CREDIT SUISSE: Electric Vehicles Are Better Than Internal Combustion Engines - The Public Just Doesn't Know It Yet

Tesla is up 73% this year as the Palo Alto-based automaker continues to stoke expectations that they are on their way to becoming a mainstream automaker.

Credit Suisse's Dan Galves and Shreyas Patil are not about to get in their way.

In a note Thursday announcing they had begun covering the firm with an "outperform" rating, meaning it will outperform a benchmark indicator, the pair say that the fight between electric vehicles and international combustion engines "will not be a fair" one.

And Tesla's Model S has already proven it.

"We believe that Tesla has already proven that EV's are inherently better, although most industry observers, and certainly the general public, don't know it yet," they say. "It's almost inconceivable that a new automaker's first offering would be called 'one of the best vehicles in the world' by many reputable auto reviewers, unless the base technology was just better."

The pair proceed to give a point-by-point breakdown of why a Tesla vehicle is superior to your gas guzzler:

• The Model S can reach power instantly because electric motors lack internal combustion engines' (ICE) torque curves, which is what you experience when an engine is revving. The Model S can go from 0-60 mph in 4.2-5.9 seconds, and has no transmission gearing.
• ICEs have a higher center of gravity compared to an EV's because of their engines, and thus do not handle as well. EVs are also more conducive to all-wheel drive as there's more room to put a drive unit.
• EVs are roomier, again because there are fewer overall parts. "A Tesla powertrain (i.e. battery, motor, power electronics, charger) has 18 moving parts," they write. "An ICE powertrain (i.e. engine, transmission, drivetrain) has hundreds, maybe thousands." The Model S lists itself as a 7-passenger car.
• And because there are fewer parts, an EV enjoys lower maintenance costs.
• Internal combustion engines now face "very challenging" fuel economy regulations, and a diffuse set of manufacturing needs

Perhaps most critically, Galves and Patil calculate that a Model S user will end up spending just $34 a month on fuel costs, compared with up to $175 a month for a mid-size luxury sedan. That translates to up to $2,500 a year in fuel cost savings. And while the prices of a Tesla is typically $15,000 more than the average luxury sedan, once Tesla's Gigafactory begins pumping out lithium ion batteries, costs will come down. Meanwhile, the cost of ICE powertrains will rise as a result of stricter fuel economy regs.

The last remaining disadvantage is range. But this too is only a temporary limitation, as Tesla's supercharger network continues to expand.

Galves and Patil say they are already bearish on Ford and GM as companies thanks to structurally sagging U.S. auto demand. Tesla should thus be able to jump into the breach.

"If Tesla can get to cost parity with an inherently better product, they will maintain the pricing power they currently enjoy," they conclude. "And the $1,400 - $2,500 / year fuel savings vs ICE's can drop to margin or be used to drive share. If Tesla can charge a $3k-$4k price premium to ICE's, that's 5+ points of margin on a $40k-$80k average vehicle price. It won't be a fair fight."

Credit Suisse has a $325 price target on Tesla. Tesla shares were trading at $261 Thursday.