Few doubt that Tesla (TSLA) has deep pockets, but some wonder whether the electric vehicle company should bite the bullet and abandon one of its most highly anticipated but long delayed product offerings: the futuristic Tesla Semi truck.
“Tesla should drop or spin off its Semi efforts to someone else,” said Michael Ramsey, a Gartner vice president and automotive analyst. “It’s a different business and a distraction.”
That assessment was echoed by Sam Abuelsamid, a research analyst leading Guidehouse Insights’ electric mobility team.
Abuelsamid likened Tesla and the Semi to Nikola Motor and the Badger, the electric pickup truck that was discontinued recently following the renegotiated deal between General Motors (NYSE: GM) and the fuel cell electric vehicle company founded by Trevor Milton.
“The Semi is a distraction for Tesla,” he told FreightWaves.
Citing “quality issues” with the company’s passenger car models, Abuelsamid said Tesla needs to get its manufacturing sorted out.
“Focus on that first,” he advised.
Not everyone is ready to dismiss the eagerly-awaited Class 8 vehicle.
“We’re very bullish on the Semi,” said Garrett Nelson, a senior equities research analyst with the investment research firm CFRA. This year’s “meteoric” stock run-up provided Tesla with the capital necessary to accelerate growth, Nelson said, “and the Semi truck is an important part of that.”
Tesla, which did not respond to FreightWaves’ request for comment, closed its third quarter with a whopping $14.5 billion in cash and equivalents.
Earlier this week the company announced its intentions to sell $5 billion in shares, a filing that capped the stock’s 52-week high of $648.79.
Also this week CEO Elon Musk said he had moved from California to Texas, where Tesla is building one of two massive new factories. The second is in Germany.
“Tesla certainly has plenty of land to really expand their production and broaden their vehicle offerings,” Nelson observed. “2021 will be a year of execution.”
Waiting on the Semi
Tesla introduced the Semi with much fanfare in 2017, saying production would get underway in 2019 — only to retract that timeline in subsequent guidance announcements.
During Tesla’s first quarter earnings call last February, Musk said the plan was to put “limited volumes” of its heavy-duty truck on the road in 2020.
That didn’t happen either. Today glimpses of the Semi are limited to sightings of the prototypes (of which there are thought to be two), captured on video by Tesla fans.
Orders pour in
Fleets seem unfazed by the delayed timelines.
Brands and logistics companies have ordered, collectively, thousands of Semis, putting down as much as $20,000 for trucks that are expected to cost between $150,000 and $180,000.
In November Pride Group Enterprises, a Canadian logistics firm, announced what might be Tesla’s biggest order yet: 150 Semis, with an option to increase to 500.
Pride Group declined to comment on the electric vehicle company’s delivery challenges.
Longtime customers were equally close-mouthed.
Relationships between UPS (UPS) and vendors are proprietary, the logistics giant said in an emailed statement regarding the 125 Semis the company reserved in 2017.
“We have a good working relationship with Tesla, and they have been talking to us routinely about their plans,” the UPS statement said. “We look forward to receiving the Semis we’ve ordered, but have nothing more to share.”
Of the 100 Tesla Semis that PepsiCo (NASDAQ: PEP) has ordered, the beverage company expected about 15 to be delivered in 2020 to the company’s Modesto, California, Frito-Lay manufacturing site, a spokesperson told FreightWaves last February.
PepsiCo did not immediately respond to FreightWaves’ request for comment.
Prioritizing passenger vehicles
Tesla has other priorities, Ramsey believes. Before getting into an entirely new business, he said, the company “has to concentrate on building plants for its core products and filling out its main product lines.”
“The Semi is not a requirement for them.”
Among the challenges: Buyers of the new Model Y SUV are reporting a range of cosmetic and safety problems, from paint defects to unattached seatbelts and water leaks.
Separately, Tesla is grappling with issues tied to battery development.
During an earnings call last February, Musk explained that faster vehicle production requires a massive ramping up in battery power.
“That’s part of the reason why we have not, for example, really accelerated production of the Semi,” Musk said. “[It] means making fewer Model 3 or Model Y cars. It uses a lot of cells.”
There are signs of progress. In November Musk said the Semi would hit a new range target of 621 miles by using the new 4680 cells and battery pack design unveiled during the company’s Battery Day event in September.
The Semi: A stabilizing force?
The manufacturing and battery material supply chain are important, said Anna Stefanopoulou, the director of the Energy Institute and a professor of manufacturing at the University of Michigan. Even if Tesla did spin off its Semi truck division, she speculated, “my guess is that would stay within the parent company.”
In fact, the Semi, far from being a distraction, might be a stabilizing force for Tesla, as it prepares for a massive scaling of production.
While plenty of technical unknowns surround electric trucks — such as battery degradation in real-world conditions — the Semi could provide a “leveling factor,” Stefanopoulou told FreightWaves, smoothing out a “variable and uncertain” light-duty EV sector that relies on “personal opinion, preference and impression.”
