above table illustrates the increase in the production of Tesla and thus an increase in its overall share in the luxury car segment. 65     Based on all of the above calculations, we then estimated the aggregate cost benefit the purchasing a Tesla Model S would have for the entire US market. To calculate this value, we multiplied the number of individual Tesla’s sold by the benefit per vehicle of using the Model S. Implicit in this calculation is the assumption that for a consumer buying a car in the luxury car market segment, he has two alternatives: a gas luxury car or an electric luxury car (i.e Tesla) Hence, if the consumer chooses to buy the Tesla, he recognizes the $19884.41 benefit of purchasing the electric car rather than buying a gas car. Thus, using this methodology, we projected the increase in aggregate benefit

of using Tesla based on the vehicle’s projected growth until 2017. COST/BENEFIT ANALYSIS 2013 2014 2015 2016 2017 Aggregate Benefit of Buying Tesla $414,927,983 $829,855,967 $1,659,711,934 $3,319,423,868 $6,638,847,736 Net Present Value $10,414,534,795 Hence, the calculation illustrates the potential scale of benefit that electric cars, and specifically Tesla has for the US. From a benefit of $414Billion in 2013 If Tesla continuously double’s it production it has a total benefit of $6.6 Billion by 2017 Using a discount rate of 7% we also calculated the total NPV of switching to Telsa for the entire US at $10.4 Billion Therefore, as evident in the model, the benefits of using an electric car do not exist only on a per vehicle basis for also for the entire US a whole. Moreover, if Tesla increases its production and is able to drive significant consumer demand, it has the potential to take a significant portion of the luxury car market segment as well as have a net

benefit for the economy as a whole. 66     9. Discussion Conclusion: In conclusion, the Tesla Model S is a more cost efficient and environmentally friendly alternative to its average gasoline counterpart. Based on our findings from the cost benefit analysis, each additional Tesla Model S vehicle inserted into the US market will result in an average net present value savings of $19,884 to the consumer, as compared to its primary gasoline counterpart, the Mercedes E350. The CBA took into account factors such as the purchase price and annual expenditures and upkeep of the Tesla Model S to that of the E350. Additionally, the CBA analyzed the various energy inputs that could be used to generate the electricity to power the Model S and compared their respective operating costs and more importantly, their subsequent environmental costs. We broke down the electricity sources for an average American household and calculated the quantity of carbon emitted per kWh. From this we were

able to arrive at a portion of the environmental cost for regular electricity consumption and used it in our Model S energy consumption. Through our analysis, we can see that most of the overall savings that are reaped from transitioning to the Tesla Model S is primarily achieved through environmental benefits and the reduction of harmful emissions. On a per car basis savings to the consumer, however, tax credits and lack of gas fuel expenditure provide the bulk of upfront savings. Thus we can see that through the Tesla’s monetary incentive of lower costs to the consumer, one day we can hopefully see a beneficial impact to the environment. Our analysis was conducted by assigning a monetary value to the majority of the costs and benefits being analyzed in order to achieve the most robust and thorough evaluation of the Model S’s impact on the US market as a whole. In doing so, we were able to analyze the various effects that each cost and benefit had on the consumer and environment,

on a granular level. In the end, we 67     simply sought to reveal what the exact monetary gain or loss would be after injecting a Tesla Model S into the US market, taking into account any and all costs and benefits. Using the results from this per-car CBA, we then conducted an analysis to understand these effects on an aggregate level. In order to do this, we created a model that forecasts future growth for the Model S and assumed an eventual 100% market share of the electric luxury automobile market. This yielded a projection wherein Tesla will hold 2.32% of the overall luxury automobile market Additionally, we project that the Model S’s yearly sales will exceed 333,872 units by 2017, grossing over 23 billion dollars in total revenue. We then took a deeper glance at some of the more unquantifiable costs and benefits of the electric car. While these factors were fairly few in number, we still addressed the electric car’s current lack of safety precautions for bikers due

