Think Your Tesla Is Saving The Environment? Think Again.

By Markets Fool.com

Tesla Motors Inc. makes all-electric vehicles. That's not news to anyone. However, what might be news is that all-electric vehicles may not be as good for the environment as people believe. And if that information gets around, Tesla's finely crafted image could find that it's starting to tarnish just as competitors are looking to introduce alternative fuel options such as hydrogen fuel cells.

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Why buy a Tesla?
I don't want to go overboard, but Tesla makes some pretty "sexy" cars. They're fast and fancy and handle well--or so I'm told. In any event, no one is likely to say that a Tesla is a piece of junk. What's more likely to be heard is that Tesla makes great cars, but they're expensive. That's the image that CEO Elon Musk has been shooting for from day one, even though he talks about selling Teslas into the mass market someday.

And a big piece of the sales pitch is that you're not only buying a great car, but you're also doing something good for the environment by not using dirty gasoline. In fact, the company's marketing for the Model S crows: "Step on the accelerator, and in as little as 3.2 seconds, Model S is traveling 60 miles per hour, without hesitation, and without a drop of gasoline."

Although the main focus of the pitch is about how nice the car is, there's never a moment when you forget that there's not "a drop of gasoline" involved. Which, of course, means you're saving the environment, right? I mean, that's part of the street cred of a Tesla -- expensive, high-end, and environmentally friendly.

Power from where?
The problem here is that how much good you're doing for the environment depends on where you get your electrical power. If you're like most people, your local utility powers your outlets. Ken Caldeira of the Carnegie Institution for Science summed the issue up nicely during a recent interview with the Associated Press: "Unfortunately, when a wire is connected to an electric vehicle at one end and a coal-fired power plant at the other end, the environmental consequences are worse than driving a normal gasoline-powered car."

That statement is backed by recent research that found that "all-electric vehicles cause 86% more deaths from air pollution than do cars powered by regular gasoline." Switch from coal to natural gas. and all-electric cars are better than gasoline, and renewable power is better still. But very few utilities use just one type of fuel. So how environmentally friendly your Tesla is depends partially on where your juice comes from.

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While Tesla admits this point in a Q&A section of its site, it suggests that as utilities use cleaner fuels, your Tesla will become more and more environmentally friendly. It doesn't say you could be doing more harm than good right now by driving its cars, though. The difference between those two statements is marketing finesse.

At this point it's worth noting that the U.S. Energy Information Administration expects coal to provide more than a third of U.S. power over the near term. And while that number will likely decline over time, coal is expected to remain a key part of the power mix for a long time.And that could make your Tesla a lot less environmentally friendly than you think.

Source: Energy Information Administration.

Image is everything
Tesla goes to great lengths to protect its image. In fact, the company's fight to sell directly to customers is all about ensuring that it controls all aspects of the sales process, sort of like an Apple store does with iPhones and iPads. Let someone else sell the car, like a dealer, and who knows what's being promised or how the brand image is being upheld.

However, a big piece of the Tesla story is that there's no gasoline to destroy the environment. But that's not the whole story. If the news about the downsides of electricity gets wide enough attention, Tesla could find customers questioning a key aspect of its sales pitch. That's even worse as alternatives like hydrogen fuel cells, which make their own electricity from hydrogen and oxygen (water being the main waste product), are being pushed by giant competitors such as Toyota Motors.

Although hydrogen fuel cells aren't necessarily any cleaner than a Tesla, since creating the hydrogen generates carbon dioxide, image may be the more important determinant of success. If Toyota can convince buyers that hydrogen is better, it could still wind up the winner. Toyota's massive distribution network and advertising budget would clearly help in that effort.

The real environmental footprint of Tesla's cars is a potentially large crack in this company's finely crafted image. As an investor, or a consumer, you should take a close look at recent automotive advances, because all-electric cars such as those Tesla sells could get passed over if a better mousetrap, or at least a better marketed mousetrap, comes along.

The article Think Your Tesla Is Saving The Environment? Think Again. originally appeared on Fool.com.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Apple and Tesla Motors. The Motley Fool owns shares of Apple and 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.