Wall Street believes Tesla's electric truck strategy will be a winner.
Two investment houses published reports this week outlining their expectations for how Tesla will move into heavy duty trucking later this month.
The argument starts with the premise that electric trucks will be more competitive and capture a higher share of the global truck market than most expect.
By the mid-2020's, 10 percent of the U.S. trucks in the heaviest Class 8 weight segment and 15 percent of the trucks in the lighter Class 5 through 7 segments Trucks could be fully electric, said Rod Lache, an analyst at Deutsche Bank.
Lache based that assessment on an analysis of initial cost, operating cost, weight, range and use cases for electric trucks in general. He believes they will debut with a 2.9-year payback period, declining to less than 2 years by the very early 2020's.
"This would move into the sweet spot of fleet owners' preferred 18-24 month payback period," Lache wrote in his report to investors. "Short driving range (200-300 miles) is likely to be a constraint. But we'd note that 20 percent of U.S. Class 8 trucks today drive less than 200 miles per day; and many use cases are well suited for charging/battery swap."
This sets the stage for Tesla, a Palo Alto, Calif., automaker that only makes electric vehicles and is expert in battery technology.
"Tesla should be able to leverage significant competitive technology and cost advantages," Lache said.
The company can tap into its high volume, highly automated manufacturing of electric motors and battery packs for its three passenger car models to produce components for trucks.
"Consequently, Tesla's Class 8 trucks will likely be priced lower than expected ($200-$240k for low and high range versions). This alone should be disruptive. We believe that they aspire to a 20 percent share," Lache wrote.
Such a goal represents a potential $8 billion or more in annual sales. North American Class 8 orders for the past twelve months have totaled 231,000 units, according to FTR Intelligence, a trucking industry research firm.
Lache estimates Tesla can garner about 6 percent of the U.S. Class 8 market.
Morgan Stanley Research analysts Ravi Shanker and Adam Jonas also are bullish on Tesla's trucking prospects.
"We believe Tesla's reveal of its autonomous, electric Class 8 semi-truck this month could be the biggest catalyst in trucking in decades and potentially set off separation between the technology leaders and the laggards among carriers, shippers, truck [manufacturers] and suppliers," they wrote in a report for investors.
The analysts believe Tesla is already testing the truck on public roads. But the vehicle the automaker will reveal this month will likely be a prototype and not a final vehicle for sale.
They expect the truck to go on sale in 2020 and cost about $100,000, but with the batteries paid for separately in a lease arrangement, possibly in a per mile charge. The analysts believe it will be a self-driving truck, which is an important sales inducement.
"We estimate an autonomous-electric truck can be up to 70 percent cheaper to operate than a regular truck," the Morgan Stanley analysts said.
Lache also is expecting significant self-driving capability.
"Tesla's leadership in AI/autonomous driving could also represent a significant advantage in the eyes of fleet operators," Lache said. "We believe that autonomous vehicles will be deployed sooner than expected. And we do not believe that there are significant regulatory obstacles."
The key is that such vehicles will have to comply with Federal Motor Vehicle Safety Standards, which means they must have steering wheels, brakes and other control components, even if there isn't a driver, he said.
On Wednesday, the House of Representatives passed legislation that would allow self-driving light vehicles on public roads and prevent states from establishing their own regulations. Also, the Senate Commerce Committee set a Sept. 13 hearing to consider regulation of self-driving trucks.
Yet legislation notwithstanding, this won't be an easy drive for Tesla.
Competition is already building from well-established truck manufacturers.
Cummins Inc., one of the world's major truck engine developers and a giant in the heavy-duty diesel arena, unveiled its electric drive system, with an option for a clean diesel engine serving as a range-extending generator, at its Columbus, Ind., technical center last month.
Toyota Motor Co. recently unveiled a working prototype fuel-cell electric Class 8 drayage truck it is testing at the Port of Los Angeles. Daimler, a major heavy truck builder whose brands include Freightliner and Fuso, has plans for an all-electric 'Urban E-Truck' capable of hauling up to 26 metric tons. Fuso, which operates as Mitsubishi-Fuso in the U.S., also plans to unveil a production all-electric urban delivery truck, the medium-duty eCanter, for the U.S. market at a Sept. 14 event in New York.
Moreover, Tesla will have to detail how it has solved issues such as long charging times for batteries compared to a quick diesel refuel for a conventional big rig. It will have to limit how the weight of the battery pack reduces the amount of goods a truck can haul. It also needs to have a plan for giving the truck a typical long-haul range of 600 to 700 miles, the Morgan Stanley analysts said.
"Tesla will have to clearly address these issues at the event to be able to sell the idea of an electric semi-truck to a deeply skeptical industry," they wrote. Battery swapping or flash charging might be some of the solutions, they said.
The number of electric truck doubters, even among the traditional manufacturers, is fading.
"Just to be pretty direct on this, we believe that there will be electric trucks on the road," Troy Clarke, chief executive of truck builder Navistar International Corp., said in a call with investors on Wednesday.
He said the 'determining factors' for which vehicles get purchased will be packaging and their range between charges. But there is a significant market for trucks that travel 200 miles or less a day, which for now, would be the sweet spot for electric truck technology.
"Those are very reasonable ranges for an electrified product in the heavy segment," Clarke said. "And if you think about medium duty or last mile delivery, even more vehicles fall into that."
Tesla is already talking to customers and is working to line up a combination of large motor carriers and shippers as launch partners. The Morgan Stanley analysts said likely customers include Schneider National Inc., US Xpress Inc., XPO Logistics Inc., FedEx Corp. and Ryder System Inc. All have expressed interest in alternative technology trucks, Ryder will be distributing Nikola Motor's hydrogen fuel cell semi-tractor. US Xpress is a Nikola customer.
"We expect Tesla to start taking orders for the truck from the day of the event (we estimate a refundable $5000 deposit)," the analysts wrote. "We believe this could set off competition for intelligent trucks in the industry."