Is Tesla’s truck goal really a battery leasing program?

A Tesla Supercharging station set up for Model S autos. The company's electric truck project could also use Supercharging stations, or as some analysts believe, a battery swap program that utilizes the Supercharging station infrastructure. (Photo: Tesla)

Morgan Stanley analysts think such a program could be worth $750B a year

As speculation mounts about what Elon Musk is planning with his electric Class 8 truck, set for a September debut, more analysts are weighing in on possible motives.

Two Morgan Stanley analysts, who closely follow Tesla, see the creation of an electric semi not as an end goal, but rather as an entry into a $750 billion a year battery leasing business. It also could be a financial boon to trucking companies in fuel savings and reduce range anxiety, one factor that has limited sales of medium-duty electric trucks.

“We believe [Tesla] could sell its autonomous, electric semis without batteries, which would then be separately leased to customers,” wrote analysts Adam Jonas and Ravi Shanker, according to a report on the research note by Electrek. “With a [approximately a] 250-300 mile range, these batteries could then be swapped out at battery swapping stations … built at Tesla Supercharging stations and truck stops around the country.”

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The analysts note that Tesla has already tested a battery swap demonstration project for its automobiles. That effort saw a battery change taking as little as 90 seconds, although the Morgan Stanley analysts believe it would take at least 5 minutes for a big rig. The swap program was discontinued last year as Tesla begin further testing on superchargers, although there is no reason why the company could not revive the program with enhancements for commercial operations.

“It’s just, people don't care about pack swap. The superchargers are fast enough that if you're driving from LA to San Francisco, and you start a trip at 9 a.m., by the time you get to, say, noon, you want to stop, and you want to stretch your legs, hit the restroom, grab a bite to eat, grab a coffee, and be on your way, and by that time, the car is charged and ready to go, and it’s free. So, it’s like, why would you do the pack swap? It doesn't make much sense,” Tesla founder Elon Musk said at a 2015 shareholder meeting after announcing that few Tesla owners took advantage of the battery swap.

Conversely, commercial customers behave very differently from consumers, and that is why the Morgan Stanley analysts believe a battery swap/lease program may have a level of success.

Under a battery swap program, a Tesla electric truck would pull into a supercharging station or truck stop where a technician would swap out the battery for a fully charged one. This system keeps the range shorter, thereby reducing battery weight.

In the analysts’ view, a carrier that currently spends about 50 cents per mile for fuel (based on a cost of $3/gallon and a truck averaging 6 mpg driving 100,000 miles a year) could cut its fuel costs in half. The battery lease program might cost $25,000 per year for the carrier.

Math seems to work out. So not as crazy as people claim. But it really requires a serious charging network along the Interstates.
— Gerbrand Ceder, a materials scientist and battery expert at Cal Berkeley

“If we consider the fact that the powertrain in Class 8 trucks today is about 50% of the $150,000 cost of a new tractor, the $75,000 savings in buying a truck without a powertrain would be worth almost $0.20/mile over the life of the truck,” the analysts note. “With this in mind, Tesla could charge as much as $0.45/mile and the truck carrier would still save 50% in fuel costs (but with equal purchase cost vs. today). With the 1 mile/kWh range as assumed earlier, to give a truck a 250-300 mile range would need a 250-300 kWh battery which we assume would cost Tesla approx. $25,000-30,000 each (@$100/kWh).”

Gerbrand Ceder, a materials scientist and battery expert at Cal Berkeley, told Axios that Musk’s plans are plausible, even for a 500-mile range truck, twice what the Morgan Stanley analysts envision.

"Math seems to work out. So not as crazy as people claim," Ceder told the website. “But it really requires a serious charging network along the Interstates."

Ceder estimates a battery needed to power a Class 8 truck 500 miles would need to weight about 23 tons and cost close to $70,000. Under a fast-charging infrastructure scenario, a truck could be recharged in an hour to drive an additional 300 miles, he said.

For a truck that travels 100,000 miles a year and pays about $2.50 per gallon for fuel, it’s current fuel bill is about $25,000 annually. Ceder believes the electric equivalent would cost about $10,000 per year. Under these conditions, Ceder believes a fleet could recoup the vehicle upcharge through fuel savings in about five years. This would allow fleets to remain close to their current vehicle life cycles.

Even with these positive views of Tesla’s potential within the trucking market, Michael Baudendistel, an analyst with Stifel Nicolaus, noted that Tesla still faces tough odds.

“Given the happily consolidated nature of the domestic truck manufacturing market, the prospect of a new competitive threat, from a company with previous success in disrupting established industries nonetheless, is undoubtedly unwelcomed news for the incumbent OEMs (Daimler, Paccar, Volvo, and Navistar) and major powertrain suppliers (e.g., Cummins),” Baudendistel wrote. “With that said, we think Tesla’s likelihood of success in the commercial truck market is far lower than the auto market. We see several obstacles both internally, with the Model 3 ramp and other major initiatives, and externally, as we believe commercial fleets will be a harder sell than personal vehicle buyers.”

Baudendistel also notes the lack of electric charging infrastructure as an obstacle that must be overcome. Other barriers noted include access to service and maintenance facilities, the weight and range limitations of batteries, and refueling time with even battery swapping posing problems because of the lack of infrastructure.

“Still, we’re not counting Tesla out,” he writes. “For one, Tesla’s personnel decisions indicate it is serious about its Tesla Semi program. Musk has tapped Jerome Guillen, who previously led Tesla’s Model S program and Freightliner’s Cascadia program (the best-selling Class 8 truck in North America), to lead Tesla Semi. We also believe it is possible that Tesla’s goals may be focused longer-term on the semi as an autonomously driven vehicle, where Tesla may have more of an edge.”

Others are even more bearish on the idea. John Petersen, who is an officer and director of the company ePower Engine Systems, which is testing a series hybrid drivetrain, wrote in a Seeking Alpha post that he remains skeptical that an electric Class 8 truck is feasible for everyday freight movement.

“While a 5,000-pound Model S can travel about 3 miles on a flat road for each kWh of battery capacity, my detailed calculations show that takes about 2.8 kWh per mile to propel an 80,000-pound truck down a flat road at 65 MPH. If you add a modest 2% grade, the energy requirement doubles to 6 kWh per mile. While most roads seem flat from the cabin of a passenger car, very few are flat when viewed from the cab of an 80,000-pound truck,” he wrote.

Adding in additional battery power for increased grades and spare power, he estimates the battery pack would need to weight between 26,000 and 39,000 pounds with a 2.2 to 3.3 MWh of total capacity. The size would also be a problem, he notes, requiring some 400 to 600 cubic feet.

“Simply stated, a general duty Tesla semi can't happen with current battery technology, so it won't happen,” Petersen continues. “Instead what we're likely to see is gussied up semi-autonomous version of the battery-powered short-haul tractors that companies like TransPower have been testing in California port facilities for the last couple of years. It's a high-value, regulation-heavy niche market, but it's no threat to Paccar, Cummins or anyone else in the trucking industry.”