Tesla Semi

[EinSV]

@jhm I have been trying to wrap my head around the magnitude of the Semi opportunity for Tesla and sometimes for me simplified metrics are helpful to try to understand the big picture.

One way to look at this opportunity is to use an average $180,000 operating cost/year figure and take out the pieces that are not directly related to the Semi cab, fuel and maintenance -- this leaves about 60% of the total, or $108K/year (39% fuel, 12% cab, 10% maintenance). The Real Cost of Trucking - Per Mile Operating Cost of a Commercial Truck - TruckersReport.com. This is the portion of the business available to Tesla if it sells the Semi, the fuel and maintenance.

Assuming Tesla can shave 15% off the total costs of this portion and that it captures all of the resulting revenue, that would result in annual revenue to Tesla of $91.8K/truck/yr. If we assume a 1M mile lifespan and 110K miles per year we have a 9 year life span.

With these assumptions:

• Each Semi sold will generate over $800K over a 9 year lifespan.

• Each 100K Semi sold would generate over $80B in revenue over 9 years.

• A 300K/year Semi business would generate a $240B revenue stream per year, paid out over a 9-year period.

Assuming 20% GMs would equate to $48B in gross profit from the vehicles sold in just one year. Apply a 10% discount rate to that revenue stream and it is still pretty staggering (and does not even factor in autonomy).

This is just at the "tossing ideas around" stage so would be interested in any reactions to this.

 

[jhm]

@jhm I have been trying to wrap my head around the magnitude of the Semi opportunity for Tesla and sometimes for me simplified metrics are helpful to try to understand the big picture.

One way to look at this opportunity is to use an average $180,000 operating cost/year figure and take out the pieces that are not directly related to the Semi cab, fuel and maintenance -- this leaves about 60% of the total, or $108K/year (39% fuel, 12% cab, 10% maintenance). The Real Cost of Trucking - Per Mile Operating Cost of a Commercial Truck - TruckersReport.com. This is the portion of the business available to Tesla if it sells the Semi, the fuel and maintenance.

Assuming Tesla can shave 15% off the total costs of this portion and that it captures all of the resulting revenue, that would result in annual revenue to Tesla of $91.8K/truck/yr. If we assume a 1M mile lifespan and 110K miles per year we have a 9 year life span.

With these assumptions:

• Each Semi sold will generate over $800K over a 9 year lifespan.

• Each 100K Semi sold would generate over $80B in revenue over 9 years.

• A 300K/year Semi business would generate a $240B revenue stream per year, paid out over a 9-year period.

Assuming 20% GMs would equate to $48B in gross profit from the vehicles sold in just one year. Apply a 10% discount rate to that revenue stream and it is still pretty staggering (and does not even factor in autonomy).

This is just at the "tossing ideas around" stage so would be interested in any reactions to this.

This is a very nice way to the opportunity. It's surprising that fuel cost is nearly twice the cost of cab and maintenance. The 15% savings for operators can come out of fuel costs alone. Reduced maintenance cost helps Tesla ramp up service network. For diesel trucks a big portion of maintenance is rebuilding the engine. This should not be necessary for a Tesla Semi. The batteries will have long life. I expect at least 5000 cycles. This gets us to 14 years of life with daily cycling. This is really much better the diesel engines which get rebuilt after about 7 or 8 years.

The 15% savings or $16k/yr/truck is really critical to fleet operators. It would be nice to know what is the typical profit margin is. Let's suppose it is a 10% markup on $180k/yr/truck. That would be $20k/yr/truck profit. The prospect of increasing the bottom line by $16k/yr/truck would have to be pretty compelling. That's an 80% improvement in earnings. It' seems to good to be true, but it won't last long. This kind of cost advantage will enable early adopters to cut their cost and take market share from laggards. The laggards will have to switch to electric to remain profitable and defend market share. The price of diesel and diesel trucks will likely fall as well. Even so it seems that savings this large would create some irresistible demand. That is, even if every trucker in the land hatted electrics, they would have to go electric just to stay in business. Of course, I would expect a Tesla Semi to be a real nice ride in any case.

None of the competitors will be able to scale of electrics as fast as Tesla. So I see Tesla walking away with much more than just 8% of the heavy truck market (300k/yr). I think they could actually capture more than half of the market. Who's gonna stop them?

 

[EinSV]

This is a very nice way to the opportunity. It's surprising that fuel cost is nearly twice the cost of cab and maintenance. The 15% savings for operators can come out of fuel costs alone. Reduced maintenance cost helps Tesla ramp up service network. For diesel trucks a big portion of maintenance is rebuilding the engine. This should not be necessary for a Tesla Semi. The batteries will have long life. I expect at least 5000 cycles. This gets us to 14 years of life with daily cycling. This is really much better the diesel engines which get rebuilt after about 7 or 8 years.

The 15% savings or $16k/yr/truck is really critical to fleet operators. It would be nice to know what is the typical profit margin is. Let's suppose it is a 10% markup on $180k/yr/truck. That would be $20k/yr/truck profit. The prospect of increasing the bottom line by $16k/yr/truck would have to be pretty compelling. That's an 80% improvement in earnings. It' seems to good to be true, but it won't last long. This kind of cost advantage will enable early adopters to cut their cost and take market share from laggards. The laggards will have to switch to electric to remain profitable and defend market share. The price of diesel and diesel trucks will likely fall as well. Even so it seems that savings this large would create some irresistible demand. That is, even if every trucker in the land hatted electrics, they would have to go electric just to stay in business. Of course, I would expect a Tesla Semi to be a real nice ride in any case.

None of the competitors will be able to scale of electrics as fast as Tesla. So I see Tesla walking away with much more than just 8% of the heavy truck market (300k/yr). I think they could actually capture more than half of the market. Who's gonna stop them?

