Tesla Motors Inc (TSLA) chief executive Elon Musk has unveiled his long-awaited Secret Master Plan Part 2, the run-up to Part 1 unveiled a decade ago. The plan has generally failed to capture the imagination of investors, with many feeling it was not worth 10 days of teasing tweets from the CEO.
Wall Street has been equally underwhelmed and says the plan was very Tesla-esque — long on bold and exciting visions, but short on important details, especially the financial type. Musk did not divulge how TSLA plans to finance the Master Plan, though he did reassure investors that equity financing will only feature minimally.
Tesla stock has remained unmoved by the announcement, up a mere 1.5% since the event. Tesla stock, though, has racked up gains of 16.7% over the past 30 days.
The report did contain some interesting highlights, nevertheless, including an all-in bet on autonomous driving, urban transport concepts (ride sharing), and new all-electric models including pickups and heavy-duty trucks. Tesla said that its heavy-duty truck was already in development.
Meanwhile, Elon Musk shed more light into the proposed tie-up between Tesla and SolarCity Corp (SCTY), saying, “Now that Tesla is ready to scale Powerwall and SolarCity is ready to provide highly differentiated solar, the time has come to bring them together.”
All-Electric Trucks Now a Reality
Tesla will, however, not claim the bragging rights for being the first company to figure out an all-electric heavy duty vehicle. Those rights now belong to Daimler AG‘s (DDAIF) Mercedes-Benz, which has managed to beat Tesla to the tape after unveiling the Mercedes-Benz Urban eTruck, capable of driving 200 kilometers (124 miles) on a full charge and a 26-tonne admissible load.
For a long time, an all-electric heavy-duty truck seemed like little more than a pipe dream due to serious performance, battery charging, limited range, and cost challenges. Some skeptics even scoffed at the idea, saying we were likely to never see a fully electric class-7 and 8 long-distance freight truck simply because it was too big and heavy to run on a set of batteries. And, they had a point.
Bob Lutz’s infamous VIA trucks, which featured a hybrid powertrain, could only manage marginal range when towing a full load. A fully electric heavy-duty truck would almost certainly suffer from even more limited range, or so everyone thought.
But, Mercedes Benz has now proven that it can be done, and an all-electric truck capable of decent range has finally become a reality. The 26-ton admissible load the company claims for the Urban eTruck means it can square it off with some of the biggest diesel-drive trucks.
So, Tesla’s biggest opportunity may lie in the light-duty pickup truck market. Tesla might decide to take a different route than Mercedes’ and instead focus more on a mid-sized pickup truck to compete with Ford Motor Company‘s (F) veritable F-150. In fact, management has said as much in the past.
TSLA May Have a Long Road Ahead
Tesla will have its work cut out trying to manufacture something to cover all bases for the weekend warriors, workhorses, and off-roaders. Additionally, truck owners tend to be very finicky and loyal to their brands. So, a Tesla truck might at first prove to be a bit of a tough sell as the company repositions itself from a luxury car maker to an everyday vehicle manufacturer.
Further, Tesla is likely to face some design challenges. Tesla vehicles are known to suffer from undercarriage breaches in normal highway driving. Lifting long and heavy battery packs to minimize exposure and make offroad driving possible is likely to make the vehicle quite beefy and go against Tesla’s philosophy of sleek styling. But, workhorse truck owners are the biggest repeat buyers, so this is a market that Tesla cannot afford to overlook.
Nevertheless, Tesla’s biggest challenge will be figuring out how to compete with the F-150 on price. An F-150 goes for $26,500. Assuming a comparable Tesla truck gets a healthy $10,000 premium, that would mean Tesla might sell it for around $36,000, or only slightly above what the Model 3 costs. Although Tesla can leverage its giant Gigafactory to manufacture its vehicles cost-effectively, it’s not going to be easy to turn a profit at those kinds of price points.
It’s not all gloom, though. Tesla might finally be able to turn a profit on its trucks as battery prices continue falling. Battery prices have been falling approximately 14% every year. Batteries and powertrain components account for the biggest cost for an electric vehicle.
Tesla battery packs currently cost about $190/kWh, which qualifies as among the lowest in the industry. The consensus among industry pundits, however, is that costs have to fall to around $100/kWh for electric vehicles to compete effectively with their gasoline-powered cousins. It could be as long as four years before that happens, so don’t expect Tesla stock to make strong gains when the company unveils its new truck.
Bottom Line on Tesla Stock
Although Tesla’s long-term vision is now well-defined, investors are likely to continue focusing more on short-term numbers. Specifically, investors are likely to be more interested in whether Tesla can achieve its goal to churn out 500,000 vehicles by 2018. So, Tesla stock is more likely to react positively when the first Model 3s roll off the assembly line sometime in 2017.
As of this writing, Brian Wu did not hold a position in any of the aforementioned securities.
