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How Tesla Semi Drivers Could Break-Even 7 Months Ahead Of Musk’s 2 Years Promise

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Summary

Our estimates reveal a Tesla Semi driver could save over 40% in fuel and maintenance cost per mile compared to driving diesel tractor trucks.

Long-haul Tesla Semi operators could then break-even on the electric truck's $30,000 higher price tag in 1 year and 5 months, ahead of Musk's promise of 2 years.

Total savings could hit $229,000 over a million miles, $29,000 more than what Musk promised.

[This article was an excerpt from our special report on Tesla's Semi Strategy: in which we compare operating cost of the electric Semi against diesel trucks, evaluate whether Tesla would make more revenue selling delivery trucks, and analyze risks facing the truck program.]

“What do people want? They want reliability. They want the lowest cost. And they want driver comfort… So we reimagined the truck.” - Elon Musk

Mr. Musk is right. Trucking companies care about revenue and costs more than anything. Environment is not a priority, so he didn’t even mention it. To appeal to commercial truckers, Mr. Musk instead promised to reduce operating cost by 17% or $0.25/mile. He also pledged a 2-year payback period, and $200,000+ in fuel savings over a million miles.

Let’s put those numbers to the test.

Diesel Truck Operating Costs

Fuel

Fuel efficiency of class 8 diesel trucks, which hasn’t changed in the past decade, depends primarily on...

  1. Payload: NHTSA found that a Kenworth T-700 tractor-trailer achieved 6 miles per gallon (NYSE:MPG) fully loaded and 7MPG half-loaded.

  2. Speed: Aerodynamic drag force quadruples when speed doubles. This means power required from the engine increases at double the rate of speed. Cummins, a diesel engine manufacturer, estimates that each 1MPH above 55MPH reduces fuel efficiency by 0.1MPG. No wonder most trucking companies cap their trucks’ top speed at around 60mph.

The American Trucking Research Institute reports that median fuel efficiency varies between 6.3MPG to 6.8MPG depending on a company’s fleet size. For our investigation, let’s assume tractor-trailers operate at 6.55MPG (average of median values found by ATRI).

With diesel price projected at $2.86/gal in 2019, We can thus estimate fuel cost at $0.437/mile ($2.85/gal ÷ 6.55miles/gal) when Tesla’s Semi hits the road.

Maintenance

Let’s get a real-life sense of how much maintenance costs by looking at Knight-Swift, one of the top large fleet operators by operating margin. Here’s their 2016 stats:

  • Amount spent on operations and maintenance: $76.25 million

  • Number of company owned tractor trucks: 4,286

  • Average maintenance cost: $17,790 per truck (How we got this number: $76.25 million / 4,286 trucks)

  • Average miles driven per truck: 85,805 (How we got this number: Knight-Swift reported $129.7M on fuel. This translates into 56.15 million gallons of diesel when it cost $2.31/gal in 2016. Their trucks therefore drove around 368 million miles assuming a fuel efficiency of 6.55MPG. Each of their 4,286 trucks in turn averaged 85,805 miles.)

  • Average maintenance cost per mile: $0.207/mile (How we got this number: $17,790 / 85,805 miles)

The average truck in Knight-Swift’s fleet was 1.9 years old, so our maintenance cost per mile can be considered typical of any large operators who replace trucks after 3-5 years.

It’s important to note that over half of the recommended maintenance tasks for class 8 trucks are unrelated to the diesel engine. That means an electric truck would also need them. We’ll come back to this point as we review maintenance cost of the Tesla truck.

Tesla Semi Operating Costs


Fuel

One major reason electric vehicles are more fuel efficient is because 70% to 90% of the energy from electricity is directly used to move the car. Only ~35% of the energy stored in diesel fuel is used to move the car by comparison. The rest is lost as heat.

At 6.55MPG, a diesel truck requires about 6.32kWh of energy from 0.152gal of fuel to move one mile (at 60mph). Tesla’s semi is expected to only use 2kWh of electricity do the same. A 70% saving in energy.

Mr. Musk further guarantees a charging rate of 7 cents per kWh at future megacharger stations. This means truckers will only pay $0.14/mile for fuel. Compared with $0.437/mile for diesel trucks.