@jhm, when I started playing with the numbers, it really drove home that most of the potential opportunity in the Semi business is the "fuel" component -- which is substituted by battery and charging networks. And Tesla should have a massive advantage in this area:

• Much lower battery costs than competitors
• Much higher battery production capacity (especially after GFs 3, 4, 5 etc. come on line)
• Much better long-term planning
• Experience building out a fast-charging network and the conviction to do it quickly

Obviously, the fast charging and/or battery swap solution is a key part of this.

A few other points. I just "made up" the 15% cost number -- there is no magic to that but I think the key is whether Tesla can offer a sufficient cost savings to create a substantial amount of demand. If they can, by capturing the "fuel" revenue on top of the revenue from selling/leasing the Semi itself, the revenue stream (and potentially profit stream) is much, much higher than just selling the vehicle.

Re the 300,000 trucks, this is just a guess for illustration purposes and I agree it should be on the conservative side. I am having a hard time coming up with solid numbers so far but I think that is a reasonable target if they can ramp production. Daimler -- the world leader -- sold 500,000 large trucks in 2015 and 415,000 in 2016 (this includes non-Semis). I have seen the 3.4M figure but that includes trucks that are not Semis but more importantly also includes mostly inexpensive trucks built and sold in India and China. I am not saying Tesla can't compete in those markets but there are obviously some additional hurdles there.

Also, in terms of margins on truck sales (not fleet operator margins), one data point is that in 2016 Daimler's truck division had a 5.9% EBIT margin, significantly lower than its auto division. (shown at pdf page 3 of https://www.daimler.com/documents/i...port/daimler/daimler-ir-annualreport-2016.pdf) This suggests it will be difficult for ICE to reduce prices to compete if Tesla can significantly undercut costs. And since much of the savings are in lower costs of electric v. diesel fueling, reducing the price of ICE Semis shouldn't make that much difference anyway.

One other thought -- depending on how they set up the pricing mechanisms, much of the revenue could be "downstream." If so, it will be interesting to see how the market values it. On the one hand, theoretically this could be like Solar City where the downstream revenues are ignored/discounted by the market. On the other hand, the Semi could help the market see the potential for Tesla as the heir apparent to Exxon.

If current positive sentiment around Tesla continues, and if these rough/speculative numbers are even close to accurate, it could tip toward the latter once analysts have enough info to get their spreadsheets up and running.

 

[Reciprocity]

Im surprised no one has posted this yet, but in this article from Teslarati:

Exclusive: JB Straubel talks Model 3, Tesla Semi, economics, and energy

Here is the quote:

“It may not be intuitive to everyone, but the same technology that’s in the Model S can be scaled up,” Straubel said. “In fact you can just kind of double it and double it again, you can scale it to vehicles that are much much bigger.”

Is JB saying that the initial Semi would basically be 100KWh x 2 x 2 or 400KWh? Elon stated that it would be a bunch of Model 3 motors, which would be 2x2x2 or 8 motors using the quote above. I could see 6 motors, but where are you going to fit 8 motors. I was thinking 2 motors per axle, front wheels and 2 axles for the back wheels for a total of 6 motors. If you took it to be literal, the weight of the truck would also be ~18,950 lbs (4736x4), which seems about right. Class 8 semi with load and tailor is classified with a weight of 33,001-80,000 lbs max fully loaded.

Typical class 8 weighs tractor 17,000 lbs so 18,950 lbs for 4x Model S 100D wouldn't be to crazy:

https://energy.gov/eere/vehicles/fact-620-april-26-2010-class-8-truck-tractor-weight-component

Is it as simple as scaling the thing up x 4. The HP would be 4x588 or 2352hp and 4x~800 = 3200 ft. lbs. torque:

http://jalopnik.com/here-is-how-much-torque-the-tesla-model-s-p100d-makes-o-1792688704

Mac Truck has 550 HP at 1860 ft. lbs. of torque:

MP8 Semi Truck Engine | Mack Trucks

It could be that each pair of motors will be geared differently with one pair geared low and one pair geared very high for super cruising and a pair in the middle to help with the transition. They would have plenty of HP and Torque to spare based on these back of the napkins numbers. Range and drag are still a big question.

 

[EinSV]

As a quick follow-up to my post above, an Electrek article today quotes a Daimler executive as questioning the prospects of Tesla Semi due to the lack of infrastructure. Tesla Semi: Daimler talks down Tesla’s electric truck plans, says they need more infrastructure

I think Tesla's ability to build the charging infrastructure/ecosystem is a huge advantage that is being missed by legacy companies who focus only on building and maintaining vehicles.

 

[jhm]

As a quick follow-up to my post above, an Electrek article today quotes a Daimler executive as questioning the prospects of Tesla Semi due to the lack of infrastructure. Tesla Semi: Daimler talks down Tesla’s electric truck plans, says they need more infrastructure

I think Tesla's ability to build the charging infrastructure/ecosystem is a huge advantage that is being missed by legacy companies who focus only on building and maintaining vehicles.

Yep, the infrastructure for rebuilding a 7-year-old diesel engine is not what we're looking for. Without commitment to scale, an adequate charging network is going to be really hard for Daimler to provide. So what they'll do is put out trucks with a shorter range than a Leaf and hope the governments of the world will build infrastructure for them.

 

[AZ Desert Driver]

The cost of maintaining the highways has been funded by fuel tax. I see signs on the back gate of trailers announcing "we pay $x,000/yr in taxes". If diesel taxes shrivel (and gasoline fuel taxes shrivel) as electric takes hold...where does revenue to maintain the highways come from?
Now, being a jaundiced skeptic- I think a big chunk of highway tax funds have been diverted to non-infrastructure destinations, so perhaps the whole Highway Trust Fund needs to be reworked. But lets say they have done a good job and now have less money to do that job. Where do these Semi's get the pavement to drive on?

