Tesla released its new Semi truck at a launch event in Hawthorne, California, on Nov. 16. Tesla CEO Elon Musk orchestrated all the pizazz and performance of a typical Tesla launch, and touted how the Semi can accelerate from zero to sixty in just five seconds, and haul 80,000 pounds. Unlike other trucks, the Tesla Semi places the driver in the center of the front vehicle. Instead of the usual levers, two touchscreens are placed beside the steering wheel. It will also be semi-autonomous, capable of keeping lane and braking on its own.
The truck will have a range of 500 miles when fully charged. Plugging into one of Tesla’s fast-chargers for 30 minutes will give the Semi a 400-mile range. The Semi will be built on a truck chassis with components from Tesla’s Model 3 line, the mass-market vehicle the company plans to make in huge volumes (about 500,000 per year after 2018).
The first deliveries of the semi are expected in 2019, the same year production begins. In May, Musk said the truck will exploit manufacturing efficiencies of the Model 3, making it “a very compelling product that has low unit cost.” According Musk math, on a 100-mile route, the Tesla Semi will average $1.26 per mile when operating costs are factored in to $1.51 for diesel trucks.
That’s essential for Tesla, which is burning cash at a furious rate. The company reported its largest quarterly loss in November: a loss of $619 million on $2.98 billion in revenue. “At the current burn rate [Tesla] would be below its $1 billion operating cash target in two quarters,” said Colin Langan, an auto analyst with UBS. The company is betting that delivering its Model 3 vehicles to customers will net it the cash it needs to support its operations, as well as the continued willingness of Wall Street to finance the company despite more than a decade of losses.
The big rig is Tesla’s latest entrant into the electric vehicle market that has gone from fringe to mainstream in just a few matter of years. Car makers have moved with astonishing speed to embrace electric cars after years of listless pilots and prototypes. Major manufacturers from GM to Volvo have promised all-electric lineups in the coming years, although customers have not yet caught up: less than 0.5% of global car sales are now electric.
Trucking has moved more slowly, but it may have even more potential, at least in the short term. A few corporate fleets are piloting electric trucks: Ryder has deployed 125 e-vans from California startup Chanje and the United Parcel Service runs 300 electric trucks in its global fleet of 100,000 vehicles, reports PhysOrg. Those numbers could change quickly.
Commercial trucking fleet owners are extremely price sensitive. Margins in the $676 billion US industry are low (less than 5% in many cases). Electric vehicles offer enviable savings in fuel and maintenance. Despite higher upfront prices, payback periods range from two to five years, report manufacturers. That will shorten as battery prices continue their steep decline. It’s likely that within a few years trucking’s transition to electric will become imminent, as old trucks age out of the fleet and the cost advantages for all-electric vehicles for certain applications grows.
The most immediate applications are short-range trucking. Battery sizes become unwieldy as cargo size and trip distance increase (Siemens estimates lithium-ion batteries capable of powering a semi-truck for 500 miles (804 kilometers) would weigh 23 tons, half the weight of the truck itself). But electric trucks are ideal for short-range (< 100 miles), city traffic, and predictable routes, such as warehouses to retail establishments or distribution hubs. If the Tesla Semi is a success, this could be Tesla’s sweet spot in a substantial market: trips of 100 to 200 miles represent 30% of all US trucking trips.
Brook Porter of G2VP, a spinoff of Kleiner Perkins’ Green Growth Fund and backer of electric bus company Proterra, is betting that the pace of technology change will give companies like Tesla the edge. “The line is so steep for progress and innovation that it’s just a matter of time before the Silicon Valley players will beat the incumbents,” he wrote by email. “They are a decade behind and not structured to deal with the change that’s coming.”
Yet Tesla has struggled to ramp up its own manufacturing, and the incumbents are investing billions to stay ahead. German automaker Daimler AG, perhaps the only other company that makes heavy-duty and passenger vehicles, is releasing its own electric semi-truck, the Fuso eCanter. Indiana-based Cummins has the 100 mile-range Aeos. German firm Bosch is developing a class 8 hydrogen-electric truck with Nikola Motor Company for 2021. Commercial truck firm Navistar says it’s working with Volkswagen, which is investing in $1.7 billion on electric power trains for trucks and buses. BYD and Proterra have already rolled out hundreds of electric buses on the road.
Michelle Krebs, executive analyst for Autotrader, warns that Tesla will have to fend off challengers who have already won trust and loyalty from commercial customers. Tesla only has a track record with passenger vehicles, and is known for delivering months late. That does not impress industrial buyers. “The priority for truck drivers and fleet operators is reliability and uptime,” she wrote by email.
Ian Wright, a former vice president of vehicle development at Tesla and founder of electric truck company Wrightspeed, says Tesla is now entering a fundamentally different business that sidelines many of Tesla’s advantages in the car market. “The people who buy big rigs are not doing it to make a fashion statement, they’re doing it to make money,” he wrote by email. “They’re very sensitive to capital costs, operating costs, and payload… It’s got to do the job and ultimately pay for itself—that’s what they care about and that what you’ve got to prove.”