Tesla and sustainability: Does that fit together?

Everybody loves Tesla, right? The heroic story of a small company founded by a few engineers in 2003 with the idea of making transportation sustainable has disrupted the entire automotive industry and is now worth over $440b – more than any other car manufacturer in the world. How can you not love Tesla?  

But while Elon Musk, Tesla’s (in)famous CEO, likes to spend his time “selling” Tesla’s image on Twitter and podcasts, there are some things that the electric vehicle (EV) giant doesn’t like to communicate. 

One thing in particular: how sustainable Tesla really is. 

After all, what few people know is that, for several years now, there have been repeated concerns about the sustainability and business practices of the multibillion-dollar company; a company that was actually invented with the vision of sustainability. 

So, is Tesla sustainable? Or is it greenwashing? Read on as we deep-dive into Tesla’s approach to sustainability!

The Speed Read:

1.  Tesla's best-known product, its electric vehicles, are actually more sustainable than traditional cars with combustion engines. Although the production of electric cars causes more emissions, on average they are more environmentally friendly after about 20,000 miles on the road, as they emit much less per mile driven.

2. In recent years, serious allegations against Tesla have repeatedly appeared in the media. These relate mainly to the production of their batteries, which have been linked to environmental pollution, human rights violations, child labour and extremely high water consumption. 

3. Due to these accusations and a lack of communication and transparency from Tesla, the company was removed from an important Australian sustainability fund and has received very poor marks in several ratings in relation to disclosures and sustainability. 

First things first: what does sustainability really mean?

Although the word "sustainability" is often associated with emissions, greenhouse gases and climate catastrophes, there are actually several other areas that fall under this general concept. 

Probably the best-known and the most widely accepted definition of sustainability and sustainable development is the one given by the UN World Commission on Environment and Development:

“Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”

United Nations Commission on Environment and Development

More often than not, this definition is broadly applied to climate change because climate change was caused by previous generations and harms future generations. However, the same holds true for physical health (e.g. if people have poor working conditions), the observance of social justice (e.g. avoiding racism and class differences), and much more. 

The University of California, Los Angeles, therefore offers a broader definition of what sustainability is: 

“[Sustainability is] the integration of environmental health, social equity and economic vitality in order to create thriving, healthy, diverse and resilient communities for this generation and generations to come. The practice of sustainability recognizes how these issues are interconnected and requires a systems approach and an acknowledgement of complexity.”

University of California, Los Angeles

Following this definition, it becomes clear that sustainability doesn’t look at ecological factors only. Instead, a systemic approach is needed when thinking about sustainability. 

Which brings us to Tesla.

Before we take a closer look at Tesla's sustainability and business practices, let's start with the most obvious: the product. 

Tesla manufactures electric cars, batteries, solar roofs and panels – and even menswear.  For now, however, we are asking ourselves: are electric cars really better for the environment when compared to traditional cars? 

Theoretically, yes. 

Electric vehicles have long been considered as one of the solutions to reduce the negative carbon impact of the transportation sector, which currently accounts for almost 25% of overall emissions in Europe.

Tesla and sustainability: EU greenhouse gas Emissions by source

Source: Eurostat

So while EVs, in general, are highly deemed as “green”, you have to keep in mind that electric cars have to be manufactured first – a process that generates emissions in itself.

A study by the German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety examined the environmental balance of gasoline, diesel and electric vehicles over their entire lifespan (production, use and disposal). What they found was that the production of electric cars – mainly due to their batteries – causes a lot more greenhouse gases at first, but after a few years, EVs are significantly more environmentally friendly than vehicles with classic combustion engines. 

In fact, the total greenhouse gas emissions of an electric vehicle are about 30% lower than those of a gasoline vehicle and around 23% lower than those of a diesel vehicle.

Tesla and sustainability: Comparison of Vehicle Emissions

Source: German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety

A Wall Street Journal investigation came to a similar conclusion when comparing a Tesla Model 3 to a Toyota RAV4. On the one hand, WSJ found that before the cars are actually hitting the road, the Tesla emits 65% more emissions than the RAV4. On the other hand, after delivery, Tesla emits only 34% of the emissions required by Toyota for every mile driven

Thus, after only 20,600 miles, Tesla is already more environmentally friendly than its counterpart.  

But it gets even better. 

One of the most important factors that significantly affects the emissions of electric cars is the electricity needed to manufacture and operate them – something that is different depending on where you go. 

In a country like China, for example, where a lot of electricity is still generated by coal, the production and operation of electric cars is much more harmful than, say, in Norway, where the focus is on renewable energy

Now that you know these facts about electric car emissions, here’s some controversial food for thought: 

Even if it’s not in Tesla's hands which electricity is used to power their cars, they can still decide where they want to manufacture them and hence which energy sources they ultimately use.

Right now, Tesla is planning to have new factories – an expansion in China and a completely new Gigafactory in India. China gets 56.8% of its energy from coal, India also relies heavily on coal and is even building new coal plants despite climate change. 

So while Tesla claims it is all about “saving the world”, are these the most environmentally-friendly locations to build a factory? 

As described earlier, batteries are a component of EVs, and their production contributes a large part to the environmental impact of electric cars. 

Yet, apart from the energy needed to produce them, there’s also a need for rare metals. 

Approximately 13 kilograms of cobalt and lithium are needed to produce a battery with a capacity of 90 kilowatt hours. (For reference: Tesla's Model S has an 83 kWh battery.) 

This poses a number of issues with Tesla being green. 

According to a 2015 study, the production of electric vehicles could easily deplete 74-248% of the world's lithium reserves by 2050 (two different scenarios were used to calculate, therefore the different numbers). Cobalt reserves could also be depleted by 50%. 