 

[ItsNotAboutTheMoney]

The cost of maintaining the highways has been funded by fuel tax. I see signs on the back gate of trailers announcing "we pay $x,000/yr in taxes". If diesel taxes shrivel (and gasoline fuel taxes shrivel) as electric takes hold...where does revenue to maintain the highways come from?
Now, being a jaundiced skeptic- I think a big chunk of highway tax funds have been diverted to non-infrastructure destinations, so perhaps the whole Highway Trust Fund needs to be reworked. But lets say they have done a good job and now have less money to do that job. Where do these Semi's get the pavement to drive on?

The answer to this "problem" is _always_ the same: weight-mile fees.
At least two states I know of already have weight-mile fees for trucking. (Oregon and Kentucky).

It's not any kind of significant technical challenge. VIN + Registered Weight + Odometer( and/or GPS) gives you all the numbers you need and that information is _already_ collected.

 

[SmartElectric]

The cost of maintaining the highways has been funded by fuel tax

Not quite. Not even close. Certainly taxes on fuel aren't getting the job done.

I see signs on the back gate of trailers announcing "we pay $x,000/yr in taxes". If diesel taxes shrivel <snip>

Nice marketing by trucking industry, it's not like they have a dirty secret to cover up...right...? or...?
The Hidden Trucking Industry Subsidy

Freight trucks cause 99% of wear-and-tear on US roads, but only pay for 35% of the maintenance. This $60B subsidy causes extra congestion and pollution, and taxpayers pay the bill.

and
Trucking Industry Imposes Up to $128 Billion in Costs on Society Each Year

A new report from the Congressional Budget Office estimates that truck freight causes more than $58 to $129 billion annually in damages and social costs in the form of wear and tear on the roads, crashes, congestion and pollution — an amount well above and beyond what trucking companies currently pay in taxes.

the whole Highway Trust Fund needs to be reworked

Cogress agrees: Congress told trucks need to pay more to fund highways

 

[adiggs]

...
One way to look at this opportunity is to use an average $180,000 operating cost/year figure and take out the pieces that are not directly related to the Semi cab, fuel and maintenance -- this leaves about 60% of the total, or $108K/year (39% fuel, 12% cab, 10% maintenance). The Real Cost of Trucking - Per Mile Operating Cost of a Commercial Truck - TruckersReport.com. This is the portion of the business available to Tesla if it sells the Semi, the fuel and maintenance.

....

I've seen an idea expressed by numerous people in this thread. You all may well be right, but I find the thinking to be strongly in opposition to a well functioning market. I'm grabbing this quote from @EinSV as my starting point, but I'm really responding to the idea many others have also articulated (thanks for letting me pick on you @EinSV!). I'm using it to get after an idea that I think may represent excessive exuberance on market possibilities for Tesla.

The suggestion here is that 60% of total annual operating costs are on the table for Tesla take share in / revenue from (with lots of the remaining expense (driver / operator) available to Tesla as a cost reduction to encourage people to come to the Tesla way of trucking).

I believe one of two things to be true:
1) This is a big over assumption of how much of the market is actually available to Tesla to take share in.
2) OR if Tesla really is competing for this 60% of the market, then Tesla trucks aren't expanding very quickly into the trucking market.


My thinking runs along a few related lines.

First is an issue of scale. If Tesla is going to become the fuel and maintenance infrastructure for the trucking industry, who is going to adopt while Tesla is building that infrastructure? And where is Tesla going to get the money to build that infrastructure when there is a huge reserve of companies waiting for the infrastructure to be built so they can effectively use the cool new trucks?


Maintenance:
The way I understand maintenance, today it is done by big fleet operators doing in-house maintenance, or it's outsourced to truck dealerships (e.g. Freightliner) who are themselves mostly or exclusively franchised (or of course, third party repair shops). Is there any single company with a wholly owned maintenance network that spans the country (and better, the world), that can handle high volume and high priority / short heads up maintenance? On vehicles that aren't making money if they aren't moving.

How is Tesla going to build that network of country and later world wide maintenance facilities? And do it fast enough, with enough capacity and quality, that businesses will rely on it to keep THEM in business and making money? If I were a trucker, I'd be far more likely to trust Freightliner to provide the nationwide maintenance I need to keep my truck on the road because there's already a history and business process in place on Freightliner's part to do exactly that.

There IS a question of whether Tesla can build the capacity and quality for this business, but that isn't my question. If Tesla is going to make a serious play for 10% of annual running costs as incremental revenue / market share that Tesla can take, how are they going to build the trust required for businesses to decide to make themselves dependent on an entity that has literally 0 footprint today to provide that service?

My point isn't that Tesla doesn't need to build maintenance / service centers (they do). They also need to get a training and authorization program together so a random Freightliner dealer that wants to, can also be a certified Tesla Semi repair / maintenance center. My point is that thinking there is 10% of industry expenditures on maintenance on the table for Tesla to go compete for - I think any business models that plug that in are way over the top optimistic.

I further claim that even if that wasn't an insurmountable, or nearly insurmountable problem, the trucking industry itself will resist such a situation. Every business is worried about single sourcing anything they are deeply dependent on for success. I figure the profit and business reliability motive for the customers of Tesla Semi, is to get their service from (1) themselves if the fleet is big enough to hire full time mechanics and/or (2) a network of independent shops, each doing work to a minimum standard, and each competing for the work that can be done here or there. That's good for trucking businesses, and bad for Tesla to make a serious run at that slice of industry revenue.

My net result on industry maintenance - I see a side business for Tesla certifying existing dealerships and maintenance facilities to work on Tesla Semis. I see some degree of Tesla Semi service business being built. I don't see even 10% market share of that 10% industry expense for Tesla.

And lastly - even if Tesla gets 10% market share of that 10% of industry expense, I would expect that to be conducted at industry normal margins for the work. Because if they're excessively high, business will hire their own mechanics and do the work themselves, or they'll work with third party repair people. Or they'll go with a competitor that isn't trying to gouge them on service (even if Tesla is providing lots of value along other vectors).


