Since everyone’s favorite game these days is guessing what is behind every move companies like Uber and Tesla are up to, it was likely only a matter of time before someone came up with the idea that Tesla could be building its own freight network. The key word being “could.”
Trent Eady, who advises buying Tesla stock and holding it long term, suggested in a Seeking Alpha commentary that a Tesla freight network is worth at least $10 billion in annual revenue – based on a 1% market share – but “could eventually generate tens of billions or even hundreds of billions in revenue for Tesla.”
Perhaps Eady’s a bit optimistic, but he lays out his path to these billions, and it starts with a – news flash – Tesla semi truck. By now, most everyone knows that Tesla is building a big rig, expecting to debut it in September. Eady surmises that this truck will be the gateway to an on-demand freight network, much like Tesla has planned for passenger cars.
The freight network would launch in the early 2020s, Eady predicts.
“In October [2016], Tesla announced the Tesla Network for passengers, an autonomous ride-hailing service that will compete with Uber,” Eady writes. “With Tesla now working on self-driving freight trucks, the logical next step is to develop a competing service to Uber Freight.”
Eady also notes that this concept is tied directly to Tesla’s value, as the company is currently priced at a point only achievable by autonomous driving.
“Contrary to popular belief, Tesla is not already priced for perfect execution of its strategy,” he writes. “That could only possibly be true if Tesla’s strategy did not include self-driving, which CEO Elon Musk has stated is the company’s No. 2 priority, behind only the Model 3 launch. Self driving for passengers would likely grow Tesla’s market cap several times over. Self driving for freight represents another opportunity for growth that ranges from around a 20% increase in market cap at 1% market share and a several-fold increase at higher market shares.”
Back to the freight model, Eady believes that Tesla is well positioned to dominate the market of self-driving, electric trucks. He bases this simply on the lack of competitors.
“The economic rationalism of the freight trucking industry and the anticipated dramatically lower cost per mile of self-driving electric freight trucks means these vehicles will dominate the freight trucking industry,” he says. “No other company is known to be developing this kind of vehicle.”
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Eady finishes his argument by taking note of the American Trucking Associations’ prediction that freight tonnage will grow 35% by 2027, pushing revenue well past $1 trillion a year – up from $726 billion in 2015.
Then, Eady’s argument loses some of its power when he says that a self-driving electric truck will result in more shippers willing to ship goods.
“Driver compensation accounts for 31% of the operating costs of a freight truck, with fuel costs at 25%, repair and maintenance at 10%, and insurance at 6%. That’s 72% of operating costs that can be reduced dramatically by a self-driving electric freight truck,” he argues. “Far lower costs mean that freight companies can offer far lower prices. This has the potential to unlock a new level of demand for freight transportation.”
There could be a boost in demand for truck freight if self-driving trucks pulled freight from rails, but ATA is not predicting a big shift in this area, but Eady seems to assume that lower rates will increase the amount of freight available.
Eady concludes his article on why he might be wrong in his assessment, but it amounts to factors he didn’t consider.
“It’s possible that due to factors I’m not modeling in my rough math, Tesla’s opportunity is much smaller than I claim,” he says.
No one other than perhaps Elon Musk knows what Tesla’s end game is with its semi, but that lack of insight is certainly good for speculation.
