America’s next automaker?

Rising oil prices could boost Tesla’s place in the market

Shares of carmaker Tesla Motors recently soared 21 per cent after U.S. President Barack Obama pledged to cut America’s dependence on overseas oil and an analyst released a bullish forecast for electric vehicles. It was an unexpected vote of confidence in a species of environmentally friendly automobile that has so far exhibited few signs of catching on with mainstream consumers—mostly because of high prices and a lack of recharging infrastructure.

Nevertheless, Morgan Stanley’s Adam Jones suggested that Tesla was poised to become “America’s fourth automaker” thanks to rising oil prices and increasing government efforts to push consumers toward the technology, including subsidies. “In our view, the conditions are ripe for a shakeup of a complacent, century-old industry heavily invested in the status quo of internal combustion,” Jones wrote. “The risks are high. So is the opportunity. Enter Tesla.”

Potential investors should take special note of the “risks” part of the equation. It’s not the first time the stars appeared to be lining up for alternative power sources. Back in 2006, U.S. president George W. Bush talked up hydrogen power in a speech, calling it the “fuel of the future.” Those four words translated into a 22 per cent spike in the moribund shares of Vancouver’s Ballard Power Systems, which makes hydrogen fuel cells. The stock has since fallen by more than 80 per cent as the prospect of transitioning to a hydrogen economy faded from popular imagination.

True, unlike hydrogen-powered vehicles, there are already electric cars in showrooms, including Nissan’s Leaf. But attitudes are still influenced by decades of experience with internal combustion engines. And consider another piece of Tesla news: its recent lawsuit against the producers of the U.K. car show Top Gear, which in a 2008 road test of the Tesla Roadster showed the car being pushed off the road, having prematurely run out of juice. Tesla calls the three-year-old episode misleading, but that hasn’t stopped it from being re-aired constantly to some 350 million global viewers. Obama or not, selling electric cars to the masses is going to be an uphill climb for the foreseeable future.