Tesla’s Semi-Truck Looks Impressive, But Many Questions Remain

by Trefis Team
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Tesla (NYSE:TSLA) unveiled its new Semi truck on Thursday, marking the company’s first step into the commercial vehicle space. The truck, which features autonomous driving capabilities, will offer a range of about 500 miles on a single charge. Unlike Tesla’s luxury vehicles, which sell based on their brand cachet and performance, the company will have to provide a compelling economic argument for fleet operators to adopt its semi-truck, given the low margins in the trucking business. We believe there are three broad factors that will determine how Tesla competes against diesel engine based trucks, namely load carrying capacity, range and cost.

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Range Appears Impressive, But Payload Details Remain Unclear

Tesla says that the semi-truck is capable of hauling a gross weight (including vehicle weight) of about 40 tons. While this is in line with other trucks and the U.S. federal limit, the Tesla truck’s battery weight could be significant, potentially hindering the vehicle’s payload (carrying capacity). For instance, researchers at Carnegie Mellon University estimated that an electric truck with a range of 600 miles would require a 14-ton battery. Tesla says that the truck will have a range of 500 miles on a single charge, which is a figure that exceeds 80% of commercial trips. In comparison, some diesel trucks can go as much as 900 miles on a single tank. The company also says that the truck can charge up to 400 miles of range in 30 minutes, via its specialized mega chargers. Although the charging time is impressive, it is still higher than the refueling time for diesel trucks, and Tesla will still need to invest in building out an expansive network of charging stations.

Operating Costs Will Be Low, But Upfront Costs Remain A Key Factor To Watch

Although Tesla hasn’t outlined the price of the new vehicle, Elon Musk notes that the per mile operational costs for the semi could come in at $1.26 per mile, compared to $1.51 for diesel trucks. Maintenance costs and downtime could also be much lower compared to diesel trucks, and they should have a longer life overall, with Tesla providing a 1 million mile no-breakdown guarantee. That said, we believe that upfront costs will be significantly higher compared to diesel trucks, on account of high battery costs. For instance, the Carnegie Mellon University study noted that a truck with a 600-mile range (about 20% higher than the semi) could have battery cost of about $290k, which is roughly double the price of a Class 8 diesel truck. However, governments could subsidize electric heavy vehicles, given their role in curbing air pollution. For instance, in California, heavy-duty vehicles account for 7% of all vehicles but about 20% of transport-related greenhouse gas emissions and roughly a third of nitrogen oxide emissions. As the Tesla Semi will not have tailpipe emissions, it may be viewed favorably by governments who could provide incentives, bringing down costs for customers.

2019 Timeline Will Give Tesla Time To Sort Out Model 3 Issues 

Tesla investors might question the rationale of working on a brand new vehicle that caters to an entirely new type of market at a time when the company is grappling with production issues and a significantly slower than expected manufacturing ramp up for its first mass-market sedan, the Model 3. However, as Tesla intends to begin mass producing and shipping the truck only in 2019,  it could have largely ironed out issues for the Model 3, which has a highly automated manufacturing process. The 2019 launch timeline could also ensure that Tesla achieves greater economies of scale for battery production with its Model 3 vehicles, translating into lower costs for the semi. The semi-truck is also expected to share many components with the Model 3 sedan, including the same electric motors, which could bring down costs.

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