Questions Musk Needs to Answer about the Tesla Superchargers

• Tesla has failed to reveal the true costs of its filling stations for electric cars.

 

• Tesla spends money on the superchargers but it seems to have no plans to make revenue from them.

 

• Tesla has no plan to deal with steadily increasing electricity costs.

 

• Tesla’s Supercharger expenses could increase dramatically if it is forced to generate its own electricity.

 

• Tesla has failed to explore potentially lucrative retail and partnership possibilities at the Superchargers.

There are a few questions about Tesla Motors’ (NASDAQ: TSLA) Superchargers that Elon Musk needs to answer for investors. The filling stations for electric cars are at the heart of Tesla’s marketing efforts but Musk has failed to divulge some important details about them.

The first and most obvious question Musk has failed to answer is how much does it cost to build, maintain and operate a Supercharger? My fellow Seeking Alpha Contributor Alberto Zaragoza Comendador pointed out that this important data is absent from Tesla’s financial disclosures.

Tesla has failed to reveal the construction, labor, taxes and real estate costs related to the Superchargers. Since there are now 139 of the facilities in the US, 108 in Europe and 40 in Asia those costs have to considerable.

How much does the Electricity Cost?

The second question we need to ask is how is Tesla planning to deal with increasing electricity costs? This question is vital because the current marketing plan is to let Tesla drivers charge cars for free at the Superchargers as long as they own the car. The problem with that is utilities are not going to give electricity away for free – Tesla will have to pay for it.

That expense could quickly grow out of control and start eating into Tesla’s revenues.  The average price for a commercial kilowatt hour (kWh) of electricity in the United States in September 2014 was 12.49¢ according to the US Energy Information Agency (EIA). Since the Model S comes with a 60 kWh or 85 kWh battery we can assume that each Supercharger charge will cost Tesla $7.49 or $10.62 for electricity alone for each charge.

What about Rising Electricity Costs?

The major dilemma here is that those costs are going up, the average price for a commercial kilowatt hour of electricity in the USA was 11.1¢ in September 2013 and 9.88¢ in September 2012. That means the average cost of electricity is rising by around 1.5 cents a kWh each year.

Those expenses could go up dramatically over time Nerdgraph predicted that US electricity prices will increase 21% over the next 10 years and 51% in the next 20 years. Electricity costs are expected to rise because of the high cost of maintaining and expanding the US electrical grid and the cost of replacing coal burning power plants with other sources of electricity.

 

There are also specific areas where prices are higher, the average commercial kilowatt hour of electricity in Vermont cost 14.55¢ in September 2014 or about three cents above the national average. In New Jersey the cost was 13.2¢ per kWh, and in Hawaii the cost is 36.28¢ per kWh. In California, where the most Teslas have been sold the price is 17.09¢ a kWh or around five cents above the national average. That means it costs around $14.53 to charge a model S with an 85 kWh battery in the Golden State. The costs are considerable and they’ll get higher in the near future.

There are also specific areas where prices are higher, the average commercial kilowatt hour of electricity in Vermont cost 14.55¢ in September 2014 or about three cents above the national average. In New Jersey the cost was 13.2¢ per kWh, and in Hawaii the cost is 36.28¢ per kWh. In California, where the most Teslas have been sold the price is 17.09¢ a kWh or around five cents above the national average. That means it costs around $14.53 to charge a model S with an 85 kWh battery in the Golden State. The costs are considerable and they’ll get higher in the near future.

The situation could be far worse overseas where electricity prices are astronomically high in some countries. Nerdgraph reported that electricity cost 40.38¢ per kWh in Denmark, 34.18¢ per kWh in Brazil and 31.41¢ per kWh in Germany.

Tesla is using the Superchargers as a loss leader and covering the cost from the revenue it gets from selling cars. That could be a real problem because Tesla is already losing money from its auto-manufacturing business – it reported a free cash flow of -$312.17 million in September 2014. As you can see from the chart below that loss has grown dramatically over the past year.

The company is giving away something that is rising in price. The business model simply does not make any sense. Tesla’s competitors such as Ford (NYSE: F) and Toyota Motor (NYSE: TM) do not give gasoline or diesel fuel away to their customers. Yes electricity is far cheaper than gasoline or diesel fuel, but it is far from free.

Can Tesla Afford to Generate its Own Electricity?

This brings us to the next important question we need to ask ourselves: what happens if Tesla has to start generating its own electricity at the Superchargers? The company is already doing this in a small way with solar panels. Yet what happens if it has to starting making enough electricity to charge the cars at a Supercharger, for example if it builds one in an area where the grid is unreliable.

This could include much of the United States – the number of blackouts in the USA has increased by 285% since 1984 according data collected by the US Department of Energy or DOE. The average electrical customer in the Northeast loses power for 214 according to DOE. The cause of the unreliability is an aging US electrical grid that is constantly breaking down. That means Tesla will need some sort of backup system capable of generating enough electricity to keep cars charged at its Superchargers.

Generating enough electricity to power a fleet of cars with one canopy of solar panels does seem realistic. Tesla may have to resort to more traditional and less environmentally-friendly means of making power such as a diesel generator. If it wanted to be nonpolluting I suppose Tesla could install a fuel cell stack which puts out no emissions.

That could get very expensive very fast because Tesla would have to buy a generator or a fuel cell stack for each Supercharger. A used 500 kilowatt industrial diesel generator costs around $65,000. One of privately-held Bloom Energy’s Bloom Box or Energy Server fuel cell stacks costs around $700,000 according to Wired. Then it would have to buy fuel such as natural gas or diesel fuel to make the electricity. Where is the money to cover that expense supposed to come from?

Why Not Generate Some Revenue at the Superchargers?

This raises yet another question has Tesla got any plans to generate revenue from the Superchargers? Perhaps it could sell electricity to owners of other electric cars such as the Nissan Leaf. Or will Tesla start charging for power for the models that come after the Model S.

Tesla could also put in convenience stores or fast food outlets at the Superchargers. They are filling stations after all, maybe Tesla could cover the electricity costs by selling soda pop, lottery tickets and snacks to drivers. Another solution would be to put in pumps and sell gasoline or diesel fuel to other drivers.

That brings up one final question why hasn’t Tesla partnered with a filling station operator in the Supercharger scheme? A company like Kroger (NYSE: KR), which operates over 2,000 filling stations; might be willing to add Superchargers to its stores to attract even more customers. Companies like Kroger and Costco Wholesale (NASDAQ: COST) already use fuel as a loss leader, so adding a Supercharger sounds like a logical progression.

Why not put Superchargers at Kroger grocery stores or Costco warehouses? The Tesla driver could go in and shop while the car is charging. Or for that matter at McDonald’s or Starbucks the Tesla driver could go in and grab a latte or a burger while the car is charging up.

More importantly a giant retailer like Kroger or Costco might be willing to absorb part of Tesla’s costs. After all Costco reported at TTM revenue of $112.64 billion on August 31, 2014 and Kroger reported a TTM revenue of $106.36 billion on October 31, 2014, so they certainly have the money. Has Tesla even approached one of these companies to see if they’d be willing to participate in the Supercharger scheme?

Mr. Musk has some real explaining to do about the Superchargers. How is constructing infrastructure that does not seem to generate any revenue and costs money to operate supposed to help his company? Investors deserve some answers here, Elon.