to the fact that it emits no sound, its rather inconvenient hassle of having to plan ahead on which charging stations to stop at for longer trips, and the chore of having to remind oneself to plug one’s car in when one is at home. Similarly we acknowledged Tesla’s intricate use of cutting edge technology for media features in the car, its incredibly quiet cabin while driving, and the fact that it has the best consumer safety rating ever given. While these sorts of costs do have an effect on the average consumer’s purchasing decision, they do little to reveal the global impact that the Model S will have on the automobile market and on the environment in comparison to the Mercedes E350. Ultimately, the Tesla Model S far surpasses its gasoline counterpart in almost all aspects, both quantifiable and unquantifiable. Boasting a sleek luxury design, a sport-enthusiast performance and environmentally friendly impact of zero emissions, the Model S just makes sense as the next step in

automotive innovation. Along the way there will surely be many road bumps, from detrimental changes in policy to lack of proper infrastructure and the eventual presence of threatening competition, Tesla will meet adversity as it always has. Only time will tell just how 68     quickly Tesla will grab hold of the automotive market; but one thing is for certain, the future is Tesla. Considerations/Limiting Factors for Study While we sought to perform a fully comprehensive analysis of the impact of the Tesla Model S on the automobile market we naturally ran into some limiting factors that affected the credibility of our study. We controlled for as many of these limiting factors as possible, however, there remain factors that we can’t fully account for and must simply address for future consideration. One such factor arises from the current lack of appropriate energy grid infrastructure. Specifically there is worry that the current electricity grid system is not designed to

withstand the future influx and dependency on green energy. Electricity derived from wind and solar power is too volatile in its supply and intensity. Because mass surplus one day and desperate shortage the next day can occur when electricity is derived from wind power or sunlight, consistency is almost impossible to attain with the usage of green energy. This essentially renders the electricity grid useless because the entire point of the electricity grid is to provide sustainable and consistent electricity power to everyone in the nation and if stability cannot be ensured then complete meltdowns can occur in the form of widespread blackouts and complete power failures. The implications of this potential fault on our study are quite large. Assuming that the market share of Tesla does grow to what we have estimated, we would be putting extreme amounts of stress on these power grids across the nation and would heavily depend on their consistency to supply power in order for Tesla to

remain a viable automotive option. While there is evidence of precautions being taken against this threat of instability of the grid via natural gas backup systems, the threat still remains as an important consideration to keep in mind moving forward. 69     Additionally, we made several assumptions in our Benefit Cost Analysis comparing the single electric car to the single gasoline car. These assumptions though grounded on solid data may not be representative of the real world scenario. For instance, the price projections of premium petrol as well as average electricity costs are difficult to verify. Also, the annual mileage traveled for each car and the type of usage of car were simplified to the greatest extent. Another thing that we must keep in mind for our study is the fact that Tesla is likely to release a cheaper, more affordable electric car in the future. There is news that the new electric car will be made much more available to the general public sitting at a

MSRP of around $30,000. We can expect many of the same efficiency features to be present, minus the sports-like performance and extreme luxury that the Model S brings to the table. Such a vehicle being introduced to the market would greatly change the way that our growth projections are set, not to mention the difference in a CBA that the new electric car would have against a similarly priced gasoline automobile. More than likely, the introduction of such a car would actually increase Tesla’s market share even more than the Model S will, due to its easier to swallow price point and mass production scale. This would, however, likely result in fewer sales of the Model S as most people are seeking to make the transition to electric cars to maximize their savings which will more than likely be achieved more optimally with the purchase of the cheaper Tesla vehicle. It is important to keep this in mind when we question the excessive price of the Model S and realize that that price reflects

a premium luxury vehicle, and must be compared to a like vehicle such as the Mercedes E350 for fairness sake. One of the main issues within our growth projection model is the assumption that Tesla will have 100% market share of electric premium vehicles. For the purpose of our growth projections we used the 100% figure so that we could estimate more precisely the exact growth rate of Tesla Model S cars sold in the next 5 years and how that figure would compare to the growth and sales of gasoline-powered luxury automobiles. Due to lack of existing data, we were not able to come up 70     with a more accurate market share growth rate for Tesla in the luxury electric vehicle market. The Model S is simply too new, so we chose to set the Model S as the global standard for the luxury electric vehicle and then project our future sales and market share values based off of that assumption. Obviously, this is not the case in reality, however, for the purpose of this study it lets us

