Will Falling Gas Cost Crash Tesla Motors Inc (TSLA)?

Will Tesla Motors Inc (NASDAQ:TSLA) crash because of falling gas prices? Not necessarily, Justin Lahart of The Wall Street Journal says, but this trend will throw a wrench in the plans of the company.

Tesla Motors Inc (NASDAQ:TSLA) which makes all-electric cars like the Model S will naturally be affected by how high, or how low, the price of fuel will be. According to the data from the U.S. Energy Information Administration, gas prices on average have been falling since June this year.

Won’t cheaper fuel mean lesser demand for something like electric cars that promise consumers won’t be tied to fuel costs?

According to Lahart, lower fuel costs actually mean better outlooks for the automotive industry. People buy more cars when fuel is cheaper, he said. He also said that the target audience Model S which are people with more income to spend may actually not care about fuel costs.

The problem then lies in the longer term ambition of Elon Musk’s baby. He noted that people do not tend to buy fuel efficient cars when gas prices are lower and ultimately, Tesla Motors Inc (NASDAQ:TSLA) would need a wider range of people to buy their cars.

“The Tesla story is predicated on Tesla selling a lot more Prius-like cars in the future. They’re going to come out eventually with the Model 3 that, if you look at analyst estimates, the idea is like ‘To get to the price they are at now, they have to sell hundreds of thousands of these things by the end of the decade.’ […] If fuel prices are low, are they going to sell hundreds of thousands of these things?” Lahart said.

Essentially, Lahart is saying that Tesla Motors Inc (NASDAQ:TSLA), one of the companies expected to grow in 2014, would need more time to get to the scale they need to sell more affordable cars if the price of fuel continues to slide.

Lahart also said that having the company’s timeline pushed back matters a lot in terms of the valuation of the company because its current valuation is attached to the expectation that the automaker will grow their sales volume immensely over the next few years.

Tesla Motors Inc (NASDAQ:TSLA) shareholders includes Patrick Mccormack’s Tiger Consumer Management which said by the end of the third quarter that had a stake of 298,223 shares of the electric car maker.