Tesla (TSLA) recently said that it plans to enter the trucking market, adding to the list of productsincluding its mass-market Model 3it hopes to be able to bring to market in the years ahead. But with so much on its plate, why would Tesla want to compete with trucking companies like Paccar (PCAR) and Cummins (CMI)? Were glad you asked because Morgan Stanley analyst Ravi Shanker and team offer three reasons for Teslas interest:
Tesla wants to become a truck OEM. Tesla is looking to branch out into other verticals in the transportation space as part of CEO Musks Master Plan and commercial trucks appear to be a good segmentThe total addressable market (TAM) is also quite large if Tesla were to garner 10% of the new truck market in the US, we estimate it would be worth $2.5 bn in annual revenue or as many as 70,000 base Model 3s.
It may be about services. We believe Tesla could conceivably sell a truck without a battery (thereby significantly lowering the upfront cost) and offer battery swapping as an alternative to putting a large battery in the truck. We estimate that if Tesla charges $0.25/mile to lease the battery, this could be a big win for both trucking carriers and TeslaWe estimate Tesla could see $7.5 bn in annual revenues if it achieves a run rate level of 10% share of the truck parc The incremental investment may not be significantWe estimate a total upfront capital cost of $1.7 bn to enter the Truck segment (including the swapping stations). Shares of Tesla have advanced 0.2% to $306.26 at 10:44 a.m. today, while Paccar has gained 1.4% to $65.45, and Cummins has risen 0.7% to $145.37.