By Will Driscoll
Displacing the world’s heavy-duty trucks with electric trucks powered by solar and wind would cut global transportation CO2 emissions by 39 percent.
Tesla is the first to develop such a long-range truck (the Tesla Semi), which will save trucking firms money. Yet even if Tesla could maintain a 30 percent annual growth in Tesla Semi sales, it would require eight years of full production for Tesla to saturate the North American and EU replacement markets for heavy-duty trucks.
That would still leave untouched much larger markets for electric heavy-duty trucks, e.g., in India and China.
To spark a global takeover by renewables-powered electric heavy-duty trucks, and an 8 percent reduction in global CO2 emissions, Tesla could quickly ramp sales of Semi powertrains (i.e., battery packs plus motors) to other truck makers—e.g., building one factory to produce Tesla Semi powertrains in India, and another in China.
The Climate Impact of Rapidly Electrifying Heavy-Duty Trucks
Heavy-duty trucks account for 39 percent of vehicle CO2 emissions worldwide.
Rapidly replacing these heavy-duty trucks with electric trucks, and powering them with solar and wind power, would be one of the fastest ways to reduce global greenhouse gas emissions.
Tesla could eventually make enough Tesla Semis to achieve these CO2 reductions on its own, even if no other truck makers joined in, or Tesla could spark a far more rapid transition by teaming up with other truck manufacturers.
Tesla’s Semi Will Save Trucking Firms Money
The operating and maintenance savings from a Tesla Semi can recoup its incremental capital cost in as little as 18 months, per a DHL executive. That’s because a Tesla Semi replaces a lot of costly fuel with cheaper electricity, and because electric motors require little maintenance. (I assume that DHL’s projected operating savings do not account for any use of the Tesla Semi’s autopilot capability.)
Tesla Will Undersupply the Market for Tesla Semis for Decades
Given the tremendous cost savings of the Tesla Semi, it’s the proverbial better mousetrap, and the world should beat a path to Tesla’s door.
Yet Tesla CEO Elon Musk said on the last earnings call that he expects Tesla to make only 100,000 Tesla Semis per year by 2022. He also noted that Tesla is growing its revenues at 30 percent per year.
Tesla would face many challenges in ramping Tesla Semi sales by 30 percent per year after 2022 – alongside a 30 percent ramp in all its other segments. These challenges include constraints in capital, engineering, factory space, manufacturing equipment, sales, distribution, maintenance, and charging infrastructure. Outside North America and Europe, fleet-wide learning also would be needed to train Tesla’s autopilot.
In the best case, if Tesla could achieve a 30 percent compound annual growth rate for Tesla Semis, Tesla could produce almost 300,000 Semis per year by 2026, which about matches Deloitte’s projected North American annual sales for heavy-duty trucks (or HCVs, in global parlance).
If Tesla continued at the same growth rate, it could then produce an additional 300,000 Semis per year by 2029, which would about match Deloitte’s projection of the EU’s annual HCV sales.
That Would Leave Untouched Much Larger Markets in India and China
Deloitte projects larger annual HCV sales figures for India and China—about 350,000 for India and 700,000 for China.
If Tesla were to produce only complete Semis, starting with North America and the EU—regions where fleet-wide learning is already training Telsa’s autopilot—Tesla might not begin to serve other markets before 2029.
To More Quickly Stabilize the Climate, Tesla Could Sell Semi Powertrains to Other Truck Makers
Tesla could help stabilize the climate more quickly by selling Semi powertrains to other truck makers. Those truck makers could then install fast-charging stations at truck stops along the routes to be used by electric trucks. Tesla could help ensure that solar farms and wind farms are installed near these truck stops, to power the fast-charging stations.
In regions with relatively modest wages, any operating savings from Tesla’s autopilot would be less influential to a trucking firm’s purchase decision, and so the trucks would not need autopilot.
Given Tesla’s lead in electric powertrains, and the operating cost advantages of electric heavy-duty trucks, Tesla might find several truck manufacturers interested in pursuing a deal. One truck maker in India might buy Semi powertrains, while two or three in China might do so.
As an indication of this opportunity, Volkswagen, seeing the light on electric vehicles, has contracted for $25 billion worth of battery supplies, and will not produce its own battery powerpacks, according to Bloomberg.
Tesla already has mastered production of the Model 3 motor, which is also used in the Tesla Semi. The company expects to soon master production of Model 3 battery packs, with the installation of the Tesla Grohmann battery pack line at the Gigafactory (suggesting easy manufacturing of Semi battery packs). And Tesla is already testing prototypes of the Tesla Semi—which proves that the powertrain works.
So it would be relatively simple for Tesla to rapidly scale up production of the Tesla Semi powertrain—possibly at a much faster rate than 30 percent per year—and sell the powertrains to interested truck manufacturers.
At a combined annual sales of 1 million HCVs in India and China (per Deloitte), and an estimated sales price of $90,000 for a Semi powertrain (i.e., half the price of a long-range Tesla Semi), the annual addressable market would be $90 billion.
Big EV deals like Volkswagen’s $25 billion battery deal—which locks up key suppliers—indicate that a scramble has begun among vehicle manufacturers to position themselves for success with EVs.
Tesla may have an opportunity to sign Semi powertrain deals with truck manufacturers that don’t want to be left out, as everyone catches on that electric HCVs save money.
It’s anyone’s guess how much of the market Tesla, as the first mover in long-range electric HCVs, could secure, but 50 percent of the market would represent $45 billion in sales per year in India and China. At a net margin of 6 percent, which is about Daimler’s margin, Tesla’s hypothetical profits from capturing half this market would be $2.7 billion per year.