Similar argument around fueling. Is there any single wholly owned company that has been able to capture significant country and world wide market share in the fueling segment? I realize this by itself is bad logic

Fueling is different in an important way in my estimation. I want to see a design for charging infrastructure - how it interacts with the trucks, how trucks get in and out fast with a fresh load of electricity, etc.. I just don't want to see Tesla owning the fueling infrastructure, and that means selling the fuel. For Tesla to own the fueling infrastructure, that means they've got a new Supercharger network to build, and it's going to be WAY worse. Much bigger lots (8 parking spots at the back end of the local Elmer's as we have in Wilsonville, OR won't work ), with much MUCH bigger electrical power supplies. Industrial scale power, probably measured in MW instead of KW (maybe with their own substation!?!). And big lots to make moving big trucks in and out efficiently and easily.

That means permitting, and construction, repeated over and over and over again. 00's and probably 000's of times in the US. And until it's repeated 00's of times, there isn't an over the road network yet - only support for local trucks that return to a nightly depot.

Should Tesla build SOME of these facilities? Heck yeah. To prove the idea and build out some specific and popular legs that will enable some customers to start buying.

What I hope we see is Tesla providing the components of this fueling infrastructure that I don't see anybody else able to supply:
1) a well thought out system between truck and fueling infrastructure / process
2) a generic Trucking Supercharger facility design (power input requirements, bay / stalls, traffic flow, solar shade, onsite battery / energy storage, and the other stuff that'll be needed to get power into a truck, and the truck in and out fast.
3) The batteries, inverters, and other electrical hardware that might not otherwise be common.

I'm hoping that 3rd bit will provide lots of recurrent sales and profits for the company (lots and lots of energy storage), but I want other companies to be buying / getting the design from Tesla, and then doing the permitting, construction, working with the local energy utility, etc.. to build these industrial electrical sites. And providing the capital that causes these facilties to come into existence. Think of this as parallelization of the work if you will - if there are 100 companies, each building fueling stations to a similar design (and providing capital), then the work will get done a LOT faster.

Besides the scale of capital issue, think about this from the trucking industry's point of view. Do they want to do business with an energy supplier with a high fraction of the market? Sure they (Tesla) might be the cheap provider today, but will Tesla still be competitive in 10 years? Or will the industry be locking themselves into a single source supplier and subjecting themselves to paying monopoly prices in the future?

We know how companies feel about sole sourcing important cost inputs to their business. The trucking industry will eventually want one of these charging stations at about every interstate exit, so if one place gets a rep for expensive energy, trucks will know to skip that exit and stop 1 short or 1 long to fuel up. So the trucking industry will want there to be a market at work, reducing prices to as little as possible while maxing out on functionality / features. It's capitalism at work. I want Tesla to be a valued supplier to the fueling station market, not to BE the fueling station market (because it's the niche that I see as both valuable / profitable to Tesla, and consistent with fast adoption and long term health of the underlying trucking market).


Using the original numbers, I see a much smaller market opportunity for Tesla (if this goes fast), with a corresponding big market opportunity for lots of other bit players. The 12% cab - that's Tesla's. Some small % of the 60% fueling is available to Tesla in the form of equipment needed to make a fueling station. I see a noise level of the maintenance available to Tesla, mostly because they can't get away with 0 service infrastructure. I see the revenue and cost in maintenance as a wash / noise level of activity (certainly when I think about valuing the future Tesla).

Maybe it gets bigger than that, but I'm thinking more like 13-15% of those annual operating costs are on the table for Tesla, than 60%. If Tesla starts getting too close to 60%, one of two things will be / become true: 1) Tesla Semi adoption is going too slow for some reason (possibly because Tesla is trying to take "too much") and/or 2) the trucking industry / competitor will figure out how to compete effectively and stop Tesla from taking 60% of the market.


All this, and more, for those thinking Tesla's business model should be transport-as-a-service with this product line.

Thanks for reading all of this

 

[EinSV]

I've seen an idea expressed by numerous people in this thread. You all may well be right, but I find the thinking to be strongly in opposition to a well functioning market. I'm grabbing this quote from @EinSV as my starting point, but I'm really responding to the idea many others have also articulated (thanks for letting me pick on you @EinSV!). I'm using it to get after an idea that I think may represent excessive exuberance on market possibilities for Tesla.

The suggestion here is that 60% of total annual operating costs are on the table for Tesla take share in / revenue from (with lots of the remaining expense (driver / operator) available to Tesla as a cost reduction to encourage people to come to the Tesla way of trucking).

I believe one of two things to be true:
1) This is a big over assumption of how much of the market is actually available to Tesla to take share in.
2) OR if Tesla really is competing for this 60% of the market, then Tesla trucks aren't expanding very quickly into the trucking market.


My thinking runs along a few related lines.

First is an issue of scale. If Tesla is going to become the fuel and maintenance infrastructure for the trucking industry, who is going to adopt while Tesla is building that infrastructure? And where is Tesla going to get the money to build that infrastructure when there is a huge reserve of companies waiting for the infrastructure to be built so they can effectively use the cool new trucks?


Maintenance:
The way I understand maintenance, today it is done by big fleet operators doing in-house maintenance, or it's outsourced to truck dealerships (e.g. Freightliner) who are themselves mostly or exclusively franchised (or of course, third party repair shops). Is there any single company with a wholly owned maintenance network that spans the country (and better, the world), that can handle high volume and high priority / short heads up maintenance? On vehicles that aren't making money if they aren't moving.

How is Tesla going to build that network of country and later world wide maintenance facilities? And do it fast enough, with enough capacity and quality, that businesses will rely on it to keep THEM in business and making money? If I were a trucker, I'd be far more likely to trust Freightliner to provide the nationwide maintenance I need to keep my truck on the road because there's already a history and business process in place on Freightliner's part to do exactly that.