focus on more of a comparison between gasoline and electric vehicle sales as opposed to getting caught up in the micro details of how many of those new luxury electric vehicles are likely to be Tesla Model S’s. The implication of this assumption is that our growth projections and sales figures for the Model S in the next 5 years are likely to be marginally overstated. Similar to what was hinted at above, Tesla is not guaranteed to have a monopoly on the luxury electric car market. In fact, competition is already beginning to heat up between Tesla and some major automobile industry players such as BMW. BMW has recently announced the release of the i8 and i3 hybrid and fully electric car, respectively. The i8 is a luxury sports hybrid and is reportedly sold out for its first year’s release while the i3 electric car is already sold on over 10,000 orders. This not only poses a threat to Tesla’s market share in the electric vehicle sector but more importantly, may pose a major threat

to Tesla’s basic ability to even stay in business. Due to the massive scaling opportunities of a large company like BMW, they can easily cut costs way below what Tesla can keep up with. This may drive prices too low for Tesla to match and could eventually force them completely out of the market across all their electric car models and ultimately out of business entirely. Tesla must continue to differentiate themselves from the competition with new features and upgraded infrastructure across the US if they hope to stay relevant. As mentioned earlier if the abundance of supercharge stations can continue to increase and the battery swapping stations can be more widely implemented, then Tesla will have a massive advantage and head start to winning over the share of this initial electric car market surge. 71     Although some of these limiting factors hold this study back from its full potential, as long as they are acknowledged as close considerations moving forward, I believe

time will allow some of them to be resolved in the future. Ultimately, however, the limitations are outweighed by the relevance and usefulness of the study in trying to determine the impact of the Tesla Model S on the automotive industry and environment, making the paper a step in the right direction moving forward. 10.  Group  Contributions     Andrew Bak – Double majoring in Economics & East Asian Studies. Andrew contributed to the section entitled “Choosing an Electric Car”. Pranav Gandhi – Majoring in Economics. Pranav contributed to the section entitled “Introduction” Harsh Hiranandani – Double majoring in Economics & Political Science. Harsh contributed to the section entitled “Aggregate Benefit of Tesla”. Rohan Manthani – Double majoring in Economics & Biology. Rohan contributed to the section entitled “Comparing the Average Electric and Gasoline Cars: A Cost Benefit Analysis of a Single Electric Car Compared to a Single Gasoline

Car”. Jameson Moriarty – Double majoring in Economics & Natural Science. Jameson contributed to the sections entitled “Aggregate Befit of Tesla” and “Discussion”. Varoon Rai – Double majoring in Economics & Political Science. Varoon contributed to the section entitled “Comparing the Average Electric and Gasoline Cars: A Cost Benefit Analysis of a Single Electric Car Compared to a Single Gasoline Car”. Sachin Sharma – Double majoring in Economics & Philosophy. Sachin contributed to the sections entitled “Choosing a Gasoline Car” and “Aggregate Benefit of Tesla”.         72     Appendices       Comparing  the  Toyota  Camry  to  the  Generation  3  Tesla:  A  Speculative  comparison         Upfront  Cost   Taxes  and  Credits       Annual  Miles  Travelled   Fuel  Economy  of  Gas  Car  (mpg)   Price  of

 Electricity  ($/kWh)   Electricity  Economy  (Wh/mile)   Percentage  Miles  powered  by  gas   station/supercharging  station   Annual  Home  Electricity  Usage   (kWh)   Monthly  Gas/Supercharger  Stops   Time  Per  Refuel  Stop  (minutes)   Value  of  Time(/hr)   Lifespan  of  Car  (years)   CO2  Emissions  (kg/mile)   Discount  Rate   Tesla  Gen  3    $30,000.00      $7,500.00         15000   NA   0.11   380   Toyota  Camry    $23,235.00      $1,277.00          15,720     29   NA   NA   30%   100%   3990    1      20      $50.00     8   0   7%        -­‐          6      10      $50.00     8   0.3728   Energy  Price  Projections   Regular  Gas

