COMPANY Data
Movers and SHAKERS
The Future of Cars: Model 3 or Model T?
(Note: all the sources listed in the "Balanced" section)
The Machine That Changed the World. In July of 1894, the city of Paris hosted what must have been for its time one of the most peculiar events ever to take place: a race of “horseless carriages”. Entrants included vehicles powered by steam, petrol, compressed air, hydraulics, and electricity. The event attracted massive crowds, who lined the 78-mile course from Paris to Rouen. Out of the 102 entrants, only 21 qualified for the race and even fewer finished. Nevertheless, onlookers were rewarded with the opportunity to witness a proud moment for the machine that would change everything. The carriage powered by the internal combustion engine won this race and was chosen to be the machine to replace horses as the propulsion of the future. The petroleum-powered automobile became a foundational pillar for the social and economic infrastructure of the twentieth century. Meanwhile, the electric carriage never even made it to the starting line. However, since that summer over a century ago advances in battery technology have finally made the electric motor a viable alternative. In recent years we’ve seen a big push for electric cars, but the impact of electric cars will have on our lives has yet to be determined. 1
Approaching Critical Mass. Although vehicles powered by the internal combustion engine had been around for a couple decades, cars didn’t become a staple good until Henry Ford perfected the mass production assembly line making cars affordable for average Americans. Similarly, high prices have made electric cars a rarity, and have so far been widely considered to be a luxury good for rich techies. However, this is all about to change. Over the past few years, major auto makers have joined the race with Tesla to produce an electric car with a range of 200 miles and with a price tag in line with the average American new car price of about $33k. This pursuit of electrification stoked an existential fear to those in the traditional auto industry, as electric cars have fewer parts requiring fewer assembly workers and fewer subsidiary systems from specialist suppliers. Since they have fewer parts, there is less to go wrong reducing maintenance costs for customers and removing the need for aftermarket spare parts and auto-repair shops. Electric cars appear to be nearing an inflection point as increasing economies of scale have lowered production costs and greatly improved affordability. Tesla’s Model 3 may have missed its price target, but you can now buy a Chevy Bolt for $36,620 or a Nissan LEAF for $30,000. As more parking lots add subsidized charging stations and more used electric cars hit the market, we can reasonably expect future cost savings for electric vehicles. 1, 9, 10, 11, 12
Subsidized Tailwinds. Both electric car manufacturers and customers have benefited from a number government subsidy and incentive programs as domestic and foreign governments work to reverse the trend in climate change while jumpstarting a new industry. In fact, in his 2011 State of the Union address, President Obama set the goal of making the US the first nation to have one million electric vehicles on the road and pledged $2.4 billion in federal grants for the development of electric vehicle technologies. Electric car manufacturers have put this government money to good use and have shown measurable returns on investment. Also, electric car manufacturers have been able to access capital from other sources, including the public capital markets. For example, in its early years Tesla received a $465 million loan from the Department of Energy, which it paid back 9 years early. The now successful Chevy Bolt, which was still in its embryonic stage at the time, was an influential component that justified GM’s $40 billion bailout in 2009. On the consumer side, the 2009 ACES Act provided a tax credit up to $7,500 to customers of the first 200,000 electric vehicles sold per manufacturer. The rollout of the Tesla Model 3 just recently pushed the manufacturers total vehicle sales past its 200k mark and ended these tax credits for Tesla customers. Nevertheless, based on public sentiment toward climate change and the success of early government funding programs, electric vehicles seem likely continue to enjoy government subsidies in the future. 13, 14, 16, 17
Model 3? More Like Model T. Once Ford’s Model T hit the market in 1908, the practical advantages of automobiles over horses was apparent to consumers in the rising American middle-class, who readily adopted the revolutionary technology. In fact, Ford was able to sell over 15,000 Model Ts in a matter of days after its release. At its peak, the Model T made up 40% of all US car sales, and to this day it is still one of the top 10 bestselling cars in history. By comparison, the rollout of the Tesla Model 3 earlier this year was a relative flop. Costing an estimated $35,000, the Model 3 was intended to be the first electric car available to the masses and was supposed to be the car that would lead the electric revolution in the auto industry. Alas, Tesla’s Q1 2018 numbers were nowhere near Ford’s Model T production ramp let alone Tesla’s own guidance producing only 800 Model 3s a week and costing customers over double what was promised. Tesla has recovered from its poor introduction and recently posted its first profitable quarter in two years, but its success will likely never eclipse the success of Ford’s earliest models. 2, 3, 4, 5, 6, 7
