(Originally published here.)
Shares of Tesla Motors Inc. fell by as much as 22 percent during one stretch last week, the biggest decline since the company went public in 2010. Much of the attention has been directed to the tendency of the company’s Model S to catch fire when driving over metal debris. My colleague Megan McArdle writes that “Tesla could be in big trouble” because “small, new companies are extraordinarily vulnerable to stories like this.” A longer view of the transportation industry, however, suggests that consumers are surprisingly tolerant of danger. The real threat to Tesla would be the withdrawal of government subsidies for all-electric vehicles.
For most of our existence as a species, humans traveled from place to place by walking on foot or, if they were lucky, horseback. It’s only within the past 200 years that we decided to put ourselves in metal cages that hurl forward at dozens if not hundreds of miles an hour. Despite the inherent dangers of these forms of transportation, people have been remarkably willing to trade safety for speed. Even now, cars kill about three times as many people in the U.S. as murderers with guns. And that’s a big improvement from the late 1960s, when fatality rates from driving were much higher. The improved safety record is due to innovations that seem obvious in retrospect. Seat belts weren’t widely available until the 1950s, for example.
Planes and trains also became popular when they were unsafe. More than four times as many people died from plane crashes in 1985 than they did last year, even though people fly much more often now than 30 years ago. (Things were even worse in preceding decades.) As for trains, the oldest of the three forms of transportation, there still isn’t a universal system to check whether trains are heading toward each other from opposite directions on the same track. This history makes me think that consumers will be willing to forgive Tesla for a few non-fatal fires, especially if the company makes an effort to fix the problem.
The real threat to Tesla is that the government subsidies it relies upon to sell cars may soon be directed elsewhere. Bloomberg News reports that the U.S. federal government and major states such as California are reconsidering their emphasis on all-electric vehicles. Prospective buyers of Tesla’s Model S may have to make do with subsidies as much as 40 percent less starting in 2015. One reason is that electric cars may actually be worse for the environment than conventional cars once you consider the energy costs involved in producing and disposing of giant batteries. Alternatives such as clean-diesel engines and hydrogen-fuel cells now look more attractive as a result. The International Energy Agency forecasts that all-electric vehicles will only constitute a small fraction of new vehicle sales in 2050, in part because of their harmful environmental impact. It would be quite a paradox if green regulation ended up being a bigger threat to Tesla than its safety record.
(Matthew C. Klein is a writer for Bloomberg View. Follow him on Twitter.)