There IS a question of whether Tesla can build the capacity and quality for this business, but that isn't my question. If Tesla is going to make a serious play for 10% of annual running costs as incremental revenue / market share that Tesla can take, how are they going to build the trust required for businesses to decide to make themselves dependent on an entity that has literally 0 footprint today to provide that service?

My point isn't that Tesla doesn't need to build maintenance / service centers (they do). They also need to get a training and authorization program together so a random Freightliner dealer that wants to, can also be a certified Tesla Semi repair / maintenance center. My point is that thinking there is 10% of industry expenditures on maintenance on the table for Tesla to go compete for - I think any business models that plug that in are way over the top optimistic.

I further claim that even if that wasn't an insurmountable, or nearly insurmountable problem, the trucking industry itself will resist such a situation. Every business is worried about single sourcing anything they are deeply dependent on for success. I figure the profit and business reliability motive for the customers of Tesla Semi, is to get their service from (1) themselves if the fleet is big enough to hire full time mechanics and/or (2) a network of independent shops, each doing work to a minimum standard, and each competing for the work that can be done here or there. That's good for trucking businesses, and bad for Tesla to make a serious run at that slice of industry revenue.

My net result on industry maintenance - I see a side business for Tesla certifying existing dealerships and maintenance facilities to work on Tesla Semis. I see some degree of Tesla Semi service business being built. I don't see even 10% market share of that 10% industry expense for Tesla.

And lastly - even if Tesla gets 10% market share of that 10% of industry expense, I would expect that to be conducted at industry normal margins for the work. Because if they're excessively high, business will hire their own mechanics and do the work themselves, or they'll work with third party repair people. Or they'll go with a competitor that isn't trying to gouge them on service (even if Tesla is providing lots of value along other vectors).


Similar argument around fueling. Is there any single wholly owned company that has been able to capture significant country and world wide market share in the fueling segment? I realize this by itself is bad logic

Fueling is different in an important way in my estimation. I want to see a design for charging infrastructure - how it interacts with the trucks, how trucks get in and out fast with a fresh load of electricity, etc.. I just don't want to see Tesla owning the fueling infrastructure, and that means selling the fuel. For Tesla to own the fueling infrastructure, that means they've got a new Supercharger network to build, and it's going to be WAY worse. Much bigger lots (8 parking spots at the back end of the local Elmer's as we have in Wilsonville, OR won't work ), with much MUCH bigger electrical power supplies. Industrial scale power, probably measured in MW instead of KW (maybe with their own substation!?!). And big lots to make moving big trucks in and out efficiently and easily.

That means permitting, and construction, repeated over and over and over again. 00's and probably 000's of times in the US. And until it's repeated 00's of times, there isn't an over the road network yet - only support for local trucks that return to a nightly depot.

Should Tesla build SOME of these facilities? Heck yeah. To prove the idea and build out some specific and popular legs that will enable some customers to start buying.

What I hope we see is Tesla providing the components of this fueling infrastructure that I don't see anybody else able to supply:
1) a well thought out system between truck and fueling infrastructure / process
2) a generic Trucking Supercharger facility design (power input requirements, bay / stalls, traffic flow, solar shade, onsite battery / energy storage, and the other stuff that'll be needed to get power into a truck, and the truck in and out fast.
3) The batteries, inverters, and other electrical hardware that might not otherwise be common.

I'm hoping that 3rd bit will provide lots of recurrent sales and profits for the company (lots and lots of energy storage), but I want other companies to be buying / getting the design from Tesla, and then doing the permitting, construction, working with the local energy utility, etc.. to build these industrial electrical sites. And providing the capital that causes these facilties to come into existence. Think of this as parallelization of the work if you will - if there are 100 companies, each building fueling stations to a similar design (and providing capital), then the work will get done a LOT faster.

Besides the scale of capital issue, think about this from the trucking industry's point of view. Do they want to do business with an energy supplier with a high fraction of the market? Sure they (Tesla) might be the cheap provider today, but will Tesla still be competitive in 10 years? Or will the industry be locking themselves into a single source supplier and subjecting themselves to paying monopoly prices in the future?

We know how companies feel about sole sourcing important cost inputs to their business. The trucking industry will eventually want one of these charging stations at about every interstate exit, so if one place gets a rep for expensive energy, trucks will know to skip that exit and stop 1 short or 1 long to fuel up. So the trucking industry will want there to be a market at work, reducing prices to as little as possible while maxing out on functionality / features. It's capitalism at work. I want Tesla to be a valued supplier to the fueling station market, not to BE the fueling station market (because it's the niche that I see as both valuable / profitable to Tesla, and consistent with fast adoption and long term health of the underlying trucking market).


Using the original numbers, I see a much smaller market opportunity for Tesla (if this goes fast), with a corresponding big market opportunity for lots of other bit players. The 12% cab - that's Tesla's. Some small % of the 60% fueling is available to Tesla in the form of equipment needed to make a fueling station. I see a noise level of the maintenance available to Tesla, mostly because they can't get away with 0 service infrastructure. I see the revenue and cost in maintenance as a wash / noise level of activity (certainly when I think about valuing the future Tesla).

Maybe it gets bigger than that, but I'm thinking more like 13-15% of those annual operating costs are on the table for Tesla, than 60%. If Tesla starts getting too close to 60%, one of two things will be / become true: 1) Tesla Semi adoption is going too slow for some reason (possibly because Tesla is trying to take "too much") and/or 2) the trucking industry / competitor will figure out how to compete effectively and stop Tesla from taking 60% of the market.


All this, and more, for those thinking Tesla's business model should be transport-as-a-service with this product line.

Thanks for reading all of this

@adiggs, thanks very much for this -- very helpful input and just what I was hoping for as I am trying to get my head around this.

I would like to give the issues you raise some thought and will post a more detailed response, but did want to pass on one preliminary reaction on what I referred to as the "fueling" issue. The replacement for diesel fuel is (obviously) the combination of batteries in the Semi plus some form of fast charging and/or battery swap network.