That’s if Tesla manages to stay in business. The average commercial rate for electricity in the U.S. is around 10.3 cents per kWh. But electricity price also varies by the peak rate at which electricity is drawn from the grid, so Tesla’s megacharger stations are likely to pay a premium. It’s estimated Tesla’s true cost to be around 40 cents per kWh.

The market rate for energy required by the Tesla truck is therefore $0.80/mile with a megacharger, and $0.26/mile with normal charging. Using a megacharger without subsidies is twice as expensive as diesel at $0.437/mile. Diesel fuel would have to cost $5.25/gal to match the megacharger’s market cost.

Guaranteed cheap electricity is thus a critical part of Tesla truck’s appeal.

What may help Tesla lower charging costs includes batteries installed at charging sites that can draw energy from the grid at normal rates, and discharge into trucks without peaking the grid. Such technology is already in use by a fleet of UPS delivery trucks in London. Add some solar panels and it’s possible Tesla’s electricity will only cost around 10 cents per kWh. Normal market rate.

All this would however necessitate a large capital investment.

Maintenance

While Mr. Musk likes to mention that electric cars don’t need oil changes, the fact is that they still need many of the same maintenance items as diesel trucks.

Teslas are also more expensive to repair. So much so AAA raised insurance premiums for Tesla drivers. Consumer Reports currently gives Tesla an “Average” mark for reliability. Drivers have complained of assembly issues and driving problems that degrade the experience of a luxury car. As result, Tesla also incurs higher warranty costs than peers. These problems are less because of vehicle design than of poor manufacturing.

Let’s look at how existing Tesla vehicles fare relative to peers to estimate maintenance cost of their truck. We compared below the cost to maintain and repair a Model S ($74,500+) against that of a similarly luxurious Audi A7 ($69,700+) and the uber reliable Toyota Camry ($23,495+).

Annual Maintenance Cost


Tesla Model S

Audi A7

Toyota Camry

1 year old

$2,666

$3,359

$1,568

5 years old

$3,800

$4,200

$2,260


A Tesla is slightly less expensive to maintain than an Audi, but 40% more expensive than a Camry. Taking the average maintenance and repair cost of Audi and Toyota, we can expect a Tesla to be 8.5% more expensive to maintain than the average vehicle.

Assuming the ratio also translates to semi trucks, we can expect the Tesla semi to cost around $0.225/mile to maintain and repair, compared with $0.207/mile for an average diesel truck.

Diesel vs. Tesla

So does Mr. Musk’s promises in savings live up to the test? Our calculations prove so. Even more astounding, Mr. Musk was under promising.

A diesel truck costs a total of $0.644/mile for fuel and maintenance, compared with $0.365/mile for Tesla. This amounts to operational savings of more than ~40% or ~$0.279/mile. Beating Mr. Musk’s estimate of 17% or $0.25/mile in savings.

When does a Tesla semi breakeven with diesel truck? After 120,000 miles or 1 year and 5 months if driven 82,805 miles per year. 7 months ahead of Mr. Musk’s promised break-even time of 2 years. This accounts for a sticker price of $30,000 more for the Tesla semi ($180,000 vs. $150,000), but operational savings of $0.279/mile.

One could also decide to drive until Tesla’s batteries hit its estimated end-of-life state at 675,000 miles. Total operational savings will then hit $146,000. Potentially more if Tesla manages to keep maintenance costs steady while that of diesel trucks grow with age. Savings could finally amount to $229,000 should one decide to test Mr. Musk’s 1 million mile guarantee. 14.5% more than Mr. Musk’s estimates of $200,000.

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[This article was an excerpt from our special report on Tesla's Semi Strategy: in which we compare operating cost of the electric Semi against diesel trucks, evaluate whether Tesla would make more revenue selling delivery trucks, and analyze risks facing the truck program.]

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. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article is intended to stimulate awareness and discussion on the impact Tesla's products could have with customers. Investors should view my work in this light and seek other competent technical advice on the subject issues before making investment decisions.

Forward-looking statements found in this article are based on assumptions regarding the Tesla's business and performance, the economy and other future conditions and forecasts of future events, circumstances and results. As with any projection or forecast, forward-looking statements are inherently susceptible to uncertainty and changes in circumstances. Tesla's actual results may vary materially from those expressed or implied in its forward-looking statements. Important factors that could cause the Tesla's actual results to differ materially from those in its forward-looking statements include government regulation, economic, strategic, political and social conditions among other factors.