Personal Log: So You Want A Tesla Model S? See Why It’s Cheaper Than ICE.

Published on January 26, 2013 by R "Ray" Wang

The Latest Silicon Valley Disruption Is…A Car?

It’s all the rage in the valley.  No, it’s not the latest social, mobile, and big data app.  No, it’s not some cloud computing break through.  No, it’s not even bio tech.  It’s actually a car. 

Source: Tesla Motors, Inc.

Whether you are a tree-hugging environmentalist or gas guzzling performance driver, the Tesla Model S actually brings the best of both worlds together. The Tesla Model S is an all-electric, meaning not hybrid with a back up engine, vehicle that:

  • Goes from 0 to 60 in 4.4 seconds (for the Performance models)
  • Achieves a driving range of 300 miles (for the 85 kwh battery)
  • Sports a 17″ haptic touch screen user experience
  • Receives on-going software updates throughout the life of the car
  • Has a 8 year, unlimited mileage battery warranty (for both the the Performance and Non-Performance 85KwH models)
  • Seats up to 7 (including rear-facing child seats)

Pretty wild right?  It also comes with an upfront sticker shock of $100,000 USD for the top line versions.  This definitely puts the car out of reach for most folks, or not?

Source: Tesla Motors, Inc.

Behind The Numbers, The Model S Is Actually More Affordable Than You Think

Here’s the secret, the life time ownership costs are cheaper than owning an internal combustion engine (ICE) vehicle.  Are you in shock?  Let me show you why.   Using the same approach we take to calculating technology ownership costs, we considered a number of factors (See Figure 1):

  • Planned ownership. How long will you own the car?
  • Miles per year. How many miles to be driven per year?
  • Total energy costs. What are the fuel/energy costs will be in a year?
  • Yearly service fees. What are the total service and maintenance costs per year?
  • Cost/mile/year. How much does it cost to operate a car per mile per year.
  • % reimbursable mileage. If you have a business, what percentage of the mileage is business related.
  • Reimbursement rate. How much does the tax agency allow you to deduct for mileage?
  • Car priced with options. What’s the cost before taxes for the vehicle?
  • Financing costs. What are you paying for a car loan?
  • Tax incentives. What credits are being given to purchase an electric vehicle?

The comparison in Figure 1 assumes a comparison of an ICE (e.g. Audi A6, BMW 5-series, Lexus GS, Mercedes E-Class) vs an 85KwH Tesla Model S Performance Sedan with 19″ wheels.  Take a look at the results:

Figure 1. ICE vs Tesla Model S (right click to view full image)

Source: Insider Associates, LLC.

With incentives, the car’s lifetime ownership costs, not including insurance, but including a one-time replacement battery of 10,000 USD is almost equivalent to the lifetime cost of an ICE.  The cost savings come for a few reasons:

  • Lower cost/mile of operation.  Assuming a $.15 per KwH, which is high as the national rates are $.11 per KwH, and $3.75 per gallon of gas, the Tesla is still operating at $.22/mile cheaper than an ICE vehicle.
  • Minimal service costs per year. Service costs for premium vehicles average out at about $2000 per year, assuming about 15,000 miles driven.
  • Federal mileage reimbursement rates remain high. At $.55 per mile, those with small businesses can deduct almost $.22 more per mile at $.45/mile.

The Bottom Line: Have Your Cake And Eat It Too.

You don’t have to trade performance for greenness.  The Tesla Model S is a game changer.  While the costs are front-loaded, low vehicle interest rates below 2% make ownership very affordable.  For more savings, put a solar panel on your roof. In the meantime, you can outrun a Porsche Panorama making faster, better, cheaper a reality.

Not convinced, go at it on your own.  Here’s the spreadsheet.  Have some fun.

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Disclosure

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* Not responsible for any factual errors or omissions.  However, happy to correct any errors upon email receipt.

Copyright © 2001 – 2013 R Wang and Insider Associates, LLC All rights reserved.
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  • Chad

    thanks for your comments! It is interesting that the cost shift is happening. Hopefully electric prices hold their course.

    R

  • R.
    I am happy to see high performance EVs taking course, what a well designed vehicle, I think Tesla did a great job with their design, especially the interior and dashboard/display, it is very futuristic which is perfect. In my opinion Tesla is taking the opportunity to Re-invent the EV market and draw in new and skeptical customers, I am personally exited to see this technology, my mind wanders on the innovation that is yet to arrive, charging quickly, and locations of charging stations opens new markets in a time where skilled trades and engineers need the work, we have all seen the best of the fossil fueling station. What is the best of the EV charging station? It is unanimously agreed upon, that our Air is getting worse, each one of these steps is one step closer to clarity.
    Congrats.
    Chad

  • “Has a 8 year, unlimited mileage battery warranty (for the Performance models)” should be rephrased as (for BOTH Performance AND NON-PERFORMANCE 85kWh models)

  • Haim,

    Thanks for your comments. On the P85, you have the option to go with the 19″ tires. Most folks have b/c the 21″ have about an 8000 mile life. Across the board, tires are optional so it’s been ruled out. You could go w/ performance wheels on any of the ICE cars as well. As a control, I’ve ruled out the tires. On the 19″ you’ll get the same tread ware as other similar cars.

    Second, resale value on the Tesla is hard to calculate. There is a high beta that Tesla Motors goes under and the cars could be worth more for the novelty or less because repairs and quality are out of control. This is a hard factor to calculate.

    In any case, you can fill in the changes in the google spreadsheet and see how it goes.

    Thanks for taking the time to comment!

    R

  • Haim,

    Tires are optional. You could put the same on a 5 series if you wanted. I’ve made the assumption that 19″ are standard. According to the Tesla Service centers, you’ll only get 8000 miles on those 21″. so yes, that’s a reason why most folks are saying no.

    R

  • Hi Brian

    Thanks for letting me know. I think you can right click and view. Let me check on the google sheet b/c you should be able to get in. Let me know.

    R

  • None of the Tesla numbers are visible in my browser; your sidebar links cover them all. Zooming doesn’t help.

  • Apologies, the tires are $1,150 for a set of four. Slightly cheaper than what I said above but hardly changes the picture.

  • Sorry, the tires are $1,150 for a set of four. Slightly cheaper, but does not change the picture much.

  • I think you’ve used the Car as Enterprise Technology model without considering two key aspect of car ownership:
    - First is resale value after 8 years of ownership. Additionally, owning cars for such a long period is not typical behavior for $100K car buyer. It would be good to see the comparison with a typical ownership period for similar priced cars.
    - Second, the pricing model includes service costs, but not repair or part costs, for example: a set of four tires for the performance option (Continental Extreme Contact DW 245/35R21 per Tesla’s website) is around $1,600 at tirerack.com, and you’d need several of those during your 8 year, 120,000 mile ownership period. These costs alone far exceed the $4,800 allocated as service costs for the life of the car.

    Sorry Ray, I usually like your posts, but this one is very poorly done.

  • Re: “hepatic touch screen”
    “Hepatic” means of or relating to the liver. I think you meant “haptic”. But the screen does not dynamically change shape or vibrate so that at different times it feels different to your fingers. So in this case I think “haptic touch screen” is redundant and simply “touch screen” is sufficient.

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