Tesla Model S

Tradeoffs: Tesla Cost and Benefit

by Elaine Schwartz    •    Apr 3, 2013    •    361 Views

Electric carmaker Tesla just announced its first profitable quarter. I also learned it was able to add $40.5 million to its bottom line for selling pollution credits to other auto makers.

States like California have a zero emission requirement for a proportion of the cars sold by each automaker. Too small to have the emission mandate, Tesla sells its credits to other auto manufacturers. The pollution credits are earned (or owed) with each car sale.

Both accomplishments started me thinking about tradeoffs. Electric cars are environmentally friendly because they do not spew carbon emissions. They might be less friendly, though, than most of us expect.

Here is the story:

The environmental impact of an electric car starts sooner and ends later than its road life. One academic study concluded that, “The supply chains involved in the production of electric powertrains and traction batteries add significantly to the environmental impacts of vehicle production.” It added that vehicle parts disposal and material add to cost. But, researchers also said that some vehicles can be so environmentally beneficial that they offset the costs.

How then to assess a firm’s environmental ledger? With Tesla, we can place a federal loan, the state carbon credits, manufacturing and disposal on the liability side. Its benefits focus on road use.

Our bottom line: Looking at environmental friendliness, we might not see the hidden tradeoffs.

Sources and Resources: The name Tesla and its image belie a more complicated story. Supported by government subsidies and benefiting from carbon credits, Tesla is a perfect example of the complexities of assessing environmental impact. The academic article on “cradle to grave” considerations, a WSJ article and a Timothy Taylor discussion are, respectively, here, here, and here. As a result, this and this article about Tesla were only a part of the environmental story.

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