Coverage: What does falling oil prices mean for Tesla?

Oil prices are dropping, making many consumers happy, particularly since it’s right before the holiday travel and shopping season. But one maker of electric cars might not be so excited – Tesla — or maybe it doesn’t care.

Marcus Wohlsen wrote for Wired that Tesla was likely unhappy with the current price of gas:

The electric car-maker’s stature has risen—along with its share price—at a time when US gas prices were hitting record highs and appeared to be there to stay. But as a surge in domestic oil production has driven down the cost of filling up, Tesla is facing a question it really hasn’t had to contend with since becoming a public company in 2010: If gas is cheap, why would anyone need to own an electric car?

Wall Street certainly seems to be wondering the same thing. The price of Tesla shares has fallen by nearly 20 percent since mid-November, ending Tuesday slightly up after falling for seven straight trading days. “We believe the recent decline in TSLA shares is largely driven by the concern low gasoline prices could impact demand if sustained for the long term,” writes Ben Kallo, an analyst for Baird Equity Research, in a note to investors.

The most obvious counterargument in Tesla’s favor is that if you can afford a $70,000 Model S anyway, $30 for a tank of gas versus $60 probably doesn’t matter that much to you anyway. You’re buying an electric car out of a sense of environmental responsibility. And you’re buying a Tesla for the experience of driving a car with a user experience like no other, regardless of fuel source.

“Tesla vehicles are purchased for performance, quality, and brand, which are minimally affected by oil prices,” Kallo writes. He also calculates that Model S owners will still save nearly $1,400 annually even at the current average gas price of $2.78 per gallon.

But as Keith Naughton writes for Bloomberg, if you can afford a Tesla, you probably don’t care too much about the price of oil:

Tesla Motors Inc. (TSLA) customers are rich enough to keep buying luxury cars whatever the cost of a tank of gasoline. So the oil rout may not hammer the stock for long.

The 13 percent decline in Tesla shares since the Thanksgiving holiday in the U.S. was driven by concerns that falling oil prices will dry up demand for the company’s cars, analysts said.

That speculation is overblown, said David Whiston, an auto analyst with Morningstar Inc. in Chicago. Since Tesla is selling cars that can top $100,000 to very wealthy people, the price at the pump is not a prime motivator in that consumer’s purchase decision, he said.

“A lot of investors think cheap oil is bad news for Tesla, but it’s not that simple,” Whiston said today in a telephone interview. “People who are buying Tesla today don’t really care if gas is cheap or expensive. They want it because it’s a status symbol or for the performance or they are very eco-conscious and just don’t want to consume fossil fuels, regardless of what they pay for the fossil fuels.”

Quartz also points out that Tesla’s CEO thought their stock was too high earlier in the year, making the recent declines seem  like not such a bad thing:

And don’t forget, Musk himself expressed alarm about the rapid rise in Telsa’s share price earlier this year. “I think our stock price is kind of high right now,” he said at the time. “If you care about the long term, Tesla, I think the stock is a good price. If you look at the short term, it is less clear.”

Wiser minds than me are trying to figure out whether the decline in oil prices is sustainable. But for Tesla’s share price, a breather that makes its valuation less euphoric might not be such a terrible thing.

Paul R. La Monica wrote for CNN Money that the drop in stock might not be because of oil prices, and due more to lack of investor confidence in the company:

It’s true that lower gas prices could eventually be a more pressing issue for Tesla.

But that won’t really be the case until the company has launched the cheaper Model III vehicle that Musk is banking on to make Tesla a mass market company. And that is several years away.

So falling oil prices probably aren’t helping Tesla, but they are unlikely to be the only reason the stock is down.

Morgan Stanley analyst Adam Jonas, arguably the most influential Wall Street analyst following Tesla, recently cut his earnings forecasts for 2015 due to doubts that Tesla will be able to produce as many new Model X crossovers next year as it originally hoped.

And Jonas isn’t the only one growing a bit more skeptical. Before Tesla reported its latest quarterly results last month, analysts were predicting that Tesla would earn $3.29 a share in 2015. The consensus forecast is now $2.88 a share.

There are also lingering concerns about how easy it will be for Tesla to sell cars directly to consumers across the country.

Tesla’s luxury cars will likely be immune to drops in the price of oil. The stock slump is likely because there are questions about how Tesla will continue to grow and execute its plans, not because consumers may shun its cars.