It is a general misconception that if the oil prices go down, Tesla electric cars or EVs, in general, will become less desirable. If that were true, then Tesla stock would have plunged several points, but in reality, it was trading today with only a 1% drop in its value.
So do people no longer want to fill petrol or diesel in their cars? Or have they completely accepted electric vehicles as the sole mode of transport?
The real reason is something else. Here’s everything you need to know about low oil prices and how the sale of Tesla electric cars is affected by this situation.
Will The Plunge In Oil Prices Leave Tesla Electric Cars Undesirable?
Since oil contracts are trading below zero, would you get paid to buy oil? Well, yes. But there’s a catch here.
First, we need to understand what is happening with oil prices. According to the Stock Market, oil futures contracts for the month of May are trading into negatives.
What this means is that a lot of people who had contracts to take the delivery of oil for May can no longer take it. Oil is a highly flammable product and requires a substantial cost to store safely.
So even if you do get paid to take 1000 barrels of oil, you will need to invest money in storing them.
Currently, oil buyers still have much of their inventory left so they can’t accept them anymore. They can’t sell their May delivery contract to anyone else either because no one is ready to take on the cost associated with storing the extra oil as they too have their inventory full.
This means oil buyers will need to pay someone for a contract off their hands. Hence the oil prices were trading negatively.
However, it is only for the month of May 2020. For June, the contract prices have already been traded for $21 and $32 for the month of November this year.
Will Low Oil Prices Result In Cheap Petrol?
Petrol and diesel prices were already falling off of a cliff and several world governments around the world are dealing with it differently.
Some reduced prices to raise demand, while in India and several other European countries, the government sees this as an opportunity to raise tax revenue.
“The Indian government is already in need of tax money to achieve its fiscal targets,” said Naman Mishra, an economist at Japan Macro Advisors.
“Despite a serious plunge in international oil prices, you won’t see an equally reflective drop in fuel prices for consumers, as the government will raise taxes to increase its revenue.”
Furthermore, most refineries buy oil barrels at least 2 months in advance. So any changes in fuel prices for the consumer will take some time to reflect.
In the US, gasoline is selling at below $1.90 per gallon in the states of Montana, North Dakota, Colorado, New Mexico, West Virginia, Illinois, Virginia, Florida, and Maine.
Meanwhile, in states like California, New York, and Arizona, gas prices are still marginally higher $3.236-2.102.
Will Electric Cars Become Less Desirable Due To Cheap Petrol?
We know Tesla stock didn’t plunge, but why? There are two answers to this question.
First, we need to understand that Tesla is a company that struggles to keep up with high demand. So any loss in the said demand would leave zero effect on the company.
Secondly, Tesla electric cars don’t sell because they are more fuel-efficient, they sell because they are better cars in general.
Throughout the last year, Tesla has managed to improve its cars including the Model 3 and the Model S.
Furthermore, the ever-improving Tesla Autopilot, an autonomous driving system, is another feature that makes its electric cars a worthy future asset.
Future oil prices depend upon how well contained the Coronavirus pandemic is. If the infection continues to spread and people continuously remain under lockdown, the oil industry could see ever-increasing losses in the coming months.