What Does Tesla Semi Mean To Oil Demand?

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Includes: BNO, DBO, DNO, DTO, OIL, OILK, OILX, OLEM, OLO, SCO, SZO, TSLA, UCO, USL, USO
by: ValueAnalyst

Summary

Tesla is entering the large commercial truck industry with its Tesla Semi.

Semi trucks consume a lot more fuel than you might have expected.

What does this mean for oil investors?

Tesla (TSLA) recently revealed its all-electric semi truck. As I discussed in Tesla Semi Reveal: Significant Developments:

[Tesla noted] that the average marginal cost per mile for a Tesla Semi will be significantly below that of a diesel truck. Because the trucking industry is laser-focused on return on investment, this was an important announcement.

The demand for Tesla's semi will likely be high, as evidenced by the increasing number of reservations for the product that is at least two years away.

This development should be considered by oil investors, because the semi truck industry is large and represents a significant portion of diesel demand. I estimated in Tesla Semi: Total Addressable Market And Incremental Value that the global Class 8 truck market sales may be as high as two million units per year. Given that these commercial trucks drive upwards of 100,000 miles per year, each internal combustion-engine truck replaced by Tesla would be equivalent to many cars replaced for the purposes of oil demand.

How Many?

Well, let's run through a back-of-the-envelope calculation.

Source: U.S. Department of Energy

According to the graph above, a semi truck drives 68,155 miles per year, which is six times of the 11,254 miles that an average car travels on average per year. This, however, is only one part of the equation.

The second important piece of the puzzle is that an average car gets nearly 24 miles per gallon, which is four times the 6 miles per gallon a semi truck gets on average.

Putting the two pieces together, a semi truck consumes four times the amount of fuel per mile and drives six times as many miles per year. In other words, a semi trucks uses 24 times the amount of fuel as a car per year.

In yet other words, by replacing one internal combustion engine semi truck, Tesla eliminates as much oil demand as it would have by replacing 24 cars.

Implications For Oil Demand

In How Many Electric Vehicles Would It Take To Replace 1 Mbd Of Oil Demand?, I concluded that more than 35 million cars per year would need to be replaced by all-electric vehicles in order to stump oil demand growth.

Tesla's venture into commercial trucking may accelerate demand shift from oil to alternative energy sources, considering that the company is also looking to expand solar power as source of electricity generation.

How Quickly Will This Happen?

Respected analyst Gene Munster's Loup Ventures recently added its semi truck forecast to its financial projections for Tesla. According to Loup Ventures, Tesla will ramp its production of its new Class 8 truck relatively slowly: only 3,750 units in 2020 and 40,000 units in 2023. Using the math I presented above, 40,000 Class 8 trucks would approximate one million cars in terms of fuel consumption.

Bottom Line

Tesla's entry into commercial truck manufacturing will accelerate the world's transition to renewable energy, but not at a pace oil investors need to worry until after 2025, as I concluded in my earlier article.

Disclosure: I am/we are long TSLA, NE, ESV.

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.

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