Tesla Truck Reservations: Hit Or Miss?

| About: Tesla Motors (TSLA)

Summary

Tesla has racked up some truck reservations including a 40-truck reservation from Anheuser-Busch.

Tesla truck reservations appear to be in the thousands. Does this invalidate our Tesla truck thesis?

We explain the truck reservation dynamics and truck economics.

A recent news story showcased that Anheuser-Busch (BUD) reserved 40 Tesla (TSLA) trucks. There is no doubt that Tesla continues to garner reservations for its semi. As reservation news continues to trickle in, a reader has recently out pointed that a small landscaping company has placed reservations for 3 Tesla trucks and the reservation counter is already above 1000 implying multiple thousand reservations (image below).

This reader noted that the reservation count in the graphic appears to be robust and contrary to the musings in the commentary.

As we have written, the vehicle does not make sense in terms of cost content, payload ability, and charging infrastructure needs.

Does the Anheuser-Busch reservation and the reservation count pointed by the reader above mean our thesis is wrong?

Absolutely not.

We have a few observations to make in this regard:

  • Firstly, our article was mainly about the impracticality of long haul trucks. Note that Anheuser-Busch (BUD) specifically states that the intended application for Tesla trucks is short-haul. The Company is targeting trips to wholesalers within 150 to 250 miles of its brewery locations. Similarly, the landscaping company noted above is very likely reserving a short-haul truck in what is likely a heavily stop-and-go application. We have already noted that short-haul BEV trucks could make eminent sense. Given the application makes sense and given Tesla is being very aggressive in pricing, it should not be a surprise that some companies are reserving short-haul trucks. However, there are several trucking companies targeting the short-haul segment and Tesla's unique value proposition appears to be selling its product at a loss (more on this later in the article).
  • Secondly, Nikola One’s reservation count we referenced in our earlier article was for long-haul trucks. We have no idea if the reservation counter in the graphic above is for short-haul trucks or long-haul trucks or for all trucks combined. We look forward to Tesla releasing their reservation count for long-haul trucks (hint: we do not expect Tesla to release those numbers as we expect them to be abysmal)
  • Thirdly, even if Tesla's long-haul reservation count comes close to Nikola One's reservation count, note that the revenue potential will be half – given that the pricing of Nikola One is about twice that of Tesla's long-haul truck.
  • Fourthly, at twice the list price of Tesla trucks, there is a chance that Nikola One can be profitable selling its vehicle. Tesla, with its proposed pricing at half that of Nikola's pricing, will be literally giving away its trucks.
  • And, finally, as discussed earlier, the long-haul version’s batteries alone will cost over $100,000 in 2019. As such, by most studies, materials contribute to between a third and half of automotive cost. An example breakdown of a typical automotive can be seen below:

Given that Tesla truck's bill of material alone is likely to be around $150,000 (with battery constituting over $100K), there is no chance that Tesla will be profitable at its “expected” price. As such, we do not believe Tesla will be able to break-even even at $300,000. It should also be noted that Class 8 trucks are a niche market with very high capex and opex needs. Given the high CoGS, capex, and opex needs, we would not be surprised if Tesla's long-haul truck needs to be priced close to $400K to break-even.

  • If and when Tesla sells these trucks at the stated $150K and $180K level, the company is literally giving these products away. That there are reservations should not be surprising - there will certainly be some demand for such economically irrational products. Some like the allure of buying $1 for $0.50 without realizing that if something is too good to be true, it probably is.

It is not surprising that Tesla has found some customers to place reservations - CEO Elon Musk's charisma seems to get people to make questionable decisions as we saw with the recent debt placement. However, as time goes on and as people get educated about Tesla's economics, customers reserving trucks, especially long-haul trucks, are going to find out that it is a silly idea to reserve a Tesla long-haul truck for all the reasons discussed in this and prior articles.

When it comes to short-haul trucks, investors and customers are going to realize soon that there are several companies that are already shipping product into the market and there will be many more companies that will beat Tesla to market. In the most optimistic scenario, Tesla may be able to get a small slice of a small market. Even then, whatever product the company ends up selling at the given price point would be coming at shareholders' expense.

We submit that reservations are being made by customers with a complete lack of understanding of the economics of a Tesla truck. Setting aside the implications of using crowdfunding to support operational cash burn, Tesla’s future will be tied to making money in the car business. And, with Model 3 execution continuing to flounder, those prospects continue to dim by the day.

Our View of TSLA: Sell short.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Author’s investment philosophy is long only and author does not short. Shorting is a sophisticated investment strategy that requires superior investment skills and must be avoided by all but experienced investors with the appropriate skill and wherewithal.

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