Can Tesla Disrupt The Trucking Market With Its Electric Semi Truck?

by Trefis Team
-40.09%
Downside
343
Market
206
Trefis
TSLA
Tesla Motors
Rate   |   votes   |   Share

Tesla (NYSE:TSLA) CEO Elon Musk said the company would unveil an electric semi-truck at an event to be held on October 26. The unveiling will be very closely watched by investors, as it marks Tesla’s first step away from the luxury passenger vehicle market into the commercial space. While Tesla could bring many of its core strengths to trucking market, including its autonomous driving technology and relatively low operating costs, experts remain divided as to whether the long-distance trucking industry is ready for electrification yet, considering the lack of charging infrastructure and concerns relating to battery prices, tonnage, and range. Below we take a look at what Tesla could have in store for its first commercial vehicle.

We have a $205 per share price estimate for Tesla, which is well below the current market price. Read our current stance on Tesla here.

What Can Tesla Bring To The Commercial Trucking Market? 

Tesla has a lot of strengths that it could bring to the commercial trucking market. The company’s electric drivetrains are known for their strong performance, and the performance of the new truck is also expected to be robust, with Elon Musk indicating that the vehicle would have better torque than any diesel truck. Running costs could also be low. For instance, Morgan Stanley estimates that the truck could be up to 70% cheaper to operate compared to regular trucks on account of lower fuel, maintenance, and insurance costs. Tesla is also viewed as a leader of sorts in the autonomous driving space, on account of vast datasets from the autopilot hardware on its cars. While a completely autonomous truck could be several years away, the company could offer some level of automation to help companies better manage their manpower costs. Tesla’s vehicles also have no tailpipe emissions, and this could prove advantageous at a time when regulators in regions including China, Europe, and California are pushing automotive manufacturers to transition towards zero-emission vehicles.

How Will Tesla Adress The Range, Capacity And Cost Tradeoff?

Unlike Tesla’s luxury vehicles, which sell based on their brand cachet and performance, the semi truck will have to provide a compelling economic argument for businesses to adopt it. There is some skepticism as to how the company will address the trade-off between prices, tonnage, and range. For instance, researchers at Carnegie Mellon University estimate that an electric truck with a range of 600 miles would require a 14-ton battery, which could cost as much as $290k for the battery pack – which alone is more than double the price of a Class 8 truck. The unladen weight of the trucks could also be a constraint, as battery packs weigh significantly more compared to diesel in internal combustion engine-based trucks. As federal rules cap the gross weight of trucks to 40 tons, there is a possibility that Tesla could reduce the range in favor of more load carrying capacity. For instance, there have been reports that the truck could have a range of  200-300 miles, allowing it to support regional trucking routes.

Does Tesla Have The Production Capacity To Manufacture A Truck?

Tesla has a history of production-related issues and the company still operates out of a single manufacturing facility in Fremont, California. While Elon Musk has indicated that production of the truck could scale up within 18 to 24 months, we believe that the timeline could be longer, as the company likely has its hands full with the production of the mass market Model 3 sedan, which is already seeing waiting periods that extend past mid-2018. Tesla intends to scale up Model 3 production from just over 1,500 vehicles in Q3 2017 to a weekly run rate of 5k vehicles by the end of the year and 10k cars per week at some point next year. Adding a large and potentially complex vehicle like a semi truck could hurt the company’s existing production schedules and efficiency.

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research

Rate   |   votes   |   Share

Comments

Name (Required)
Email (Required, but never displayed)
Be the first to comment!