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Analysts: Tesla Semi A 'Distraction'

FreightWaves
·5 min read

Few doubt that Tesla, Inc. (NASDAQ: TSLA) has deep pockets, but some wonder whether the electric vehicle company should bite the bullet and abandon one of its most highly anticipated but long delayed product offerings: the futuristic Tesla Semi truck.

"Tesla should drop or spin off its Semi efforts to someone else," said Michael Ramsey, a vice president and automotive analyst with Gartner. "It's a different business and a distraction."

That assessment was echoed by Sam Abuelsamid, a research analyst leading Guidehouse Insights' electric mobility team.

Abuelsamid likened Tesla and the Semi to Nikola Motors (NASDAQ: NKLA)and the Badger, the electric pickup truck that was discontinued recently following the renegotiated deal between General Motors (NYSE: GM) and the fuel cell electric vehicle company founded by Trevor Milton.

"The Semi is a distraction for Tesla," he told FreightWaves.

Citing "quality issues" with the company's passenger car models, Abuelsamid said Tesla needs to get its manufacturing sorted out.

"Focus on that first," he advised.

Not everyone is ready to dismiss the eagerly-awaited Class 8 vehicle.

"We're very bullish on the Semi," said Garrett Nelson, a senior equities research analyst with the investment research firm CFRA. This year's "meteoric" stock run-up provided Tesla with the capital necessary to accelerate growth, Nelson said, "and the Semi truck is an important part of that."

Tesla, which did not respond to FreightWaves' request for comment, closed its third quarter with a whopping $14.5 billion in cash and equivalents.

Earlier this week the company announced its intentions to sell $500 billion in shares, a filing that capped the stock's 52-week high of $648.79.

Also this week CEO Elon Musk said he had moved from California to Texas, where Tesla is building one of two massive new factories. The second is in Germany.

"Tesla certainly has plenty of land to really expand their production and broaden their vehicle offerings," Nelson observed. "2021 will be a year of execution."

Waiting on the Semi

Tesla introduced the Semi with much fanfare in 2017, saying production would get underway in 2019 — only to retract that timeline in subsequent guidance announcements.

During Tesla's first quarter earnings call last February, Musk said the plan was to put "limited volumes" of its heavy-duty truck on the road in 2020.

That didn't happen either. Today glimpses of the Semi are limited to sightings of the prototypes (of which there are thought to be two), captured on video by Tesla fans.

Orders pour in

Fleets seem unfazed by the delayed timelines.

Brands and logistics companies have ordered, collectively, thousands of Semis, putting down as much as $20,000 for trucks that are expected to cost between $150,000 and $180,000.

In November Pride Group Enterprises, a Canadian logistics firm, announced what might be Tesla's biggest order yet: 150 Semis, with an option to increase to 500.

Pride Group declined to comment on the electric vehicle company's delivery challenges.

Longtime customers were equally close-mouthed.

Relationships between UPS (NYSE: UPS) and vendors are proprietary, a spokesperson for the logistics giant told FreightWaves in an emailed statement about the 125 Semis the company reserved in 2017.

"We have a good working relationship with Tesla, and they have been talking to us routinely about their plans," the UPS statement said. "We look forward to receiving the Semis we've ordered, but have nothing more to share."

Of the 100 Tesla Semis that PepsiCo (NASDAQ: PEP) has ordered, the beverage company expected about 15 to be delivered in 2020 to the company's Modesto, California, Frito-Lay manufacturing site, a spokesperson told FreightWaves last February.

PepsiCo did not immediately respond to FreightWaves' request for comment.

Prioritizing passenger vehicles

Tesla has other priorities, Ramsey believes. Before getting into an entirely new business, he said, the company "has to concentrate on building plants for its core products and filling out its main product lines."

"The Semi is not a requirement for them."

Among the challenges: Buyers of the new Model Y SUV are reporting a range of cosmetic and safety problems, from paint defects to unattached seatbelts and water leaks.

Separately, Tesla is grappling with issues tied to battery development.

During an earnings call last February, Musk explained that faster vehicle production requires a massive ramping up in battery power.

"That's part of the reason why we have not, for example, really accelerated production of the Semi," Musk said. "[It] means making fewer Model 3 or Model Y cars. It uses a lot of cells."

There are signs of progress. In November Musk said the Semi would hit a new range target of 621 miles by using the new 4680 cells and battery pack design unveiled during the company's Battery Day event in September.

The Semi: A stabilizing force?

The manufacturing and battery material supply chain are important, said Anna Stefanopoulou, the director of the Energy Institute and a professor of manufacturing at the University of Michigan. Even if Tesla did spin off its Semi truck division, she speculated, "my guess is that would stay within the parent company."

In fact, the Semi, far from being a distraction, might be a stabilizing force for Tesla, as it prepares for a massive scaling of production.

While plenty of technical unknowns surround electric trucks — such as battery degradation in real-world conditions — the Semi could provide a "leveling factor," Stefanopoulou told FreightWaves, smoothing out a "variable and uncertain" light-duty EV sector that relies on "personal opinion, preference and impression."

Heavy-duty buyers, by contrast, consist of "rational vehicle owners who will follow the profit after calculating the total cost of ownership benefits from switching to EVs."

The Tesla Semi also will boost the company's manufacturing volumes, which will help regulate costs, she added.

Nelson echoed some of those thoughts, invoking again Tesla's staggering valuation.

Even as other manufacturers are readying their own versions of electric Class 8 trucks, "Tesla's market cap has given them a huge competitive advantage," he said.

Tesla this year will sell close to half a million vehicles, Nelson observed, and has set a goal of selling 20 million vehicles a year by 2030.

"That's a 40-fold increase," he said. "The Semi will help them get there."

Latest Ratings for TSLA

Date

Firm

Action

From

To

Dec 2020

Jefferies

Downgrades

Buy

Hold

Dec 2020

New Street

Downgrades

Buy

Neutral

Dec 2020

JP Morgan

Maintains

Underweight

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