Heavy-duty customers, by contrast, consist of “rational vehicle owners who will follow the profit after calculating the total cost of ownership benefits from switching to EVs.”
The Tesla Semi also will boost the company’s manufacturing volumes, which will help moderate costs, she added.
Nelson echoed some of those thoughts, invoking again the size of Tesla’s war chest.
Even as other manufacturers are readying their own electric Class 8 trucks, “Tesla’s market cap has given them a huge competitive advantage,” he said.
Tesla this year will sell close to half a million vehicles, Nelson observed, and has set a goal of selling 20 million vehicles a year by 2030.
“That’s a 40-fold increase,” he said. “The Semi will help them get there.”
Correction appended: The original article stated Tesla had announced a $500 billion raise. The correct amount is $5 billion.
W. Layton
Two things come to mind. First is, why are you telling an independent business what to do? I have now idea why you think Tesla should listen to your advice, they’re doing pretty well making their own decisions.
Second, you are out by a factor of 100 on their share sale this week: “Earlier this week the company announced its intentions to sell $500 billion in shares, a filing that capped the stock’s 52-week high of $648.79.” They raised $5 billion not $500 billion, diluting their share value by about 2%. Research and writing are hard, but with a little more care you can do it!
R DeBats
I have not seen all the specs of the compitition but a truck that has the stated range that The Tesla will have will be hard to build(Look at the new Volvo). Elon also recently stated the battery weight issue wasn’t really an issue with the loss of One metric ton or less of freight capacity by going with Tesla Semi, also hard to duplicate. Then the prediction of ridiculously fast charging times. 30 minutes for 400 miles of range, hard to duplicate. Finally throw in platooning with one driver for 3 or 4 trucks, yes duplicated but still very well executed. All that makes for a very desirable complete package for a corporation. Having the reputation as the most experienced EV manufacture in the world should also help. I think the things that will hold back Tesla will be reputation for service and customer care. They seem to have an issue with that. Customer care is a dealership level skill. If they intend to do away with dealerships, they have to figure out how to maintain that skill set.
David W. Frey
If the Tesla semi ever makes it to market, will it actually be needed? All the current heavy duty OEM’s have EV class 8’s with Daimler/ Freightliner leading the way in real world deployment. I think the only way for this to be even remotely viable is that it truly is better, highly unlikely imo. The investment required for product support would be staggering. Yes I’m a Tesla fan.
Alex Read
Need is a strong word. Desired is more like it.
Tesla won’t be able to supply the Semi fast enough to those who want them.
Initially, the Semi will fit in the journeys between 2 of a company’s distribution hubs, where that company could recharge their own Semis, or out to customers and back again, within the constraints of the battery. I expect most companies to avoid using Mega Chargers
(if they even exist at that point) even when they are cheaper than diesel, so that they might recover their initial outlay sooner, through their own even cheaper [renewable] electricity production.
There’s still money to be made by companies that could use a Tesla Semi in this fashion, if they were already planning on replacing older diesel Semis.
The Tesla Semi doesn’t need to be better at everything when compared to the offerings of the incumbent Semi producers, it only has to do 1 thing better. If it’s cheaper, or more reliable, or both (which is quite likely), and can fit into enough company’s distribution network, then that’ll be good enough.
They already have enough orders to keep themselves busy for quite sometime, and in that time, as Tesla always does, it will improve everything about the vehicle, making it more and more a all purpose vehicle.
R DeBats
I have not seen all the specs of the compitition but a truck that has the stated range that The Tesla will have will be hard to build(Look at the new Volvo). Elon also recently stated the battery weight issue wasn’t really an issue with the loss of One metric ton or less of freight capacity by going with Tesla Semi, also hard to duplicate. Then the prediction of ridiculously fast charging times. 30 minutes for 400 miles of range, hard to duplicate. Finally throw in platooning with one driver for 3 or 4 trucks, yes duplicated but still very well executed. All that makes for a very desirable complete package for a corporation. Having the reputation as the most experienced EV manufacture in the world should also help. I think the things that will hold back Tesla will be reputation for service and customer care. They seem to have an issue with that. Customer care is a dealership level skill. If they intend to do away with dealerships, they have to figure out how to maintain that skill set.
ferdinand R Tomas
What a dense article.
Ride those dinosaurs, the ewave and autonomous driving will tsunami you with in a few years
Jeff
Wow, they’re really trying hard to get you to sell your shares
Steve Anderson
I find it interesting that Ms. Baker made it very clear there were delays in the Tesla Semi Production in 2020, and yet left no indication that even a slight reasoning could be COVID? But maybe she hasn’t heard of that yet?
Hersh
$5 B. Not $500 B.
Michael
Typo on stock offering, should be $5B instead of $500B