Naturally, it begs the question of whether this type of production can really be so sustainable when there is a resource constraint for essential components of the batteries. 

In addition, large quantities of toxic chemicals are used in the extraction of lithium. In an article published by Wired, it is described that the soil, which contains lithium, is thus heavily contaminated – and this is despite the fact that only 0.2% of the affected soil contains the valuable metal. The other 99.8% destined to be contaminated with toxic chemicals is dumped back into the environment. In Bolivia, Chile and Argentina, known as “the lithium triangle”, this has led to huge environmental problems like soil contamination and water shortages.

In addition to lithium, Tesla also needs cobalt for their EVs, which they mine in the Democratic Republic of Congo alongside other tech giants like Apple, Dell and Microsoft. There, cobalt mining is linked with severe (and multiple) human rights violations.  And yes, we’re talking children as young as 6 mining cobalt for Tesla’s EVs for $3 a day.

So this we can conclude: Just by mining rare metals, Tesla already violates not one but several of the Sustainable Development Goals

Tesla and sustainability: United Nations Sustainable Development Goals

Source: United Nations Sustainable Development Goals

Of course, this is not only a problem of Tesla but of the entire automotive (and tech) industry. Nevertheless, you can’t help but wonder if such practices – especially with regard to human rights – are still necessary for a billion-dollar company today. 

But the list of Tesla’s problems doesn’t stop there. In addition to the rare metal issue, there is another important one: water.

According to German media reports, Tesla’s new Gigafactory that is currently being built in Brandenburg, Germany will consume an incredible amount of water. 

To be precise: the Brandenburg factory will consume about 3.6 million cubic metres of water per year, which is roughly 30% of the total water in the region. According to experts, this could even lead to a water shortage.

In addition to these two examples, there are constantly more allegations being made against Tesla: For example, how the company planned to get their electricity for the Gigafactory in Nevada by starting to build “the world's largest solar roof” in 2014 but not managing to finish the construction in 7 years – even though according to Musk’s tweets, the solar roof should have been completed already in 2019. To this date, only a really small part is covered with solar panels.

And let’s also not forget about Elon Musk's weird on-and-off relationship with the environmental sinner bitcoin, on which Tesla, by the way, earned more in one month than with car sales in a whole year. This couldn’t get any more juicy. 

So, in summary, despite Tesla's extremely successful marketing and the fact that electric cars will eventually shape the future of transport, there is some news that raises questions about whether Tesla really is as green as its marketing slogan suggests.

Of course, all these facts were not only seen by Tesla’s fans and critics – they did not go unnoticed by the business and financial sector either. 

After Tesla finally made it into the S&P 500 ESG Index this May, the company was promptly kicked out of a major sustainability fund in early June. BetaShares, a major AUD17.5-billion Australian fund manager, removed Tesla from their sustainability portfolio after the company fell foul of controversy screens because of labour and environmental concerns – but failed to provide any explanation or information.

These included the above-mentioned Gigafactory in Brandenburg, but also Musk's decision to re-open the factory in California against the COVID-19 requirements, a decision that reportedly led to 450 people being infected.

Tesla’s lack of communication and transparency, which has ultimately led BetaShares to doubt the company, is a lasting criticism of the car manufacturer.

The Transition Pathway Initiative, a global initiative that assesses companies’ preparedness for the transition to a low-carbon economy, gave Tesla a score of zero back in December 2017 (0 being the worst; and 5 the best). The zero score is typically reserved for companies that are "unaware of (or not acknowledging) climate change as a business issue." Alarming, right? 

You might think “ah well, that’s more than three years ago, things must’ve changed!”. 

Apparently, things haven’t changed too much: At the time of writing this article, Tesla has still got just one point only:

Tesla and sustainability: TPI car company review

Source: Transition Pathway Initiative

Now, you’re probably wondering: how could this extremely poor score occur in a company whose mission is "to accelerate the world’s transition to sustainable energy"? 

Bear with us: 

To evaluate companies, the Transition Pathway Initiative examines the impact reports (find Tesla's here) and other disclosures of the respective companies and checks them for carbon reduction targets, current emissions and other metrics. 

In Tesla's Impact Report – the most recent one is from 2019, by the way – almost no figures were published, but mainly graphs without exact numbers.

Tesla has also failed to publish official figures on their water use or waste levels. In addition, their report only briefly mentions that “they are currently working” on improving the recycling system for their old batteries. 

Tesla is far from being transparent, and where there’s no transparency, there’s no sustainability.

In a study by Arabesque, which was analysed by Forbes, Tesla ranked in the bottom 15% in terms of company disclosure and transparency.

How come a company "so green" hardly publishes any figures or targets relating to its emissions, climate change, and other Sustainable Development Goals?

Everyone has to make up their own mind on this topic, but what can definitely be said is that Tesla's disclosure raises many questions.

Conclusion: Tesla and sustainability

So coming back to the original question on how sustainable Tesla really is, we can say this: For years, Tesla has been portrayed as the climate hero and the saviour of the outdated, environmentally unfriendly automotive industry. And Elon Musk has surely made electric vehicles sexy, no doubt! 

However, Tesla's practices have been extremely questionable and should be taken into account when thinking about buying one of their fancy cars or investing in the company. 

In the end, we can’t paint a black and white picture about Tesla – at least not now. Yet Tesla inadvertently is painting its own picture, and currently – it’s rather grey than green.

Theresa Bender
Theresa is an intern at Cooler Future, working at the intersection of the investment and marketing team. She recently graduated with a Bachelor's degree from the Frankfurt School of Finance and Management.