This Trend Should Worry Sirius XM and Tesla

If you're noticing less gridlock on the open roads, thank a non-driver.

We're not hitting the streets the way we used to according to a recent Volpe National Transportation Systems Center study, and that's something that could be particularly problematic for Sirius XM Radio (NASDAQ: SIRI  ) and Tesla Motors (NASDAQ: TSLA  ) .

The study shows that the number of miles driven a month by the average driver peaked at 900 nine summers ago. It had fallen to 820 miles last summer, and the declining trend has continued through the first half of this year.

A CNBC story on the trend also leans on a study by CNW Marketing concluding that the number of carless households has doubled over the past 20 years to reach nearly 10% now. 

What does this have to do with Sirius XM or Tesla? Well, if we're driving less, this will naturally make paying a premium for radio or an all-electric vehicle a less compelling financial decision. Folks making the decisions to pay for satellite radio or pay a premium for a luxury plug-in electric sedan weigh the time that they will spend consuming the product. If folks aren't driving or buying cars at all, it should make these offerings less attractive.   

In the past, driving levels have been hogtied to the state of the economy. If employment levels are humming along and the economy's cooking, there will be more people on the road. They're motoring to work. They're spending more to go out and taking road trips. However, there's a real disconnect this time. Unemployment levels are declining and the economy's taking baby steps in the right direction yet we're driving less?

It gets worse.

The Volpe study shows that there are actually two groups showing an increase in driving activity as senior citizens and middle-aged women are spending more time in their cars. These groups don't exactly ring Sirius XM subscriptions and Tesla Model S sedan purchases to me.

This also means that guys and young drivers are driving even less than the Volpe study suggests since it includes the two groups that are actually spending more time on the road.

What's going on here? Well, it's probably a perfect storm with variable factors coming into play.

  • College grads are leaving school with record student loan debt. Buying a car is a luxury.
  • In a related move, there's an urbanization movement where the youth are flocking back into metropolitan cities with somewhat efficient mass transportation.
  • We also have smartphones. Data plans aren't cheap, and this was an expense that didn't exist for most of us just a few years ago. Ask most people in their 20s if they would rather give up their cars or their connectivity and they'll likely opt to save on auto loan payments, insurance, gas, and maintenance. There's a reason why Zipcar has a presence in hundreds of college campuses with its auto-sharing service.
  • Telecommuting is also on the rise. More people can work at home, and that makes it easier to forgo either car ownership or daily commutes.

These factors, in concert, may not seem to be giving automakers fits these days. Auto sales remain strong, though a lot of that is pent-up demand during the recession that's been gradually fading in the rearview mirror. However, we do see Sirius XM's subscriber rate growing, topping 25 million earlier this year. We also see Tesla's stock at all-time highs, with hundreds of new orders pouring in every week. 

This obviously isn't the end. Both companies have outlets for growth even in this environment. Sirius XM has been ramping up its streaming offerings, giving subscribers more value for their plans when they're not driving around if they're willing to pay a little more every month for access. Tesla's been growing at the expense of other plug-in vehicles, taking market share in the electric market that may storm back into favor now that gas prices are on the rise again.  

It could still be better, though. The demand for either product would be stronger if men were driving more rather than less.

3 smart ways to play the recent spike in oil
Think the days of $100 oil are gone? Think again. In fact, the market is heading in that direction now. But for investors that are positioned to profit from the return of $100 oil, it can't come soon enough. To help investors get rich off of rising oil prices, our top analysts prepared a free report that reveals three stocks that are bound to soar as oil prices climb higher. To discover the identities of these stocks instantly, access your free report by clicking here now.


Read/Post Comments (16) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 03, 2013, at 5:59 PM, DAVIDUGLY wrote:

    Nope, the trend should make TESLA owners feel better knowing there will be less gas cars in the way. Since we bought Tesla Model S, we have been driving far more, up by 1000 per month, and no sign of slowing after months of ownership.

    And for the first time, we signed up for XM.

    Almost all of the other Tesla Model S owners I speak with have the same or similar experience... they LOVE driving again and not having to buy gas inspires them to hit the road for pure joy more often.

  • Report this Comment On September 03, 2013, at 6:01 PM, tjtoretire wrote:

    Miles driven may be down but car sales are up as are Sirius subscriptions in both new and used cars. Bodes well for Sirius.

  • Report this Comment On September 03, 2013, at 6:12 PM, Kfury wrote:

    The conclusions in this article seem pretty unfounded for both Tesla and SiriusXM.

    There is zero information about the economic bracket of the increasing carless segment, but comments about students coming out of college with higher student loans don't convince me that this will impact Tesla sales. Honda, maybe?

