Tesla Truck: Expands Addressable Market & More Importantly Investor Optimism

What the truck and roadster unveil mean to the story.  The Model 3 production ramp remains at the center of the Tesla story for the next two years, but the long term story took a step forward last night for two reasons. First, Tesla’s addressable market likely increased by 15-20% with the addition of trucks and a fraction of 1% with the Roadster. Second, and more importantly, an untapped opportunity in trucking should continue to stoke investor’s optimism for the next three years. This optimism is critical to allowing the company to continue to tap the debt and equity markets for the capital needed to enable Tesla to advance its mission of accelerating the globe’s adoption of renewable energy, disrupting the auto and energy industries along the way.

Backing into the price. After attending last night’s Truck (and Roadster surprise) event, we opted out of the Tesla sponsored after-party and opted into brushing up on our algebra. That’s what we needed to solve for the biggest unanswered question of the night . . . the pricing of the truck. Based on two hints provided at the event (truck should have at least a 20% lower cost of ownership compared to a Class 8 diesel truck and last a million miles), we believe in 2019, 2020 after inevitable delays, the smaller truck will list for about $225,000 and larger version for about $275,000. This compares to the expected 2020 average cost of a Class 8 diesel truck of $150,000. This would add about 15-20% to Tesla’s top and presumably bottom line in the year 2025 (sensitivity to model calculation details below).

One more thing. Steve Jobs would have been proud. While the substance of the event was the unveiling of the two trucks, the sizzle came with a rare surprise; the unveiling of the new Tesla Roadster. Tesla is providing Roadster pricing, which will average around $225,000. Assuming the Roadster, which is expected to be available in 2020 (2021 with delays) could garner 25% market share of the exotic car market (Ferrari, Lamborghini, and McLaren), it could equate to 3,700 annual unit sales, and yield just under $1B per year in revenue to Tesla which equates to just over 1% of total revenue in 2023. Musk’s comment that the point of building the Roadster was to “give a hardcore smackdown to gasoline cars” highlights the fact that Roadster is more about making a statement to the industry around the performance of EVs (0-60 in 1.9 seconds with a 620 range), and less about making money. Mission accomplished on that front.

Sensitivity of the model calculation.  In 2016, there were about 260k (source: FTR) Class 8 trucks sold in the U.S. We believe the U.S. represents 35% of the global market, so worldwide, there were about 780k trucks sold last year. While not reflected in our model, for tonight’s exercise we assume the Tesla truck will achieve 15% share of the U.S. market and 5% share of the outside of the U.S. market. Using our $225-$275k average Tesla truck price, that would add 15-20% to Tesla’s 2023 revenue numbers.

Here’s how we got to the price. Note: Our current model does not reflect the truck or Roadster. We’ll be updating it soon.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

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