My three previous articles, on production efficiency, Model Y, and Gigafactory 3, all discussed what Tesla (NASDAQ: TSLA) high quality cars will be and the major contributors to their future balance. This article will instead focus on Tesla's smaller production cars and the financial impact they will have. Through this article, I will analyze production, and although production is limited, how these vehicles will still play an important role in Tesla's future.
When Tesla unveiled Tesla Semi, they announced some pretty crazy specs, especially for a semi-truck, the most absurd being a time of 0-60 in 20 seconds ̵
According to Tesla, Tesla Semi can save more than $ 200,000 in fuel costs, over 10 years, at a cost of $ 1.20 per kilometer, 29% lower than the national average, but will pay itself over two years at due to lower maintenance costs on top of fuel savings. Tesla's dramatically reduced drag coefficient ("CD"), .36 CD, over other trucks, averaging .6 CD, increases Tesla Semi's efficiency and cost-saving efficiency. Although electric is already cheaper than diesel, saving on efficiency means that Semi requires even less energy to travel as far. Tesla's two models, 300 miles and 500 miles trucks, are priced at $ 150,000 and $ 180,000, respectively, though there are rumors that the range could end up being even more impressive. While this is $ 32,570 and $ 62,570 above the national average respectively, the above savings potential reduces this difference and actually makes Tesla Semi the cheaper alternative. By combining these savings and performance, all indications are that Tesla Semi is a hot commodity.
With production expected to begin in late 2020, Tesla is looking to get as many customers as possible, and it has already set up some. While some may see the range as a problem, because it takes a lot longer to charge a vehicle than just filling up with gasoline, it might not be as bad as you can imagine. Truckers are required to rest for 30 minutes every eight hours they drive, and can only drive 11 hours every 14 hours of service. Now it's time for quick math. Given the average speed of a motorway semi-truck at 56.28 mph (author calculations with data from the Office of Energy Efficiency & Renewable Energy), there is no way a truck can empty the 500-mile battery until eight hours are up and they have to take one pause anyway. For a 300 mile variant, a truck will drain a full 5.33 hours of battery, which may seem a bit problematic at first. But let's look at the truck's rules. They can only run 11 hours per 14 hours of watch time. This means that the driver must take several breaks anyway and allow plenty of time to recharge without violating the truck schedule. Even at a range of 310, which is probably possible based on the previously mentioned range increase, the truck only needs to be recharged twice before it has reached its daily driving limit.
It is mathematics like this that the trucking industry understands, while financiers can be turned off by this apparent shortcoming. With the range as a non-issue, the Tesla Semi truck is poised to become an industry-leading truck that, although more expensive at first, will end up saving companies money the longer it is on the road. Reservations have been open for some time now, and based on data collected by Business Insider, Tesla had 495 reservations for Tesla Semi by April 25, 2018, plus the undisclosed amount of J.B. Hunt ordered. This number has probably stayed the same since I have not seen any new orders in the news, although it is very possible that new deals just have not been published.
The truck is likely to be produced in relatively lower numbers with a higher margin. According to Musk, Tesla will produce 100,000 semis each year with top production. When this will happen is another story. The production ramp of the Tesla Semi is likely to be more challenging than that of the Model Y because the Tesla Semi is completely different from any other vehicle Tesla has ever produced. Therefore, Tesla cannot use all the same knowledge it gained from Model 3 as with Tesla Semi. However, the ramp should not be as catastrophic as the Model 3's because they will be able to avoid the simple error of too much automation. Instead of assuming production starts in early 2020, Tesla is likely to maintain a rate of 150 units per week during the first half of 2020, hit 250 at the end of Q3 and break 400 by the end of 2020. 800 units will reached the end of Q2 2021 and 1000 at the end of 2021. The final pressure to 2000 per week may not have been achieved until sometime during the second half of 2023. This latest pressure corresponds to Model 3's extended extension from 5000 to 7000 per week. week. While this projected production ramp is conservative, a full year behind Musk's estimates, it takes into account the delayed start of production and reduces room for error.
The Class 8 semi-truck market in America stands at around 244,780, just under 1.5x Tesla's expected peak production. To put this into perspective, the current leader of the US truck class 8, Freightliner with ~ 90,860 trucks delivered in 2018 and Tesla would have to sell nearly 10,000 more trucks than them to meet its production goals. However, the market is growing with no signs of stopping, making Semi's proposed deliveries less extreme. Part of the advantage of a slow production ramp is that it allows Tesla to slowly gain market share and prove the superiority of its trucks over its competitors, but Tesla's other advantage is that it probably won't just sell in America. While Tesla is likely to be able to meet most of America's demand due to the overwhelming advantage of its electric semi-truck and ICE truck, sales overseas will do anything but guarantee that this goal is met. With the possibility of foreign markets picking up the slack left in the US market, Tesla's Semi could exist in the same positive production and demand deficit that their other vehicles are in: Production cannot keep up with demand.
