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Sunday, December 3, 2017

Tesla Semi Truck Strategy

Tesla has held the unveiling event for their Semi Truck in November of 2017. It was clearly the biggest fanfare a semi truck reveal has ever received.

Tesla made some big claims about the truck's capabilities:
  • 80,000 pounds of load capacity (max allowed on US roads)  
  • 500 miles of range (at max load and freeway speeds)
  • Speed of 65 MPH while loaded and going up a 5% grade
  • 400 miles of recharge range in 30 minutes
There will be two price and range options for the Semi. The short-range (300 Mile) semi is priced from $150,000, while the long-range (500 Mile) semi is $180,000. These prices are far less than most were predicting.

Like Model 3, the Semi uses the Tesla 2170 battery cells from the Nevada Gigafactory. With 500 miles of range and about 2 kWh per mile, the long-range truck would have about 1 megawatt-hour worth of cells.

Is the Semi Profitable to Sell?

Depending on your source, the current estimate for battery production is between $140 to $280 per kWh. Assuming Tesla is on the low end of this estimate, the 1MWh size pack would cost $140,000 to produce. With the Semi priced at $180,000, that only leaves $40,000 for the rest of the truck and profit margin.

If you were only to look at things as they are today, the Semi would be a horrible business with little to no margin. However, Tesla will not start selling the Semi in any significant volume until 2020. Battery prices have been (and will continue) to drop. By 2020 and each year after, the profit margin that Tesla makes on each semi will improve.

And there is another thing to consider. Tesla will be selling energy to these trucks. When Peterbilt or Mack Trucks sells a truck, other than spare parts, the sale is done. They don't have a significant ongoing revenue stream.

Energy is the Ink Cartridge

For Tesla, supplying energy for these trucks will add up. Truck drivers drive an estimated 140 billion miles every year, and a single semi drives about 45,000 miles a year on average. According to the Federal Highway Administration, long-distance trucks travel upwards of 100,000 miles a year. Tesla has said that they will sell energy at the wholesale rate of 7 cents per kWh. Applying this to 45,000 miles. That is 90,000 kWh or $6300 each year for each truck. When there are 1,000 or 10,000 trucks on the road using Tesla energy, this will be a significant ongoing revenue stream for Tesla.

This is not unlike the printer and ink cartridge or razor and blade business model. If the truck generates an ongoing revenue stream, it is not paramount that the Semi is profitable on the day it rolls off the lot.