    Also, SiriusXM's revenue stream is rapidly diversifying in to internet streaming. Lower car sales don't affect that much, except that consumers like streaming services that can extend to the car without driving up their cellular data plan.

    If you're still not convinced, consider that Tesla is a global company, and SiriusXM is expanding internationally as well. In the global market, car ownership is growing at unprecedented rates: http://dc.streetsblog.org/2013/07/05/car-ownership-may-be-do...

  • Report this Comment On September 03, 2013, at 6:14 PM, lanciab wrote:

    Just plain old stupid analysis.

  • Report this Comment On September 03, 2013, at 6:22 PM, Walsher wrote:

    Careful fool you guys are in danger of falling below seeking alpo in the terrible journalism department if you can call it that. The same tired reasons why Siri will fail yet it keeps trudging along proving all the naysayers wrong!

  • Report this Comment On September 03, 2013, at 6:31 PM, thescientist1337 wrote:

    I graduated 4 years ago and have an entry level position job. And for the same reasons that this article states, I do not own a car. But I am saving up to buy a Tesla X ($40,000).

    There are two main reasons I do not own a car right now. I believe gas prices are too high and cars are a major cause of climate change.

    Tesla solves both of those concerns for me. If anything I would say these are problems for GM and Ford.

    Readers may say $40,000 is expensive for a first car, but compare it to how much less you spend on gas a week. In a week, I would travel (dad's car) 400km and spend $56(gas prices will rise). Compared to $5/week (Tesla estimates). That's a savings of $2652 a year.

    Not bad when you consider how cool a Tesla looks. I'll see you in the carpool lane.

  • Report this Comment On September 03, 2013, at 6:31 PM, Fatherofifty wrote:

    Actually, this article overlooks the number one reason people are driving less: the cost of gasoline, which, ironically, Tesla does not use, but which Tesla's current competitors do in fact use in gobs.

    Another bit of irony: I let all my SiriusXM accounts expire once I got my Model S because of the built-in Slacker and TunedIn internet radio services.

  • Report this Comment On September 03, 2013, at 7:45 PM, Austin77478 wrote:

    Rick and Crunching Numbers are fear mongers.

  • Report this Comment On September 03, 2013, at 7:50 PM, Walsher wrote:

    One more thing to add if less people are driving why are auto sales at their highest point since 2006 another thing that has been driving siri stock lately no pun intended.

  • Report this Comment On September 03, 2013, at 7:58 PM, ScottAtlanta wrote:

    I think you're right about the trends: urbanization, tighter economics for workers (more people into less space with fewer personal resources), increasing liberation of technology...etc.

    But possibly wrong about the specifics. I'm not sure I'd apply to specific companies just yet I could imagine fleets of TESLA cars replacing gas cars...once they've been equipped with Google sensors for automated transportation. Want to get somewhere? Use your smartphone app that delivers a driver-less, electric car to your door in 10 minutes.

    I think that's more likely the future for most, tho those of us workers who rise to the level of "supervisor" might be able to afford our own cars. The companies that can produce products that meet the demands of mega-trends over the next 10+ years will come out on top. Until we do away with "companies"....but that's another evolution.

  • Report this Comment On September 03, 2013, at 11:08 PM, Ustauber wrote:

    This has to be the most LAME articles that I have encounter here.

    The logic is kindergarden material.

    Is like saying that eye laser surgery will kill contact lenses or frame glasses sales !!

    lol

  • Report this Comment On September 04, 2013, at 8:52 AM, drax7 wrote:

    Tesla will be driven cross country for free, that could hurt the airlines. Which in Turn could hurt Boeing, which in turn could hurt carry on bags, which in turn would hurt zippers, which in turn could hurt zipper lubricants. Waoooooo.

  • Report this Comment On September 04, 2013, at 8:53 AM, drax7 wrote:

    Correlation is not causation, viva tesla.

  • Report this Comment On September 04, 2013, at 11:55 AM, coopdaddy1 wrote:

    These are the same bogus articles that have been suppressing SIRI for years.

  • Report this Comment On September 04, 2013, at 12:34 PM, EEasyMoney wrote:

    The highest quality content on this page is in the comments. Great comments! I guess writing a blog and mentioning two of the hottest stocks, TSLA and SIRI, will get a lot of hits.

  • Report this Comment On September 06, 2013, at 4:23 PM, RobDFoolish wrote:

    I am really starting to be disappointed with the quality of the articles here. This used to be a great site for information, but seems to be turning into another amateur hack site seeking sponsors and fees. I used to subscribe until the solicitations and smoke and mirrors marketing got out of control.

    Sad.... -Rob D

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2620112, ~/Articles/ArticleHandler.aspx, 12/19/2014 5:54:49 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement