Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Why All U.S. West Coasters Should Thank Tesla Motors' Elon Musk

By Beth McKenna - Mar 2, 2014 at 11:01AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

West Coast residents should hope Tesla Motors takes the Chinese auto market by storm.

This might be a hard pill for some to swallow, as Tesla Motors' ( TSLA 1.64% ) CEO Elon Musk largely generates passionate polar responses, but if you live on the West Coast, you might want to send a thank-you note to Musk and hope that Tesla takes the Chinese auto market by storm in 2014 and beyond. 

The electric-vehicle maker, which crushed earnings' estimates and provided a better than expected 2014 forecast when it reported its fourth-quarter results last week, starts shipping its Model S sedan to Chinese buyers this spring. There are several reasons to believe Tesla should do better in China than even optimistic forecasters are predicting. While the Model S's success in China will, naturally, reward Tesla shareholders, it will also likely eventually benefit everyone who breathes on the West Coast.

Add "pollution" to the list of things China is exporting to the U.S.
There have been studies showing that China's air pollution is blowing across the Pacific Ocean and harming the air quality on the West Coast. That's hardly surprising, as China's air pollution is beyond horrendous.

According to weather.com: "Strong winds known as westerlies push the pollution across the Pacific Ocean and toward the U.S. The winds are strongest during the spring. Dust, ozone and carbon (known as black carbon pollution) can accumulate in valleys in California and other Western states." 

China's air pollution, of course, is coming from several sources. It's generally agreed upon that the three main sources are coal burning for power generation, factories, and emissions from gasoline- and diesel-powered vehicles. There's disagreement, however, among those who have studied this issue as to what extent each of these factors is responsible for the problem. Some, for instance, blame motor vehicle emissions for the "majority" of Beijing's air pollution, while others point to studies, such as those done by Tsinghua and Peking universities, pegging auto emissions' share of the blame at 20%-30%.

Regardless, it's quite safe to say that vehicular emissions are a main culprit in polluting the air in Beijing, along with other major cities. This should hardly come as a shocker, given there are nearly 5.5 million cars in Beijing, which cause traffic jams that make Los Angeles' streets look downright roomy.

So, a considerable increase in the sale of electric vehicles at the expense of conventionally fueled ones should help lessen the -- or at least stem the growth of -- air pollution in many parts of China. In turn, there'll be less gunk in China's air to blow across the Pacific to our western shores.

Won't the needed increase in electricity for EVs just make the net effect a wash? 
China would need to produce more electricity to power the increased number of EVs. And the majority -- roughly 70% -- of China's electricity generation comes from coal-burning power plants, which are a main source of China's air pollution. So, it could be argued that adding more of Tesla's and other automakers' EVs to the road would result in a wash when it comes to total pollution. That's because while there would be less pollution spewing out of vehicles' tailpipes, there would likely initially be more pollution being generated by the coal-burning plants. 

Here's where some nuance comes in, so please stay with me.

The above scenario should bode better for China's air quality over the mid- to long-term than the current situation for several reasons. First, it's considerably more feasible for China to better control the pollution billowing out of coal-burning plants than it is for it to control the emissions coming out of conventionally fueled vehicles. There's readily available technology that can reduce the amount of pollution that escapes into the air from these plants. Granted, this technology costs money and most business owners aren't eager to open their corporate wallets for anything that doesn't directly generate profit. However, it's been shown -- including in China, which we'll get to -- that business owners are quite responsive to financial incentives. 

What makes me think that China just might start implementing some semblance of clean air regulations? China's business leaders are aware that China's pollution problem is negatively affecting its growth prospects. For instance, top execs at large multinationals are understandably hesitant to relocate, or travel more than infrequently, to China because of the pollution. Additionally, China's tourism industry must surely be suffering. 

Another factor to consider is that China is heavily investing in solar power. So, over time, clean energy should account for a growing proportion of China's electricity generation. 

In 2013, China installed a record 12 gigawatts of solar panels, more than triple the 3.6 gigawatts installed in 2012, according to Bloomberg New Energy Finance. To put that number in context, that's almost the total amount of solar power in operation in the U.S. Total global solar installations increased 28% last year to 39 gigawatts, so China installed 31% of the world's solar in 2013.

Jenny Chase, a lead analyst at New Energy Finance, said: "PV is becoming ever cheaper and simpler to install, and China's government has been as surprised as European governments by how quickly it can be deployed in response to incentives."

Foolish final thoughts 
It Tesla experiences strong Model S sales in China, other automakers should begin to offer more high-quality EVs in the world's biggest auto market. This, in turn, should eventually improve the air quality that China's citizens, as well as our West Coast residents, are breathing.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Tesla, Inc. Stock Quote
Tesla, Inc.
TSLA
$1,068.96 (1.64%) $17.21

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
652%
 
S&P 500 Returns
142%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/09/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.