Tesla (NASDAQ: TSLA) has built a business on creating products its customers are eager to buy. There's no financial justification for someone to purchase a $100,000 Model S over a less expensive gasoline powered vehicle or EV, but that's not the point -- Teslas are sold because they're desirable in a very intangible way.
That intangible value is why Tesla will have a hard time moving into the semi truck market. Tesla Semi has to compete on a dollar for dollar basis with not only diesel trucks but all-electric semis from powerhouses like Daimler's Freightliner, Volvo (NASDAQOTH: VOLVY), and Paccar's (NASDAQ: PCAR) Peterbilt and Kenworth lines. That may be harder than Elon Musk thinks.
Semi truck purchases aren't made lightly
When buyers make the decision to purchase a new semi truck, they're making a decades-long investment that needs to generate predictable returns. Rig operators aren't in the business of risking their operations on new technology or an unproven vehicle. Tesla may be able to sell a number of semis to companies like Walmart (NYSE: WMT), which reserved 15 last week, and grocery chain Loblaw, which reserved 25 units, but it'll need a proven vehicle to be more than a niche product. Tesla has already claimed that it will save rig operators money, but they'll want Tesla to prove it.
Evidence that it's difficult to get rig operators to make a switch to new technology, even when the investment makes sense, can be seen in the recent history of natural gas fuel. Clean Energy Fuels (NASDAQ: CLNE) and Westport Fuel Systems (NASDAQ: WPRT) built the technology and infrastructure to provide natural gas to semis at a price that would ultimately save operators money. But they never got beyond niche markets, because adoption was extremely low in comparison to the ~260,000 Class-8 semi trucks produced in North America each year.
If Tesla makes an obviously superior product at a superior cost it may be able to get a significant share of the market. But it's not clear Tesla Semi is a no-brainer for those who actually drive trucks for a living.
There are already flaws in Tesla's semi
Auto Blog's Jonathon Ramsey highlighted a number of the major flaws in the Tesla Semi, and there are a few that caught my eye.
The first is that Tesla doesn't appear to have any mirrors on the semi, which would make driving on a highway, navigating traffic in a city, or backing into a dock bay difficult, if not impossible. Musk hasn't addressed this issue directly, but it's likely Tesla thinks sensors and cameras can replace mirrors. But do you really think a typical semi driver will trust sensors rather than their years of experience in these situations?
Mirrors are an important consideration, because Musk highlights the 0.36 Cp drag coefficient as a major advantage of the rig. Without such a low drag, the semi would have a much shorter range than the currently advertised 500 miles, or would need to be heavier to achieve that kind of range.
Speaking of range, a typical semi has about 1,000 miles of range, meaning a Tesla semi would likely be used for shorter trips or transport in a small area like a dock. Those are important markets, but they constrain the current Tesla semi to niche applications. Remember that shorter trips would also mean more time spent in confined parking lots or backing into dock bays, which will require mirrors that the Tesla Semi doesn't have. And all that stopping and starting will reduce range even further than 500 miles, especially if drivers ever want to experience that fully loaded 20 second 0-60 mph time.
A truck that's being used every day and presumably charging multiple times per day would also run into battery life cycle issues. Tesla's auto warranty is now for unlimited miles in the first 8 years of ownership, but that would be less than 1,000 full cycles under normal driving conditions (~13,500 miles per year). Battery degradation data from Maarten Steinbuch indicates it's around that 1,000th cycle that Tesla's Model S loses 10% of its capacity. As another data point, the Powerwall has a warranty for about 3,200 cycles. If we ballpark 1.5 full charges per day and assume the rig could be charged 3,200 cycles, the Tesla Semi would need to have its battery replaced every 5.8 years. That's a big expense for an owner on top of the upfront cost of the semi. It could make the economics of a Tesla Semi harder to pencil.
There are also infrastructure concerns like the lack of semi charging stations nationwide and the lack of a critical mass of knowledgable mechanics. For a risk-averse trucking industry, Tesla is going to need more than a sexy semi -- it's going to need hard data that it'll save companies money, and that'll take years to develop.
Early reservations don't tell us much
I mentioned some of the early reservations for the semi, which sound impressive on paper. But the reservation is only $5,000, a small percentage of a semi's cost and worth the free advertising for Walmart and Loblaw. On top of that, the deposit can be refunded at any time, so it's not binding in any way.
The early reservations aren't really any indication of the level of interest in the Tesla Semi one way or another. Fleet operators will certainly "kick the tires," but until they see a Tesla Semi on the road -- and what competition is making by that point -- I wouldn't expect a lot of concrete sales contracts.
Can Tesla actually manufacture a semi?
Even if Tesla can answer all of the questions above, Tesla has to actually make a semi to industry quality standards. It hasn't proven the ability to do that on a mass scale, and Musk has a long history of delaying product launches.
Trucking manufacturers know they need to electrify their fleets and are developing their own solutions. Tesla just showed its cards earlier than anyone else. Now they know where the bar is set, and what they need to do to beat Tesla to market.
Semis won't be easy
Until we see a Tesla Semi put hundreds of thousands of miles of testing on the tires, I'll have reservations about claims of efficiency, safety, and durability. Right now, Tesla doesn't know what it doesn't know in the large truck market, and it may find out that manufacturing semis is harder than it seems.
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