Tesla Stock Soars. Are Higher Oil Prices Really That Good for EV Companies?

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Oil prices have been rising as Russia, a major global oil producer, continues its war with Ukraine.

Conventional wisdom holds that high oil prices are good for

Tesla

(ticker: TSLA) and for electric-vehicle adoption. But just how good is hard to say. Investors appear convinced high oil prices are really good for Tesla, based on the trading action Monday. The math backing that conclusion is less clear.

Tesla was up 7.3% on Monday. the

S&P 500
and

Dow Jones Industrial Average
were down 0.09% and 0.5%, respectively.

There are a few potential reasons for the Tesla stock jump and outperformance.

For starters, Bernstein analyst Toni Sacconaghi raised his price target to $450 a share from $300. It’s a big boost, but he remains Sell-rated on the stock.

Another reason could be recent underperformance. Tesla stock underperformed the

Nasdaq Composite Index
last week, dropping 5.5% while the Nasdaq rose 1.1%. Monday could be a catch-up.

Both of those reasons might have something to do with Monday’s rise. Oil prices are likely to play a role too. Benchmark crude oil prices rose about 3% to 4% Monday. Higher oil prices mean higher gasoline prices which means it’s more expensive to operate a gasoline-powered car. And that means, EVs are a little bit more attractive, at the margin.

EVs are more expensive to purchase up front than gasoline-powered cars. The batteries and electric motor in a Tesla Model 3 might cost up to $10,000 or $14,000. That number is based on publicly available prices for batteries and generic electric motors. Tesla didn’t respond to a request for comment about its powertrain costs.

The engine, transmission, fuel pump and gas tank in a conventional car might cost half that. That, again, is a rough estimate based on replacement part markets.

The $5,000 or $7,000 gap for an EV buyer is made up for in lower maintenance costs, better resale values ​​and lower prices to fuel up. It costs, roughly, $10 to “fill up” a Tesla, assuming average residential electricity prices. At recent gasoline prices, it cost roughly $40 to $50 to get the same amount of range in a gasoline-powered car. Of course, prices vary based on the size and fuel efficiency of different cars.

At “normal” oil prices, purchasing and then operating a Tesla probably becomes cheaper than a buying a gasoline-powered car and filling it up over and over again after about four to five years of ownership. At higher oil prices, the break-even point is probably compressed by, perhaps, a year.

What that year means to Tesla’s stock is anyone’s guess. Buying an electric vehicle, or any vehicle, is a purchase made with a five- or seven-year outlook. Spot oil prices are, well, spot prices. Car buyers, and oil traders, know that energy prices fluctuate.

What also changes is battery prices. Automakers have plans to cut battery costs in half over the next few years. That would chop about $3,000 to $4,000 off the purchase price of a new EV.

There are many moving parts to consider when trying to assess the impact of any commodity price on broad EV adoption. What will determine EV adoption in the long run is the whether or not EVs are better than conventional cars, on cost, quality and driving metrics.

Write to Al Root at [email protected]