Tesla Inc. has two passenger cars in the auto market and at least three near production or under development. So why does its Chief Executive Elon Musk want to get into heavy-duty trucking?

Investment house Morgan Stanley Research published an extensive report on Tesla’s nascent trucking venture Thursday and the answer is pretty simple – there could be a lot of money to be made.

But to reap the benefits of producing an electric semi-truck, Tesla is going to have to transform a notoriously conservative trucking industry.

Musk said earlier this month Tesla will unveil the prototype of an electric Class 8 semi-truck. It is expected to have many autonomous features, but would need regulations as well as the trucking and shipping industry to catch up to be a fully self-driving truck.

Here’s why Morgan Stanley Research analysts Ravi Shanker and Adam Jonas believe the Palo Alto, Calif., electric car manufacturer wants to get into trucking.

It believes it can sell a lot of trucks:

If Tesla were to garner 10 percent of the new truck market in the U.S., it would be worth $2.5 billion in annual revenue or as many as 70,000 base Model 3s, the analysts said. (Tesla plans to start producing a Model 3 compact sedan later this year.)

It may be about services:

Trucking could allow Tesla to enter the services market, bringing sustained revenues. Tesla could conceivably sell a truck without a battery (thereby significantly lowering the upfront cost) and offer battery swapping as an alternative to putting a large battery in the truck, they said.

“We estimate that if Tesla charges $0.25/mile to lease the battery, this could be a big win for both trucking carriers and Tesla,” the analysts wrote.

The analysts estimate that motor carriers could slash fuel spending in half – from 50 cents a mile today – with an electric drive system. They believe offering battery leasing for electric big rigs and a battery swapping service could generate $7.5 billion in annual revenues if it Tesla can get 10 percent of the truck market.

It won’t cost a lot to dive in:

Entering the trucking industry may not be particularly challenging, they said.

“We estimate that much, but not all, of the battery and autonomous driving technology needed for the truck could be shared with the passenger car division,” they wrote.

A production rate of just 25,000 trucks annually would give Tesla 10 percent of new big rig sales, but would fit into its existing vehicle and battery factory without too much incremental investment.

One cost would be the build out of a network of 1,500 battery swapping stations along U.S. highways. It would be separate from the passenger car charging network Tesla already has. The analysts estimate that Tesla would spend $1.7 billion to enter the heavy-duty truck segment, including the swapping stations.

Such a business might add about $5 billion to Tesla’s $50 billion stock market valuation, according to the Morgan Stanly analysts.

What does this mean for the Trucking industry?

“We believe an autonomous, electric truck can be a game changer for trucking carriers and by significantly lowering operating costs, improving productivity and even driving industry consolidation,” the analyst wrote.

They estimated that an autonomous, electric truck could be 60 to 70 percent less expensive to operate compared with a human-driven diesel big rig. The cost savings come from drivers, fuel, maintenance and insurance.

The analysts said they have talked to motor carriers that are open to using such trucks made by new, non-incumbent manufacturers “as long as the performance, service and operating costs are superior.”

“In fact, we would not be surprised if Tesla revealed large carrier and shipper partners during its truck reveal in September,” they wrote.
Related: Trucking Industry Both Skeptical and Wary of Tesla Truck Plans

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