  Premium  Gas   Electricity    $3.49      $3.89      $0.11      $3.39      $3.89      $0.12      $4.52      $5.12      $0.13      $5.65      $6.35      $0.15      $6.78      $7.58      $0.16      $7.91      $8.81      $0.18      $9.04      $10.04      $0.19      $10.17      $11.27      $0.21         2013   2014   2015   2016   2017   2018   2019   2020                   73     Benefit  Cost  Analysis   Consumer   Emmissions   Production,  Recycling,  Distribution   Energy  Transmission  Savings       Net  Benefit   NPV  Cost   $3,889.12      $559.92      $(34.01)    $1,302.23    

    $5,717.26           Discount  Rate   3%   5%   7%   9%   11%   Benefit    $9,825.11      $7,632.28      $5,717.26      $4,038.73      $2,562.28         Vehicle  Cost   Tesla  Gen3   Toyota  Camry       Tesla  Cost  Savings   Tax  and  Other   Upfront  Cost   Credits   On  the  Road  Cost    $30,000.00      $7,500.00      $37,500.00      $23,235.00      $1,277.00      $24,512.00                  $(12,988.00)     Energy  Cost   Tesla  Gen3   Toyota  Camry       Total  Cost  Savings/yr   Gas  Cost/yr       Electricity  cost/yr   Total  Energy  Cost   0    $438.90      $438.90      $1,891.82     0    $1,891.82    

         $1,452.92       Year     2013   2014   2015   2016   2017   2018   2019   2020   NPV  of  Savings   Savings    $1,452.92      $1,354.82      $1,919.08      $2,478.51      $3,032.63      $3,580.91      $4,122.77      $4,657.55     $15,825.14         74     Opp.  Cost  -­‐  Refuel   Tesla  Gen3   Toyota  Camry       Total  Cost  Savings/yr   Cost  of  time    $200.00      $600.00          $400.00           Year     2013   2014   2015   2016   2017   2018   2019   2020   NPV  of  Savings   Savings    $400.00      $400.00      $400.00      $400.00      $400.00      $400.00      $400.00    

 $400.00     $2,388.52                                                         75                                                                                                 76     Total  Present  Value  Benefit   to  Consumer   $3,889.12               77                                                                                                 78     CO2  Emmissions:  Based  on   Fuel  Source  

Coal      Bituminous      Sub-­‐bituminous      Lignite   Natural  gas   Distillate  Oil  (No.  2)   Residual  Oil  (No.  6)   Lbs  of  CO2  per  Million  Btu     Heat  Rate   (Btu  per   kWh)     205.3     212.7   215.4   117.08   161.386   173.906   10,128   10,128   10,128   10,414   10,414   10,414   Lbs   CO2  per   kWh       2.08   2.15   2.18   1.22   1.68   1.81     Average  Household   Electricity  Source   Coal   Natural  Gas   Nuclear   Hydropower   Other  Renewable   Biomass   Geothermal   Solar   Wind   Petroleum   Other  Gases   Percentage   37%   30%   19%   7%   5%   1%   0%   0%   3%   1%   <1       Average  Household  CO2   emmissions  per  kWh   electricity

 consumed(kgs)   Tesla  Gen3   Annual  CO2  Emmissions   0.532524568             2124.773026                   79                                                                                                   80     Benefit  of  Tesla  Model  S    $559.92           General  production,   recyling  and  disposal   Toyota  Camry   Tesla  Gen3       Battery   Disposal    Environmental  cost   Cost    $554.04      $20.64      $63.69      $54500           Tesla  Gen3  Benefits    $(34.01)             Cost  to  

Recycle  1   tonne  of   battery                             Weight   of   Toyota   Camry   Battery   (tonnes)   Weight  of   Tesla  Gen3   Battery    $1,000.00           0.020638436   0.545   81       Energy  Transmission     Tesla  Model  S  Costs   Toyota  Camry   2013    $30.72      $151.35     2014    $33.80      $147.01     2015    $37.17      $196.01     2016    $40.89      $245.02     2017    $44.98      $294.02     2018    $49.48      $343.02     2019    $54.43      $392.02     2020    $59.87      $441.03     NPV   $253.56     $1,555.79      Tesla  Gen3  Benefits            

  Electricity  Lost  in  Transmission   Cost  of  Distribution  of  Gas   $1,302.23         7%   8%   82