Tesla Inc (NASDAQ:TSLA) started its fourth-quarter shareholder letter with “We start 2017 well positioned to scale our business significantly.” Investors must agree with Tesla and CEO Elon Musk as TSLA stock is up over 40% in 2017.
Demand for Tesla’s cars continues to heat up and the company’s plans to introduce new products has taken investor high to new levels. A tweet from Musk about the truck unveil in September got a lot of attention.
After looking closer, Tesla stock may be a good buy here with plans to disrupt the trucking industry a number of ways.
Tesla surpassed both Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM) as the most valuable North American automotive company (by market capitalization) for a brief time.
What the New Truck Can Do for TSLA Stock
One of the reasons was a tweet on Apr. 13 from Musk to his more than eight million followers that simply read “Tesla semi truck unveil set for September. Team has done an amazing job. Seriously next level”. That tweet got 56,000 likes, nearly 17,000 retweets and 2,000 replies, but more importantly, it gained the attention of analysts as they continue to decide how valuable TSLA stock truly is.
Tesla has not yet unveiled its plans for the truck. But number crunching has begun and several analysts have ideas of what this means for the company and future competitors within the trucking market.
Morgan Stanley analyst Adam Jones said the move to have electric and/or autonomous Tesla trucks makes a lot of sense. He believes the company could be a manufacturer, service provider or operate as both.
With only 10% of the U.S. new truck market, TSLA could get an additional $2.5 billion in revenue. By selling only 25,000 trucks a year, it would be the equivalent to Tesla selling around 70,000 Model 3 sedans. Those numbers seem great for investors, especially for a company that posted $7 billion in revenue in its last fiscal year. As a service provider, Jones says the company could sell trucks without batteries and then offer a battery swapping service. This service is estimated at $7.5 billion in potential revenue.
Further details on a plan to make an autonomous TSLA truck could be worth even more. Trucking companies could save 60% to 70% with lower fuel, maintenance costs and insurance costs. Piper Jaffray downgraded truck manufacturers Paccar Inc (NASDAQ:PCAR) and Cummins Inc. (NYSE:CMI) due to the competition threat here. I’m surprised no one has come out positive on the trucking operators in the potential costs savings from electric trucks and autonomous ones.
Tesla does not enter the trucking market without competition from both existing players and new electric truck ambitions from others.
Mercedes Benz parent company Daimler AG (OTCMKTS:DDAIF) unveiled its Urban eTruck back in 2016 and is manufacturing a small run that will see some deliveries later this year. The company believes full production on the eTruck will happen in 2020. This will be the first fully electric truck and come with a 200km range. Keep in mind that Daimler also owns the Freightliner truck brand, which has strong market share.
Perhaps the biggest competitor the Tesla truck could face is Nikola Motor, an upstart that has seen strong orders and good reviews of its truck development. However, Nikola made the announcement it was switching from electric to hydrogen power. The new zero emission hydrogen powered Nikola One is estimated to have a range of 800 to 1200 miles. Nikola has over 7,000 deposits (of $1,500 each) for its trucks that have a cost of around $330,000. Plans call for Nikola to make as many as 50,000 trucks a year.
There are several reasons why I believe that Tesla could be a major disruptor in the trucking market and why TSLA stock may not be done hitting highs and surpassing market caps of other automotive companies.
As many investors argue, don’t bet against Elon Musk. That Musk believes in the truck and sees the opportunity either as a manufacturer or service provider has to come into play here. Musk has disrupted the auto market, solar market and space exploration. I wouldn’t bet against Musk or Tesla stock here either.
TSLA’s strong Supercharger network is another reason to like this move here. The company has led the way with electric cars by creating a huge network of Supercharger stations to recharge its cars.
While it could be rather costly and overload the electric grid to add chargers for the Tesla truck at these stations, the infrastructure is there, giving it an advantage over other electric truck plans from competitors. Tesla had 790 Supercharger sites and 5,043 connections in North America at the end of the first quarter. That is increases of 36% and 46% from the prior year. New plans call to double the number of sites in North America in 2017.
After a couple of years of sluggish sales, the trucking market in North America appears to be coming back. Paccar reported a strong first quarter and was overly bullish on the market. Keep in mind that 69% of all U.S. freight tonnage is hauled by trucks, compared to next highest transport mode railroad at 15%.
The other reason, which won’t come into play until September are the intangibles, but based on Tesla’s history, I believe it will come out ahead in several areas. Major concerns about the new truck are pricing, service/repair, charging stations, driving range and refueling time and cost. Without knowing all or any of these, its hard to get a great picture of how well the truck will be received.
Bottom Line on Tesla Stock
I find it hard to believe Musk would bring the truck to market if it didn’t have these areas covered and can beat out competition. Keep in mind that during its Master Plan Part Deux presentation in July 2016, Musk said electric heavy-duty trucks were needed and in the early stage of development at Tesla. Musk said the truck would deliver “substantial reduction in the cost of cargo transportation”.
Tesla has a market capitalization of $50 billion with only $7 billion in revenue and an annual loss. TSLA stock continues to trade based on what’s in the company’s future: It is an innovator with electric cars, battery packs and charging stations. Tesla has an exciting future with a new, more affordable electric car, SUV, pickup truck and solar plans for residential houses. Add all this up and add in any future contribution from Tesla trucks and you have an investment that has to be made and left alone for years, rather than trading on news pieces and following the swings up and down.
TSLA stock could be one of the best to invest in now for the next ten years as the company will innovate and disrupt wherever it can.
More details on the truck will likely have to wait for investors until September. Other details on the company’s products and sales figures will come throughout the year, giving Tesla stock more chances to run or correct. Important dates to watch are May 3 (first-quarter earnings) and June 6 (TSLA shareholder meeting).
In September, Tesla stock could add $5 to $10 billion to its market capitalization if all the tangibles fall in line, with price, range and charging options being the big items to watch. Let your portfolio take a ride with TSLA stock.
As of this writing, Chris Katje did not hold a position in any of the aforementioned securities.