…But We Already Have Cars. The nice thing about motor powered cars is that they will never bite you, panic in a thunderstorm, or kick you in the face. The comparative advantages of an electric car over a gas-powered car are miniscule compared to advantages the automobile provided over horses a century ago. Perhaps the sluggish adoption of electric cars is because they do pretty much the same thing as current cars but cost more and are less convenient. Well, you can fill them up for a little cheaper at home which is nice, but where am I supposed to fill them up when I’m on the road? What if I park my car on the street? The infrastructure of charging stations and electric car auto shops is just not there yet. If you were hoping for a revolution, prepare to be disappointed. Adoption rates of the electric car by average middle-class Americans will likely experience more resistance than what early automobiles experienced a century ago. 1, 8, 15
Roads? Where We’re Going, We Don’t Need Roads. The electric car may expand beyond the miniscule 1% of global car sales that it represents today, but the socioeconomic impact of these cars will likely be muted by advances in other evolving technologies that enhance the efficiency of the current auto fleet. Soon, self-driving vehicles and ride-sharing apps may render car ownership obsolete. Rather than buying and maintaining cars that will sit idly in a parking space, the next generation may opt for “transportation as a service” where fleets of artificially intelligent vehicles offer inexpensive rides on demand. Additionally, millennials and progressive companies alike have embraced the “work-from-home” concept, which reduces office space expenses and frees employees from the commute, a leading reason for car ownership. Furthermore, a growing number of millennials have done away with the suburban commute by forsaking the American dream of home ownership in favor of luxury apartments in the city. Instead of owning a house and a car, these city dwellers may subscribe to any of a plethora of bike-sharing or electric scooter rental options. With Amazon Fresh and a Prime membership, who will even need to leave home? Indeed, there are fewer and fewer reasons to own a car electric or not. 1, 22
Small Slice, Huge Pie. Currently in the US, cars represent two-thirds of total oil consumption, vehicle loans are the third largest source of debt, and the auto industry contributes 3-3.5% to GDP. With 85% of American workers commuting by car, we spend an enormous amount of time in our cars and they are an ingrained component of our society. Today, electric cars only make up 1% of global car sales, but when you consider the number of cars in the world and the impact they have on our society, 1% is a big deal. The market share of electric vehicles will likely grow with improved affordability, but at what rate and for how long has yet to be determined. Economies of scale may reach a tipping point where affordability inspires a mass electric conversion, or sales may fall off and costs may rise after a niche market is saturated and government subsidies dry up. While the future of the electric car is still unknown, recent developments suggest that we can expect to have some resolution in the near future. 1, 18, 19, 20, 21, 23, 24
Sources:
- The death of the internal combustion engine, Economist, August 12, 2017
- Top 10 Best Selling Cars of All Time, Jason Siu, Autoguide, February 9, 2012
- How Far Can a Car Go Using Different Fuel Sources?, Rhett Allain, Wired, March 15, 2018
- Tesla rides Model 3’s popularity to its first profit in two years, Sean O’Kane, The Verge, October 24, 2018
- Tesla’s Model 3 Is No Model T, Charley Grant, The Wall Street Journal, April 3, 2018
- Tesla’s $35,000 Model 3 Could Now Cost You $78,000, Sally Bakewell and Olga Kharif, Bloomberg, May 20, 2018
- Henry Ford, Vincent Curcio, July 25, 2013
- Electric cars are set to arrive far more speedily than anticipated, Economist, February 18, 2017
- It's Time You Fell in Love With a Small, Cheap, Electric Car, Jack Stewart, Wired, October 23, 2018
- How GM Beat Tesla to the First True Mass-Market Electric Car, Alex Davies, Wired, February 2016
- Tesla Company Website
- The History of the Electric Car , Department of Energy, September 15, 2014
- Timeline: History of the Electric Car, PBS, October 30, 2009
- The Tesla Model 3 Is No Ford Model T, Ellen R. Wald, Forbes, Aug 1, 2017
- Electric Vehicles: Tax Credits and Other Incentives, Department of Energy
- What You Need to Know about the Federal EV Tax Credit Phase Out, Tesla Company Blog, August 10, 2018
- American Debt: Auto Loan Balances Total $1.22 Trillion in 4Q 2017, Amy Fontinelle, Investopedia, March 2, 2018
- The Student Loan Debt Crisis Is About to Get Worse, Riley Griffin, Bloomberg, October 17, 2018
- As rates and tuition rise, America’s student loan debt crisis could get much worse, Riley Griffin, Suborna Panja, Kristina D’Alessio, October 18, 2018
- Auto industry relieved by NAFTA 2.0, but results may be mixed, Janyce McGregor, CBC News, October 4, 2018
- The Agile Enterprise: Crafting A New Approach To Workforce Planning, Claudia Saran, Forbes October 24, 2018
- Contribution of the Automotive Industry to the Economies of all Fifty State and the United States, Kim Hill, Adam Cooper, and Debra Menk, Center for Automotive Research
- Interactive Access to Industry Economic Accounts Data: GDP by Industry, Bureau of Economic Research





