You may not know it, but gas stations make the bulk of their money selling food and drinks, earning little to nothing at the actual pump. With the wait time to charge a Tesla (NASDAQ:TSLA) vehicle is equal to about the time it takes to eat a meal, a mutually beneficial opportunity exists for Tesla to partner with TravelCenters of America (NASDAQ:TA) and/or CST Brands (NYSE:CST).
Tesla is busy setting up supercharging stations. On average, it takes anywhere from 20 minutes to 75 minutes for a drivers to charge a Tesla battery. Tesla plans to open stations that connect 80% of the US population in 2014 and 98% by 2015. It plays up the charging wait on its website by stating, "Superchargers are located near amenities like roadside diners, cafes, and shopping centers. Road trippers can stop for a quick meal and have their Model S charged when they're done."
Instead of figuring out the best places to set up new stations from scratch, why doesn't Tesla simply partner with the rest stop experts who already did most of the legwork for them? Tesla would benefit by having its stations in already established, proven, and familiar locations that have a variety places to eat and are already see heavy traffic. The heavily populated aspect of current rest stops allows Tesla the additional bonus of free marketing to the gas-car customers at the stations.
TravelCenters of America and CST Brands would benefit in the most obvious of ways. First, the average gas consumer fills up his tank in three minutes, compared to 20 to 75 minutes for a Tesla charge. It's far more tempting to grab a snack, or even an entire meal, when you have that additional time to kill.
Follow the food
TravelCenters of America owns and operates 247 locations in the United States and Canada. Last quarter, it earned $15.8 million net income or $0.53 EPS on sales of more than $2 billion.
Some 81% of its revenue came from fuel, yet only 30% of its gross profits came from the same source. Profit margins on fuel are a paper-thin 4.4%, while the profit margin on its food, services, and merchandise is a hefty 54.3% --12 times higher. For TravelCenters of America, this means 70% of its profits actually come from the 19% of sales that consist mostly of people grabbing a bite to eat.
Now consider this: Tesla is targeting annual production of over 500,000 vehicles over the next few years. While the number of Tesla vehicles is quite small compared to gas-powered vehicles of 14.5 million sold in 2012, the average weight time of "fill ups" makes up for it.
Use 30 minutes for a Tesla charge, compared to three minutes for a gas fillup. If Tesla had sold 500,000 vehicles in 2012, it might mean 15 million minutes of waiting time on fillups, compared to 42 million minutes for gas-powered cars. When you factor in that people would be more likely to "kill time" during a longer fill up than a shorter one, it's reasonable to expect food sales during this wait to spike dramatically.
CST Brands is "one of the largest independent retailers of motor fuels and convenience merchandise in North America" with nearly 1,900 locations. Last quarter, it earned adjusted net income of $41 million, or $0.31 per share, on $3.3 billion in sales. Almost $2.8 billion, or 85% of sales, came from fuel. 48% of its gross profit came from fuel, while the other 52% came from the 15% of nonfuel sales.
CST Brands' gross margin on fuel is a tiny bit higher than TravelCenters of America at 5%. Just like TravelCenters of America, CBT Brands hopes customers stop and eat because that's where the real money is.
Final foolish thoughts
TravelCenters of America and CST Brands could see dramatic rises in net profit with just tiny increases in food sales. They should be looking to partner with Tesla, and Tesla should be looking to partner with one or both of them. Read the earnings reports of all three along with listening to their conference calls. Any hint of moving forward in this venture would be bullish for any companies named.