Turns out an electric semi truck might actually pose a significant threat to tradition big rig makers.
Earlier Tesla Semi Rendering
Potter sent out a note to investors following this Tesla semi news. Potter stated:
“Commercial vehicle makers – and their suppliers – would be wise to stymie their laughter and take these tweets seriously. We are downgrading truck stocks CMI (Cummins) and PCAR (Kenworth & Peterbilt) partially because we think their valuations already reflect cyclical optimism, but also because we think TSLA’s impending arrival could pressure valuations.”
“It can be difficult to determine payback times for EV trucks. First, we don’t know how much Tesla’s Class 8 vehicle will cost – or how well it will perform. But just as important, each fleet has different needs. The number of miles traveled can vary widely – from 200k miles annually for “slip- seated” long-distance haulers, to only 10k/year for some vocational fleets. In addition, diesel fuel economy (which is important for calculating cost savings vs. a base case) can range from 4mpg up to 10mpg+, depending on duty cycle, route characteristics, etc. We have yet to examine likely EV paybacks for different fleet types – so stay tuned – but regardless, the market is clearly large enough to warrant attention: in North America and Europe alone, we think the heavy truck market likely represents a revenue opportunity in excess of $100B/year (vs. TSLA’s estimated 2017 revenue of ~$11B).”
Potter separately sent out notes on both Cummins and Paccar. The Cummins note reads:
"Cummins makes diesel engines, but companies like Tesla (among others) are aiming to supplant CMI's products. These Silicon Valley disrupters are not confining their ambitions to sedans; instead, they have announced plans for electric semis, electric pickups, electric buses, and various other products that defy the preeminence of diesel engines. CMI enthusiasts will note that EVs won't replace diesel trucks in the coming 2 years (not in a material way, at least) and we agree. But when/if electric drivetrains are proven viable in the first commercial vehicle segments, we think incumbents' valuations could fall rapidly thereafter."
And here's the Paccar note:
"Tesla's presence looms large; laugh all you want, but this trend cannot be ignored. In the automotive segment, Tesla and others have wrought substantial disruption, forcing incumbents to change their hiring practices, increase R&D spending, and ultimately, suffer lower multiples. PCAR may be less at risk than others — and it's probably too early to start ringing alarm bells — but with the stock trading near the high-end of its historical valuation range, we wouldn't be adding to positions."
We've witnessed history with Tesla stock surpassing Ford and then General Motors. Could Tesla do the same in the trucking segment? It may take a few years for Tesla to make in roads in the big rig industry, but history could repeat itself with Tesla surpassing the mainstay players in that segment too.