Why It’s Okay that Tesla Makes Cars for Rich People

The U.S. Department of Energy has been criticized for loaning money to Tesla Motors because the company makes cars that only rich people can afford. That’s probably part of the reason Elon Musk, Tesla’s CEO, made such a big deal last week in saying that, with a new payment plan, and figuring in savings from gas prices, about 10 percent of the U.S. population can afford a new Model S, up from about 1 percent without the plan.

Of course, that still leaves a lot of people out, which is a problem if the point is to make a big dent in petroleum consumption.

Still, while there are many valid reasons for objecting to the DOE’s funding of Tesla—or any startup for that matter—the fact that the car it makes is expensive isn’t one of them. Tesla innovations might help make electric vehicles more competitive with gas powered ones, leading to the more widespread use of electric cars and lower oil consumption. More specifically, it’s lowering the cost of the battery, and it’s showing how, in some ways, electric vehicles are actually more valuable—and worth paying more for—than gas-powered ones.

Ford’s electric Focus is just a much more expensive, and much shorter range, version of its gas-powered focus.  The Nissan Leaf, Motor Trend declared feels “completely normal, not unlike any other four-cylinder hatchback on the road.” The Model S, on the other hand, will out-accelerate just about any other car you might encounter on the road because it takes advantage of the responsiveness of electric motors.

And the Model S takes full advantage of the design flexibility afforded by a compact electric motor and the ability to make a flat battery pack. The passenger compartment sits on top of this propulsion system, rather than being sandwiched between a bulky gas engine and a gas tank. As are result, it can seat 5 adults, plus two kids in rear facing seats—and you can store bags in what would be the front engine compartment in a conventional car. GM has considered a similar “skateboard” concept, but that hasn’t gone anywhere. Instead, the T-shaped battery in its electric Volt takes up one of the rear passenger seats, limiting the car’s capacity to 4 adults.

Tesla’s approach seems to be working—the Tesla Model S, in spite of the fact that it costs twice as much as the Nissan Leaf or the GM Volt—has been outselling both cars now that Tesla has ramped up production levels at its new factory.

Tesla is also taking an unusual approach to addressing the main problem with electric vehicles—the cost of the batteries. It’s using the cylindrical type of battery cells used in the power packs of many laptops and other portable electronics. The economies of scale made possible by these other applications help drive down costs. Other automakers are opting for more specialized battery cells that cost more to make. It’s not clear which approach will be better in the long run, but Tesla’s batteries seem to be much less expensive so far.

Tesla may yet fail (see “Why Tesla Survived and Fisker Won’t” and “Tesla Needs a Tim Cook”). But it’s testing interesting approaches to solving the problems with electric vehicles that could help make electric cars competitive with gas-powered ones.