With a time of 1.9 seconds 0-60 mph, a range of 620 miles, and a top speed of over 250 mph, the Tesla Roadster is, in every sense of the word, a supercar. In addition, according to Jason Fenske's analysis, the Roadster has 758 kilos of torque and nearly 1,000 horsepower, which is even more than Dodge's Hellcat Challenger. You may notice that Tesla lists 10,000nm, or 7,376 kilograms of wheel torque on their website, but this wheel torque measurement is not standard measurement when discussing torque and is not really the right torque measurement. Nonetheless, this torque and horsepower is still insane and allows the Roadster to have a 0-60 time of just 1.9 seconds, the fastest of any production car in the world. The Tesla Roadster has some pretty impressive specs, but due to the price the market is quite limited. The biggest competition is likely to be Porsche's (OTCPK: OTCPK: POAHF) own high performance EV, Taycan. The Porsche Taycan starts at $ 150,900 and $ 185,000 for the Porsche Taycan Turbo and Taycan Turbo S. respectively. Taycan also has a 0-60 mph time of 3 and 2.6 seconds for the standard Turbo and S, respectively, while both have top speeds at 161 mph. However, one of the biggest spots for Taycan is its reach of only 220 miles. The Roadster's 620 mile range blows this out of the water and makes it a prime choice for people looking for a high performance sports car. Even with all this in mind, Taycan has already set up 30,000 reservations, and as a result will increase their annual output from 20,000 to an undisclosed amount. With the market for supercars quite limited, this is a fairly high production number. If Porsche can capture this big market with Taycan, the Roadster should also be able to see a relatively large market.
With Tesla's Fremont plant filled to the brim with production lines, the Model S, Model X, Model 3 and Model Y are all produced there, it is highly likely that the Roadster will end up being manufactured on Gigafactory 1 right away by 2020 (probably towards the end). The Roadster is admittedly an even more niche product than Semi, reaching only 10,000 units produced per year. Fortunately, 10,000 units per year is not an incredibly difficult production metric, which means that Tesla could probably achieve this during the first year she produced the Roadster, which could end up being 2021. That's also half of what Porsche led before increased their own production estimates, which means demand should not be a matter for the electric supercar.
Semi is priced at either $ 150,000, $ 180,000 or $ 200,000, giving a reasonable average purchase price around $ 172,000. Although more affordable, it requires much more hardware to operate than Tesla's other vehicles, including a larger battery pack (for added weight and range) and more engines. Thus, the margin is likely to be around 25%, in line with Tesla's targets for its other vehicles, and with this evaluation, Tesla could generate $ 531 million in 2020, $ 1,789 billion in 2021, $ 2,012 billion in 2022, $ 3,801 billion in 2023 and $ 4,472. billions in 2024 and beyond through gross profits.
The Tesla Roadster is the definition of a low-margin low-production car. But before I reach the margins, I will discuss how much revenue this vehicle will generate. Take the base price of $ 200,000 and multiply it by 10,000 to get $ 2 billion. Now there are other models like the SpaceX package and the Founder series, but the Founder series is limited to just 1,000 models, and the SpaceX package is more of a publicity stunt than anything else. This puts $ 2 billion as the foundation estimate for annual revenue for the Tesla Roadster. The cost of building the Tesla Roadster assembly line is also likely to be quite low due to low volume production. I would be surprised if it cost more than $ 300 million to build.
Well margins? Batteries are probably one of the biggest factors here. At Tesla's shareholder meeting 2018, Musk discussed the likelihood of dropping to $ 100 per kWh even at package level by the end of the decade. Looking at the Model 3's battery, the most advanced of Tesla's batteries, they require 75 kWh in a 310 mile range with a dual engine variant, though the Roadster will have three engines and 620 miles of range. Tesla's rear-wheel drive Model 3 got just 15 miles more than the AWD Model 3, so a ~ 150 kWh battery seems pretty affordable for the Roadster, especially because of improved aerodynamics. A battery of this size will cost $ 15,000 to $ 100 per kWh, which seems likely. The extra engine in a Model 3 also used to come with a $ 5000 premium, which also accounts for the slightly higher margin on the vehicle. So far we have only $ 30,000 for this vehicle, and all we have left is the bodywork, interior and production of the car. For performance model 3, using the above calculations and a total margin of 25%, it costs $ 24,500. Now we are at $ 54,500 for the total cost of the vehicle. But building the body and interior of the Roadster is probably a significant additional cost compared to the Performance Model 3, which is probably around $ 35,000. The total cost of production for the Roadster is probably around $ 89,500, giving a margin of ~ 55.25%. Using these metrics, the Roadster will contribute $ 1.10 billion annually to Tesla's profitability, making it more than just a side project. What we can learn here is that this project will also pay for itself completely, in just one full marketing year. Overall, these vehicles, although their production may initially seem lean, are quite valuable projects and will make strong contributions to Tesla's overall profitability.
Although these estimates are far from certain, in my opinion they are pretty good guidelines for what to expect with these two new products. I think I've outlined demand and margins quite well, the latter can actually be a bit conservative, especially at Semi. I also think I've made a strong case for the production ramp for each vehicle, but what can be challenging for my projections are the details that are likely to differ from my projections. This is mostly on the production ramp and margins. While I think these estimates are fairly solid guidelines, I think Tesla could see variation with my guidance of +/- $ 125 million in 2020, +/- $ 280 million in 2021 and 2022, and +/- $ 425 million in 2023 and beyond.
Disclosure: I am / we are a long time TSLA. I wrote this article myself, and it expresses my own opinions. I do not receive compensation for it (other than Seeking Alpha). I have no business relationship with any company mentioned in this article.