Does a Tesla Semi Truck Have a Chance?

Nearly two-thirds of the cost of moving goods on U.S. streets and highways is down to fuel and driver labor. Lowering those costs is a constant focus of trucking companies, and if Tesla Inc. (NASDAQ: TSLA) is going to change this industry, this is where the company will do it.

If Tesla can pull it off, it will take several years, according to analyst Gene Munster of Loup Ventures. Munster fully expects Tesla to be able to scale up its manufacturing capability to a “formidable” size in the next few years, which presumably would enable the company to produce the semi-trailer trucks. He also notes that Tesla will use mostly Model 3 parts to build the trucks.

Critics of the plan point out the range issue, but Tesla has that covered as well, Munster thinks. A third of all semi truck trips are regional and travel distances range between 100 and 200 miles. Making a dent in long-distance trucking will take longer, but Tesla has plans for that as well.

Munster offers two primary reasons to be sanguine about Tesla’s prospects. First, electric vehicles offer better performance:

Electric rigs will not only cut down drastically on emissions, but power from the grid is also cheaper (not factoring in any of Tesla’s future goals concerning energy). Furthermore, electric trucks are far more powerful than their traditional diesel counterparts.

Second, autonomous vehicles:

Long-haul trips on straight interstate highways – this is the low-hanging fruit of autonomous vehicles. If Tesla succeeds in enabling these trucks to drive themselves, it is easy to imagine a future where other vehicles like busses, delivery trucks, or waste collectors operate autonomously, opening up a substantial market opportunity. Trucking routes and charger networks could transform as autonomous platoons move goods faster and cheaper than ever before. Thousands of small trucking companies with fixed routes could be replaced by fleets of on-demand autonomous semis. Removing the driver also increases safety as semi trucks, while only representing 1% of traffic are involved in over 10% of fatal accidents.

No part of a transition like this will be easy because the U.S. trucking industry is so vast. It employs 7.3 million people (6% of all U.S. workers) and it is the most common profession in more than half of all the states. Trucks move 70% by weight and 82% by value of all U.S. freight.

To say the opportunity is massive is an understatement. But the numbers, at least according to Munster, are on Tesla’s side. If an electric, self-driving semi truck is cheaper, faster and safer than the current alternative, it will prevail in time. Munster concludes:

With a semi truck several years away and fully autonomous trucking even further down the road, the concept may seem like a dream for Tesla – but we would urge caution in betting against Musk and Co. in turning those dreams into reality.

As always with Tesla, the issue boils down to how long investors are willing to put up with big losses. By the end of this year, Tesla will have burned through more than $10 billion without ever posting a single dime of profit. As economist Herb Stein famously pointed out, if something can’t go on forever, it won’t.

Tesla is scheduled to unveil its semi truck on October 26, about a month later than previously planned.