If Tesla wants to ramp the Semi project quickly it really has no choice but to build a large fast-charging and/or battery swap network in the key Semi markets quickly. Tesla already has been through this in the automotive business and the existence of a charging network is much more critical to success of the Semi business where the bread and butter involves long-haul trips. The lack of a credible plan for a fast-charging network available very quickly would be a significant barrier to sales. Especially since in the Semi business the charging or swap network can be a profit center or part of an overall solution that allows Tesla to recoup and make returns on its capital investment, I think it is highly likely that Tesla has in mind a very fast build-out of the Semi charging and/or battery swap network in key markets from the get-go.

Not only is a fast charge and/or battery swap network an essential part of the puzzle, Tesla knows that they can't wait around for others to take care of it. Tesla is the only one in the world who has done something similar (Supercharging network) and Elon is not one to let Tesla's future be dependent on wishful thinking about third parties stepping in. Since they have to invest in it anyway and since cheap "fueling" (batteries plus charging) is such a core part of the value proposition, they may as well make it profitable -- or part of an overall package deal that saves the trucking company $ and is profitable for Tesla.

Thanks again for weighing in. Will post more later ....

 

[adiggs]

...

If Tesla wants to ramp the Semi project quickly it really has no choice but to build a large fast-charging networks in the key Semi markets quickly. Tesla already has been through this in the automotive business and the existence of a charging network is much more critical to success of the Semi business where the bread and butter involves long-haul trips. The lack of a credible plan for a fast-charging network available very quickly would be a significant barrier to sales. Especially since in the Semi business the charging or swap network can be a profit center (or part of an overall solution) that allows Tesla to recoup and make returns on their capital investment, I think it is highly likely that Tesla has a very fast build-out of the Semi charging and/or battery swap network in key markets in mind from the get-go.

Not only is a fast charge and/or battery swap network an essential part of the puzzle, Tesla knows that they can't wait around for others to take care of it. Tesla is the only one in the world who has done something similar (Supercharging network) and Elon is not one to let Tesla's future be dependent on wishful thinking about third parties stepping in. Since they have to invest in it anyway and since cheap "fueling" (batteries plus charging) is such a core part of the value proposition, they may as well make it profitable -- or part of an overall package deal that saves the trucking company $ and is profitable for Tesla.

Thanks again for weighing in. Will post more later ....

Big picture we're in violent agreement (existence of the network is needed for electric trucks market to take off). This may be more of a question of intent on Tesla's part, and the basis of their business model. Are they approaching this charging/ fueling infrastructure as it's own significant business, or are they approaching it as something they need to do to seed the market and get it going fast, but then leave the bulk of the fueling infrastructure build out to others once they've gotten it proven.

It's the intent and business model that is interesting to me.

I don't know of any statement of intent by Tesla, so as best I know, all of this is supposition and guess-work / wish casting on our part. That being said, if it starts looking like Tesla is approaching this like a business that Tesla can gain dominant market share in, and WANTS to, that will perversely lower my own estimation of Tesla's terminal value. Not because it won't be valuable, but this looks like an eel to me - the harder you try to grab it, the slipperier and more likely you are to drop it. For the reasons I discussed before (and will spare y'all from repeating ).

If Tesla is approaching this from the point of view of building an initial network, with somebody else coming along later to build out the full infrastructure the country will need, then I'm all over that.


Think about the current Supercharger network and compare it to the network of gas stations in the country. I charge my Roadster in the garage, so I fully realize that we won't need nearly as many fueling stations in the future EV world as we have in the current gas powered world (though we might need just as many, or a few more, truck stops). But does anybody want to argue that the current Supercharger network is approximately all we'll need? Or maybe a 10x increase from here will do it, and that'll be enough for an all electric passenger vehicle fleet? I don't think that'll be enough - not by a long shot.

Let's pretend for the moment that the new Tesla Semi's can reliably cover 200 miles in all conditions and leave some extra in the battery for in town jockeying. So every 200 miles a Truck Fueling stop is needed. A network of these stops that is approximately as common as today's superchargers gets trucking into the ballpark where it's proven and can be used. While also being at least 2 orders of magnitude short (my guess) of the infrastructure needed to replace diesel as a truck transportation fuel source.

Does Tesla build out that initial Truck Fueling network to prove it, but they really want the Jubitz / Travel Centers of America / Space Age Fuel / Pilot's of America to be taking the general design and building (or converting their existing facilities)? OR do they approach in a fashion designed to exclude these companies from the market, and make it hard for the Freightliner version of something like this to fuel at a Tesla stop? Are the designs of these fueling stops readily available to site designer / architect type people so that others can build stops that are compatible (plugs, power levels, familiar to drivers / autopilots for getting in and out of)? Does Tesla make it easy to buy the bits that only Tesla really has (stationary power storage, and the software to minimize peak draw and maximize delivered power). Oh - and Tesla / Solar City is easy to contract with for installing the electrical system at the third part site (ooh yeah).

In a dynamic system like trucking, if it's approached as a closed system and major Tesla profit center, that looks like a good way to chase the customers away as soon as something approximately competitive can be built by somebody else, and to ensure Tesla's period in the sun is brief. (For some of the reasons previously articulated).

This is why I don't see major revenue or profit coming from this end of the business long term.

(For other reasons, even if it's producing major revenue, I see it as being of very small margin, but that's a different argument for another time)


For my own estimate of Tesla's potential value / revenue / profit from this market, if I need fuel and / or maintenance revenues to make a dent in Tesla's value, then this is looking like a bad business for Tesla (to me as an investor).

 

[skitown]

Dang - I just noticed that adiggs may have posted something that touches on my thoughts; posting anyway!

--
I've been thinking about Tesla Semi while supercharging on a current trip from central Idaho to Portland, OR. Here are some things I've been pondering. Have at em!

