The Tesla Semi – powered by disruption

For the truck industry, the implications of the Semi are wide and varied, redirecting the legacy OEMs’ powertrain strategies and normalising electric HD trucking, writes Oliver Dixon

Whatever else may be said about Tesla, it cannot be accused of reticence, as underlined by the recent unveiling of the all-electric Semi Class 8 truck. For a vehicle that exists in a very basic form, asks more questions than it answers and, which would in normal times be relegated to the category of ‘concept’, Tesla’s Semi has generated more than the average number of column inches usually devoted to a heavy truck.

Not just more than its fair share of column inches, but also more than its fair share of controversy, rapturous support, disdain and unstinting praise. Trucks are usually relatively prosaic objects of interest only to a small subset of the population. Vehicles tend to divide opinion once they have entered service; Tesla’s electric Semi has managed to achieve the same level of debate before even entering production. If Tesla achieves nothing else with the Semi, this, it can be said with absolute certainty, is a first.

Tesla has not launched a truck but a relatively cheap way of establishing sustainable environmental credentials. And let’s face it: for such credentials, US$5,000 is very cheap indeed

It’s difficult to develop much by way of concrete opinion and coherent analysis about a product that does not, as yet, exist. That which Tesla rolled into an aircraft hangar in November 2017 is a concept, and is thus, it must be assumed, a work in progress. But that should not detract from its longer-term significance, and so consideration of its place in a broader context now seems timely.

Following the glittering launch event, how much is really known about the Semi? As this goes to print, the answer is: very little. Yes, the technology exists to power a truck-shaped object with electricity. Tesla may lay claim to the highest profile launch of this concept, but it’s a launch of technology that already exists.

And that is about all that is known.

Crucially, very little is known about the range of costs involved in electric HD trucking, an area so complex that analysts have only begun to scratch the surface. Understanding that range – both endogenous and exogenous – will morph analysts’ initial assertions from “yes, the technology exists to produce an electric truck”, into one that asserts – with confidence and quantifiable evidence – that the technology exists to power a truck that is both financially and operationally directly substitutive with a diesel-powered truck.

Tesla Semi truck

At the heart of transportation is the notion of capacity – fundamental supply and demand that sees a point of equilibrium reached when loads available are matched by trucks available. Therefore, de facto, all truck purchases are substitutive – be it on an intra-brand basis or, as in this case, based on an intra-fuel basis. Simple commercial logic and fundamental economic analysis would thus posit that an electric truck must be equal to a conventional diesel-powered truck when viewed from an operational cost perspective. Operational cost is a function of whole life cost – and when it comes to electrification, the notion of operational cost leaves everyone groping around in the dark. Operational cost is the baseline, and, as of now, we do not know the true cost of reaching this baseline. Thus, while the Tesla Semi exists in shape, does it exist in functional form? Put simply, no.

So what just happened?

In a word: disruption. For the legacy truck OEMs, Elon Musk’s HD truck plans will cause significant strategic disruption, and lead to some very difficult decision-making. It is hard to remember the point at which – in the North American market – a new entrant showed up. The two non-US-domiciled OEMs, namely Daimler and Volvo, effected their respective market entries through acquisition, so we have to go back many decades to find a start-up. Now with Tesla following Nikola, we have two apparent new market entrants in the space of under four years. Moreover, they are new market entrants with a differentiated and thus potentially value-added proposition, and, perhaps most significant of all, there are two of them. A market constituted of a single player infers either a perfect monopoly or an organisation with a product for which no market exists. A market constituted of two or more players – as we now have – infers a degree of legitimacy. This, in itself, is perhaps one of the most significant functions of Tesla’s recent announcement, and one that adds a significant degree of disruption to the future shape of the truck manufacturing landscape.

Tesla Semi truck

In a roundabout way, regulation is – strategically – a friend of the legacy OEMs. Regulatory compliance, the ultimate arbiter of a vehicle’s utility, has shaped vehicle design over the past 30 years. Transportation is a derived demand, and one that is dependent upon freight, and upon the trucks to haul that freight; yet the best truck in the world quickly becomes the worst truck in world if it is unable to fulfil that task through a lack of regulatory compliance. This is a fundamental and ultimately a binary issue, but also one that guides OEM strategy.

Now that we have an apparent and perhaps viable alternative, that strategic locus has changed. Legacy OEMs may have been entirely happy to continue pursuing a diesel strategy; now they cannot – an OEM without a coherent approach to electrification is an OEM that is falling behind the pack. That’s an awkward image to present, and one that is potentially significantly damaging when looked at in terms of raising capital. Is a truck OEM without an electrification strategy a sustainable truck OEM? The cautious analysis here would suggest it is not; electrification has thus moved from being a strategically aggressive position to one that is strategically defensive. And Tesla has now poured yet more disruption into already muddied waters.

For the legacy truck OEMs, Elon Musk’s HD truck plans will cause significant strategic disruption, and lead to some very difficult decision-making

How much will it cost to participate in the electrification revolution? Figures have been circulated which differ depending on vehicle range, but these figures are entirely misleading. At this point in time, for a trucking fleet to derive maximum benefit from Tesla, the buy-in is a mere US$5,000, namely the cost of reserving a yet-to-be-built electric Semi.

There is little certainty at this stage about anything in the electric trucking debate, but what is certain is that electrification is seen – in broader perceptual terms – as an overall positive. Being associated with that positive is, in terms of CSR and sustainability, hugely beneficial. In this regard, Tesla has not launched a truck but a relatively cheap way of establishing sustainable environmental credentials. And let’s face it: for such credentials, US$5,000 is very cheap indeed.

From a long-term perspective, Tesla is forcing not a product but an issue, and the legacy OEMs have no choice but to respond in kind – and with added costs. There are many questions surrounding the viability of the Semi, and – it must be observed – not a few questions about the sustainability of Tesla’s long-term business model.

That really does not matter at this point; the launch of the Semi should be seen not as the launch of a truck, but of a stalking horse. What happens next, and over the coming months and years, will show the extent to which that stalking horse has served its purpose.

This article appeared in the Q4 2017 issue of Automotive Megatrends Magazine. Follow this link to download the full issue

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