Undoubtedly, millions of Americans have had a rotten few weeks. From caring for our loved ones who have been infected with Covid-19 to the daily disruptions that we’re all experiencing, our nation is suffering. Yet if there’s one silver lining – and it’s a tiny one – gasoline prices have plummeted. That’s good news for most, but not particularly for Tesla (NASDAQ:TSLA). Despite being in positive territory for the year, TSLA stock has incurred very wild trading.
Further, in the Monday March 30 session, shares dipped more than 2% while the major indices moved higher. The easy explanation is that as gas prices decline, so too does the incentive to purchase electric vehicles. Naturally, that presents a headwind for TSLA stock.
Some gearheads will appreciate the immediate torque characteristic of EVs. However, I believe most people who wish to transition to the electric platform do so for the cost savings.
Of course, how much an EV will save you (in terms of eliminating gas consumption) depends on where you live. Obviously, drivers who live in states that feature lower gas prices won’t see as much savings as those who live in automobile meccas like Los Angeles.
But with an oil price war erupting between Saudi Arabia and Russia, gas prices have cratered to multi-year lows. In fact, Los Angeles-based Fox 11 reports that several gas stations throughout southern California have posted prices near or below $3. With such low costs, this doesn’t immediately help the cause for TSLA stock.
TSLA Stock Enjoys Comprehensive Consumer Benefits
In mid-March, Reuters’ Stephanie Kelly and Jessica Resnick-Ault published an interesting headline: “Gasoline becomes more affordable, just when Americans don’t need it.” To my mind, that’s a perfect descriptor of the nuanced challenges facing the traditional automotive industry.
In any other circumstance, you’d expect people to hit the road more often with such rock-bottom rates. After all, we’re rapidly approaching the summer driving season. Given the approximately 25% discount or more that drivers throughout the country are seeing, this trend incentives such travel.
Regrettably, though, many gas stations are simply collecting dust. In an industry that depends on high-volume business, several locations will eventually be forced to close their doors. Simply, the economics don’t work out.
On the other hand, there will always be demand for electricity. Even if all gas stations shut down — they won’t, of course, but hear me out — Tesla drivers have their fuel needs in their garage. And with states like California offering emergency foreclosure prevention, these drivers are essentially receiving governmental fuel-source protection.
But as I mentioned earlier, there’s more to Tesla than not having to deal with pain at the pump. Tesla cars and EVs in general are remarkably easy to maintain. According to the company’s maintenance website:
“Unlike gasoline cars, Tesla cars require no traditional oil changes, fuel filters, spark plug replacements or emission checks. As electric cars, even brake pad replacements are rare because regenerative braking returns energy to the battery, significantly reducing wear on brakes.”
Especially for today’s advanced gasoline-powered vehicles, the recurring maintenance costs can add up quickly. And in some high-performance vehicles, replacing ceramic brakes can cost you $10,000 or more. It’s not quite an apples-to-apples comparison but it demonstrates how expensive traditional cars really are.
Politics Also Support Tesla
Currently, one of the biggest controversies in the automotive world is the globalized parts supply chain. As U.S. market Teslas don’t source their car parts 100% domestically, they too are impacted.
However, in the case of the popular Model 3, most of its parts are made in the U.S., Canada and Mexico. Based on the present geopolitical environment, I’d expect this regional allocation to improve even more. If so, this would represent another argument favoring TSLA stock.
As the pandemic proved, having too much reliance on any one country is a recipe for disaster. And when that country has international ambitions that run contrary to our own national security interests, it poses additional challenges.
I’m not saying that we don’t have at least the occasional issue with Canada and especially Mexico. Despite our differences, though, as regional partners, we’re better off as friends than as belligerents. Principally, it’s the reason why we’ve maintained generally solid relationships despite recent flare ups.
Even in geopolitics, Tesla is ahead of the game. That’s why I remain bullish on TSLA stock.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.