First, can Tesla easily prove the model and add immediate, reasonable value to a freight company by building out just a single, but popular "line/route"? I don't know much about the industry - but would presume that companies have highly trafficked routes - that would require zero deviation from said route. Tesla could just solve for Semi charging stations along that route for their first deal. Back and forth those trucks would go. Big bang for the buck. More complex routes would use the company's existing diesel fleet instead until further infrastructure is built out, etc. This seems fairly self-evident, but I don't think I've read us discussing it. Thoughts?

Second, I was curious what the national footprint of large truck stop chains looks like as I'd never considered it really - but figured they must be a partnership target for Tesla Semi superchargers as they currently are serving truckers everywhere for fueling, etc. have space, and I presume are interested in remaining viable well into the future. [No snark necessary}

Category:Truck stop chains - Wikipedia

It's kind of interesting when you dig into their businesses. A lot of the majors like Pilot/FlyingJ, TravelCenters of America, Husky Energy are also literally fuel companies. Makes sense I guess, just never considered they were vertically integrated like that. Also interesting that it wasn't always that way necessarily. Regardless, it's hard to imagine a deal being struck with one of them out of the gate - or ever. But what about Love's? They seem more diversified; perhaps less tied up with fuel proper. Big footprint. Heck, the company was originally named "Musket Corporation".

 

[skitown]

Does Tesla build out that initial Truck Fueling network to prove it, but they really want the Jubitz / Travel Centers of America / Space Age Fuel / Pilot's of America to be taking the general design and building (or converting their existing facilities)? OR do they approach in a fashion designed to exclude these companies from the market, and make it hard for the Freightliner version of something like this to fuel at a Tesla stop? Are the designs of these fueling stops readily available to site designer / architect type people so that others can build stops that are compatible (plugs, power levels, familiar to drivers / autopilots for getting in and out of)? Does Tesla make it easy to buy the bits that only Tesla really has (stationary power storage, and the software to minimize peak draw and maximize delivered power). Oh - and Tesla / Solar City is easy to contract with for installing the electrical system at the third part site (ooh yeah).

I agree that this is getting at the heart of things. Very interesting to ponder. Do you think Musk and JB are whiteboard guys? Man, I'd like to be a fly on that wall. You may be totally correct about the potential value @adiggs, but I told my wife on this trip, which also involves picking up a new-to-us CPO/err "used" Model S, that I'm more excited about the Semi unveiling in September than actually getting a Tesla personally! I'm so excited for the halo effect the Semi could have. Imagine seeing Tesla Semi dragging a diesel tractor backwards up a hill screaming, wailing and gasping for breath. The level of machismo around diesel is staggering. It would end right there.

 

[adiggs]

... I'm so excited for the halo effect the Semi could have. Imagine seeing Tesla Semi dragging a diesel tractor backwards up a hill screaming, wailing and gasping for breath. The level of machismo around diesel is staggering. It would end right there.

That's an amazing image right there. You're right - I can't wait for that tractor tug of war.


OMG - that's a thing. Google for "tractor trailer tug of war". I got this to get y'all started:

 

[skitown]

That's an amazing image right there. You're right - I can't wait for that tractor tug of war.

My image was borrowed from Elon's talk, but seeing the real thing never hurts....

During his latest TED talk, Tesla CEO Elon Musk shed some light on the upcoming Tesla big rig. Addressing common concerns with an all-electric semi, like a lack of power or range, Musk said “ …with the Tesla Semi, we want to show that no, an electric truck actually can out-torque any diesel semi. And if you had a tug-of-war competition, the Tesla Semi will tug the diesel semi uphill.”

Despite his boasts, Musk was tight with the truck's specs, but he did mention it was only a single speed and called it "spry." Musk then said, “it's quite bizarre, test-driving. When I was driving the test prototype for the first truck -- it's really weird because you're driving around and you're just so nimble, and you're in this giant truck.”



Read more: Musk: 'The Tesla Semi will tug the diesel semi uphill'

 

[jhm]

My view of the 60% market is not that Tesla tries to replace all that, but that is where the cost reductions happen. For example, charging cost for electric trucks will be a fraction of current fueling cost. That avoided cost is nobody's future revenue, but a huge savings for the truck operator.

That's said, fleets do need charging, but with large enough batteries most charging can and I believe will be done on fleet operator's premises. So Tesla Energy can help fleets install their own charging infrastructure which may well include large solar arrays and Powerpacks. This puts the operator in the position of owning and operating their own power supply. Sure there will be commercial Suprrchargers (and Tesla can install those as well), but if you've got your own charging sufficient for the bulk of your routes, why wouldn't you minimize use of public charging. So the fleet operator's desire to gain a bigger share seems to lead to more fleet owned infrastructure.

Finally, as I mentioned before, a big chunk of the maintenance cost is rebuilding the engine after 7 years, and also break downs on the road are a problem. But if Tesla builds a drivetrain that does not break down as much or needs rebuilding, then this is an avoided cost that accrues to the truck owner. So the objective for Tesla is to drive the cost of service down to zero.

So If operators can save substantial cost on energy and maintenace (and even produce their own power), then Tesla will be able to fetch a premium price for a semi. This is the primary way they capture value across the 60% of cost. Suppose that through truck sales, power system installations and service Tesla captures 30% and leaves the other 30% for potential fleet operator savings. This 30% savings provide an enormous incentive for fleet operators to switch to Tesla building out massive fleets and private infrastructure. Operators that make a serious investment here will have an enormous cost structure advantage over their competitors. This is how Tesla capture 60% or more of the new truck market. And Tesla captures it fast.

I am coming to the view that within 3 years of production, Tesla can deliver over 700k trucks. So by about 2021, there are enough Tesla Semis to displace about 1mb/d of diesel demand. If logistics companies are competiting to build out their own charging networks, it can happen very fast. More than ultimate market share, I think Musk is attracted by opportunities that can scale much faster than private autos. Ultimately, passenger autos are a bigger market for Tesla, but the velocity of reaching scale in trucking could be much faster. For example, Tesla could reach ultimate market share in semis by 2025, but not reach ultimate share in autos before 2030.

