Analyst Report: The Economic Case For The Tesla Semi-Truck

January 11, 2018 by Jerry Hirsch, @Jerryhirsch

Alexander Potter, the senior research analyst at the Piper Jaffray & Co. investment house noticed how quickly the trucking industry dismissed claims by Tesla Inc. that its planned electric semi-truck could satisfy long-distance freight demands.

“It’s easy to say, ‘the batteries are too heavy!’ or ‘the batteries are too costly!’ and declare the incumbents victorious — but such back-of-the-envelope rebuttals aren’t good enough in this case,” Potter wrote in a report to investors issued this week.

Gauging the capability of the Tesla truck accurately has important implications for investors, motor carriers and the entire U.S. freight and logistics sector, Potter said.

After researching the physics of electric transportation and talking to freight and logistics experts Potter built a model analyzing the functionality and economics of Tesla’s semi.

The result?

“The Tesla truck could achieve a 2-year payback, but read the fine print, because assumptions matter,” Potter said. “Every fleet is different, and without knowing all of the details underlying Tesla’s assertions, it’s impossible to stress-test the company’s claims.”

Potter said the cost of the Tesla truck, not the weight, “is the biggest x-factor.”

“We aren’t concerned about weight or other performance-related characteristics,” Potter said. “We have examined weight and its impact on energy efficiency, and we think fleets can minimize any negative impact by right-sizing the battery and spec’ing lightweight parts.”

Cost is a bigger unknown, he said.

But here’s where Tesla has an advantage, he said. It’s the biggest builder of electric passenger vehicles. That gives it scale for sourcing and producing motors and inverters and most importantly batteries. Lowering the cost of batteries is key to the success of electric vehicles.

Tesla models will come with two ranges, 300 miles and 500 miles, depending on the size of the battery. Tesla Chief Executive Elon Musk said the trucks will sell for $150,000 for the small range and $180,000 for the one with the bigger capability. Environmental incentives in various states could slash the purchase price. A typical diesel semi-truck is $100,000 to $150,000 depending upon its purpose and configuration.

This all points to the business case for electric trucks and Tesla’s offering, but there are still many questions to be answered, Potter said.

“For instance, will fleets need to replace batteries (at a substantial cost) in response to eventual range degradation, or will they be able to re-deploy older trucks to lower-mileage routes?” he asked.

As with conventional diesel truck purchase, fleets will want to know how much unforeseen maintenance costs or other reasons for downtime the truck will experience. Will its range be affected by hot or cold weather?  How will Tesla service the truck?

Finally, don’t expect the rest of the truck industry to stand still. Almost every major truck brand is working on an electric truck, a truck that combines a hydrogen fuel cell with an electric power train or both. Navistar International Corp. Chief Executive Troy Clarke said his company will have more electric trucks on the road than Tesla by 2025.

Tesla could spur change in diesel trucks, which would hurt its business case.

“Why can’t diesel competitors mimic Tesla’s impressive drag coefficient, and if they do, will it become harder to deliver a payback versus diesel?” Potter asked.

Potter said he plans to keep updating his model as more information becomes available. See here for the technical details behind his conclusions.

Tesla, which introduced its semi in November, has collected hundreds of reservations. But it has yet to build a truck for a customer. It plans to launch production in 2019.

Read Next: Navistar CEO to Tesla —We’ll Have More Electric Trucks Than You

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