The biggest roadblock facing Tesla Motors (NASDAQ:TSLA) could be America's aging and inadequate electrical grid. The grid might simply lack the capacity to provide the juice for all those electric vehicles Elon Musk and company want to put on the roads.
Power grids in most neighborhoods are simply not built to handle the amount of power electric vehicles could pull from the grid, MIT Technology Review reported. The magazine noted that fast-charging a Tesla Model S can draw as much power as three houses. Residential neighborhood grids were not built to stand that kind of use, and nobody knows how charging electric cars will affect them.
Then, there's the sorry condition of the electrical grid. When the American Society of Civil Engineers graded the power grid for maintenance and reliability last year, it got a D. The society noted that parts of the grid were actually built in the 1880s, and the number of power failures and interruptions is increasing. The grid's in lousy shape without the added demand from electric cars.
Electricity shortages possible
Even if the grid works, the electricity those cars need might not be there. New data from the U.S. Energy Information Administration, or EIA, found that electricity production in the U.S. in 2013 was lower than it was in 2007. To make matters worse, electricity price increases in 2014 were so great they actually drove the Consumer Price Index up.
Electricity prices have been rising for a variety of reasons, including the rising cost of natural gas, the high price of maintaining, expanding, repairing, and upgrading the grid, and the high cost of replacing or upgrading coal-burning power plants that do not meet strict new EPA requirements. As is often the case, steadily rising prices indicate a seriously limited supply of electricity. Some observers think that shortage will get worse as more coal-burning plants go offline.
Smart grid and charging stations could fix problem
The good news for Tesla stockholders is that the grid crash might not occur. Tesla owners could simply use fast electric-charging stations that are connected to commercial grids that can handle the load.
Smart grid technology could enable utilities to identify the location of electric cars and upgrade lower-power lines to deal with the situation. Simply charging the cars slowly could help prevent the problem, the MIT Technology Review noted.
New technologies could add enough electricity to the grid to meet the demand from electric cars. California escaped blackouts during the drought because solar power replaced the lost hydroelectric power. Natural gas burning power plants, which put out less pollution, could replace coal burners.
Grid shortcomings still a threat to Tesla
Even with those potential solutions, the grid's shortcomings could still be a big problem for Tesla. The biggest of those problems could be price. When Nerd Graph crunched a few EIA numbers in October 2013, it made a frightening prediction: Electricity prices in the U.S. will increase by 21% over the next 10 years, and 51% over the next 20 years.
Electric cars are being sold to the public with the expectation that home energy costs will be lower than vehicle fuel costs. What happens if home energy costs start exceeding fuel costs, even as a competing non-polluting technology hits the road?
Tesla could have a hard time competing with hybrids and fuel-cell vehicles that make their own electricity. Toyota is planning to bring out hydrogen-fuel-cell vehicles that get 60 miles to the gallon in 2015. Hyundai and Honda are also planning to bring out fuel-cell vehicles for 2015. Like electric cars, fuel-cell vehicles have zero emissions.
No matter how you look at it, the electric grid could be the biggest threat to Tesla's future. Elon Musk is going to have to face that reality sooner or later if he wants his company to survive.
Daniel Jennings has a position in Plug Power. The Motley Fool recommends Tesla Motors. The Motley Fool owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.