 

[ItsNotAboutTheMoney]

If Tesla can build a semi with reasonable range that operates at low TCO, fleets would find a place for them and would be able to tell Tesla where they need the Superduperchargers.

 

[EinSV]

Big picture we're in violent agreement (existence of the network is needed for electric trucks market to take off). This may be more of a question of intent on Tesla's part, and the basis of their business model. Are they approaching this charging/ fueling infrastructure as it's own significant business, or are they approaching it as something they need to do to seed the market and get it going fast, but then leave the bulk of the fueling infrastructure build out to others once they've gotten it proven.

It's the intent and business model that is interesting to me.

I don't know of any statement of intent by Tesla, so as best I know, all of this is supposition and guess-work / wish casting on our part. That being said, if it starts looking like Tesla is approaching this like a business that Tesla can gain dominant market share in, and WANTS to, that will perversely lower my own estimation of Tesla's terminal value. Not because it won't be valuable, but this looks like an eel to me - the harder you try to grab it, the slipperier and more likely you are to drop it. For the reasons I discussed before (and will spare y'all from repeating ).

If Tesla is approaching this from the point of view of building an initial network, with somebody else coming along later to build out the full infrastructure the country will need, then I'm all over that.


Think about the current Supercharger network and compare it to the network of gas stations in the country. I charge my Roadster in the garage, so I fully realize that we won't need nearly as many fueling stations in the future EV world as we have in the current gas powered world (though we might need just as many, or a few more, truck stops). But does anybody want to argue that the current Supercharger network is approximately all we'll need? Or maybe a 10x increase from here will do it, and that'll be enough for an all electric passenger vehicle fleet? I don't think that'll be enough - not by a long shot.

Let's pretend for the moment that the new Tesla Semi's can reliably cover 200 miles in all conditions and leave some extra in the battery for in town jockeying. So every 200 miles a Truck Fueling stop is needed. A network of these stops that is approximately as common as today's superchargers gets trucking into the ballpark where it's proven and can be used. While also being at least 2 orders of magnitude short (my guess) of the infrastructure needed to replace diesel as a truck transportation fuel source.

Does Tesla build out that initial Truck Fueling network to prove it, but they really want the Jubitz / Travel Centers of America / Space Age Fuel / Pilot's of America to be taking the general design and building (or converting their existing facilities)? OR do they approach in a fashion designed to exclude these companies from the market, and make it hard for the Freightliner version of something like this to fuel at a Tesla stop? Are the designs of these fueling stops readily available to site designer / architect type people so that others can build stops that are compatible (plugs, power levels, familiar to drivers / autopilots for getting in and out of)? Does Tesla make it easy to buy the bits that only Tesla really has (stationary power storage, and the software to minimize peak draw and maximize delivered power). Oh - and Tesla / Solar City is easy to contract with for installing the electrical system at the third part site (ooh yeah).

In a dynamic system like trucking, if it's approached as a closed system and major Tesla profit center, that looks like a good way to chase the customers away as soon as something approximately competitive can be built by somebody else, and to ensure Tesla's period in the sun is brief. (For some of the reasons previously articulated).

This is why I don't see major revenue or profit coming from this end of the business long term.

(For other reasons, even if it's producing major revenue, I see it as being of very small margin, but that's a different argument for another time)


For my own estimate of Tesla's potential value / revenue / profit from this market, if I need fuel and / or maintenance revenues to make a dent in Tesla's value, then this is looking like a bad business for Tesla (to me as an investor).

Let me use the numbers I cited above as a starting point, and ignore maintenance for the time being to keep things simple.

12% of annual $180K cost for the cab (based on $100k price) and 39% of annual cost for fuel @0.54/mile (which equates to $129K miles). The Real Cost of Trucking - Per Mile Operating Cost of a Commercial Truck - TruckersReport.com.

As an illustration, if the Tesla Semi is able to achieve fuel cost savings of $0.25/mile on average (between charging on the road and at the Semi's home base, wherever that is), this leaves $32,000/year that can be divided between cost savings for the operator and increased price of the Semi, which can be used to defray battery costs, cost of building the Semi charging/battery swap network and profit. Or, to look at it another way, what used to be spent on diesel fuel could be shifted to the batteries plus electricity, in the same way that storage plus solar substitutes for coal or gas generating plants. Rational operators should be more likely to see the value in this sort of cost-saving solution than car consumers, who I think tend to ignore or downplay fuel cost savings from EVs when they buy a car.

With this model, Tesla can build out the charging network any number of ways. I think we agree that initially Tesla will probably have to go it alone at least with respect to the charging stations themselves. After that, one option would be to model the system after what it has done with Supercharging, i.e., invite other manufacturers to use the system (for a fee), and configure Tesla Semis to be able to charge wherever there are suitable charging facilities. The charging piece of the equation would not need to be a "captive" market for Tesla to recover the bulk of the 51% of the annual costs that are currently going to the cab plus fuel, minus whatever cost savings go to the operator.

I don't know what they will do about amenities -- whether they will try to make arrangements to install charging stations at existing facilities or partner with Jubitz / Travel Centers of America / Space Age Fuel / Pilot's of America or someone else (would not necessarily have to be in the truck stop business) to develop new ones. Tesla should have enough street cred on this project to attract strong partners, although I am not sure whether the existing entities that are making money off selling diesel fuel will be eager to jump to the front of the line.

Edit: just saw that @jhm beat me to the punch (and with a better/clearer explanation to boot!)

 

[adiggs]

@jhm - that's a business model that makes sense to me and I can get behind. It's good for Tesla (makes them want to be in the business), and it's good for the buyers of Tesla's trucks and related systems (both the immediate short term savings, and the long term evolution of the business in a fashion that gives buyers as much control as they want, over the things that matter the most to them).