Tesla’s 100K annual Trucks Sales Goal Meets Skeptical Industry
By Jerry Hirsch
February 12, 2018
In a recent conference call with Wall Street analysts, Tesla Inc. Chief Executive Elon Musk predicted the company would be delivering 100,000 electric heavy-duty trucks annually four years from now.
It is an eye-popping number and one that has left much of the trucking industry skeptical.
Such sales would put Tesla at about the size of Paccar Inc. The Bellevue, Wash., owner of the Peterbilt, Kenworth and DAF brands delivered 158,900 vehicles worldwide last year. But about 30,000 were smaller medium-duty trucks.
Tesla’s sales target would amount to about a third of the combined U.S., Canadian and Mexican industry sales projection of 307,000 vehicles in 2022, according to forecasts from research firm IHS Markit. It would be the equivalent of 5 percent of 2 million projected global sales of trucks in the heaviest Class 8 weight segment in 2022.
The target bubbled up during last week’s call to provide details of the Palo Alto, Calif., company’s 2017 financial results. Tesla lost $675 million in the fourth quarter and $1.9 billion for all of last year. The quarterly loss was less than analysts expected. The company also reduced its cash burn rate during the quarter.
Musk was asked about the sales potential for the electric truck, which Tesla calls the Semi, in a conference call with investment analysts last week.
“If you take four years, I think, 100,000 units a year is a reasonable expectation. Maybe more, but that’s the right — roughly the right number,” Musk said.
Asked about the projection Friday, a Tesla spokesperson said the company had no further comment.
But analysts were surprised by the number.
“Get real! That would be almost half of the total U.S. Class 8 sales in a good year. It is preposterous,” said Antti Lindstrom, a truck industry analyst with IHS Markit. “Anything could happen in enough time, say 2030 or 2040, but not in just four years.”
Tesla is struggling to make the three passenger vehicles it already produces in volume, leaving a question as to how quickly it can add mass production of trucks to its manufacturing footprint, he said.
“Wasn’t Tesla supposed to ship 500,000 cars this year? And 1 million in 2020? All volume projections should be discounted by half at least, which still is a lot,” said Michael Ramsey, an analyst with Gartner Inc.
Much of Tesla’s loss in 2017 resulted from its effort to get its Model 3 sport sedan into mass production. The Model 3 is intended to be Tesla’s least-expensive and best-selling model. It has a starting price of about $35,000, but the transaction prices for the early production vehicles are about $50,000 because of the options customers are selecting.
To put the Musk prediction in perspective, truck manufacturer Navistar International Corp. forecasts 2018 to be among the strongest for heavy-duty vehicle sales in years. But even then, the truck and bus company projects U.S. and Canadian sales of Class 6 through 8 weight class trucks and buses to be 345,000 to 375,000 units.
It wouldn’t be hard for Tesla to apply its electric drivetrain system to transit buses and motor coaches to increase volume to achieve economies of scale for heavy-duty vehicles. Although Musk has previously voiced interest in buses, he hasn’t revealed a design or strategy.
Volvo Group, which builds Volvo and Mack trucks, also is predicting a strong 2018, but it pegs the North American market at sales of 280,000 heavy-duty trucks this year.
Even if Tesla aimed for global sales, a 100,000-annual delivery volume in such a short time would be a challenge, analysts said.
German industrial giant Daimler AG sold almost 500,000 trucks last year globally and isn’t likely to give up ground, Lindstrom said.
Daimler, Navistar, Volvo and other players are all developing electric heavy-duty trucks that will compete with Tesla.
“And if you look at the giant Chinese market, those companies aren’t going to hand a slice to Mr. Musk. China wants its own domestic players operating in that market,” Lindstrom said.
The electric semi-tractor starts at what Tesla calls an “expected base price” of $150,000 for a truck with a 300-mile range per battery charge. That jumps to $180,000 for the 500-mile range truck. The higher price covers the cost of a bigger battery. Tesla is collecting a $20,000 reservation fee for each pre-order.
Fully loaded, the Tesla is capable of 500 miles of range at highway speed, according to Musk. While lengths under that range are generally considered regional, rather than a long-haul, the truck would satisfy many freight requirements. Nearly 80 percent of freight in the U.S. is moved less than 250 miles.
Although Tesla has shown prototypes of its Semi, the planned production launch is sometime next year.
Customers have announced reservations for about 500 Tesla trucks. Many are high-profile businesses such as UPS, PepsiCo, Walmart, Sysco and Anheuser-Busch. The company reportedly has hundreds more reservations from other customers.
But it has yet to land a large deal with the type of motor carrier or truck leasing company that typically orders thousands of trucks annually.
Ryder System Inc., for example, has placed an order for 2,500 electric pickup trucks from Loveland, Ohio, startup Workhorse Group.
Navistar recently completed a $200-million multi-year deal to sell 1,665 International LT semi-tractors to US Xpress, a large Chattanooga, Tenn., trucking company.
Industry analysts said Tesla will have to start logging orders on the same level to begin to reach Musk’s goal.
Still some analysts see an economic case for the Tesla truck. That increases the chance that Musk’s optimistic outlook will bear fruit.
“The Tesla truck could achieve a 2-year payback,” Alexander Potter, the senior research analyst at Piper Jaffray & Co. wrote in a recent report to investors.
The theory is that the faster payback for investing in a Tesla truck, the more attractive the vehicle becomes to the large fleets and motor carriers. Purchase incentives through various state green vehicle programs could make the Tesla even more desirable.
But there’s still a lot that fleets need to learn about the truck and on-road performance testing before they will jump in.
“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.