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Tesla Puts Semi Makers on Notice

Tesla Puts Semi Makers on Notice

After more than five years in development, Tesla has officially delivered its first Semi to PepsiCo—a milestone that will be a wake-up call to the trucking industry. The next five years are likely to be a windy road for traditional Class A truck manufacturers as they scramble to embrace electric.

Semi’s impact on Tesla’s business:

On Tesla’s September quarter 2022 earnings call, Elon announced that the company’s goal is to produce 50k semis by 2024. If they hit that goal, the Semi would add about $10B in revenue in 2024, or account for about 6% of total sales in that year. We think 20k deliveries in 2024 is more likely. Long-term, the Semi will likely hoover around 5% of overall Tesla sales.

Semi customers:

It’s a long wait. In 2021, Musk suggested that Semi production was on hold since it would require 5X the amount of lithium cells needed for a comparable Class 2-3 Tesla vehicle. Those comments temper our expectations about the ramp in volume of deliveries over the next couple of years. To date, PepsiCo is the only customer that has taken delivery. Other customers that placed preorders in 2017 include Walmart, Meijer (260 grocery stores) and JB Hunt (transportation services with about 12k trucks).

Tesla Semi quick facts:

  • Range: 500 miles on a single charge.
  • Towing capacity: Up to 82k lbs, which is the most weight allowed by law.
  • Acceleration: From 0-60 mph in 20 secs with a full load.
  • Charge time: Up to 70% of its range within 30 min.
  • Average life expectancy: 1m miles, according to Musk.
  • Enhanced Autopilot: The Semi has Autopilot which makes the driver’s job measurably easier and is a key selling feature.
  • The wait for FSD: While the company did not announce any updates, FSD on the Semi which would be huge. Eventually, FSD in trucking will eliminate the need for a driver. This is likely 5 years away.

Semi industry quick facts:

  • Average price of a semi in the US is $140K. *Tesla has not publicly updated its Semi pricing since 2017. At that time, the 300-mile range version was set to cost $150k and the 500-mile version $180k. We expect pricing today to be closer to $180k and $210k, respectively. In other words, the Tesla Semi could be priced about 30% higher than its gas-powered competition.
  • US forecasted sales in 2022: Around 225k in 2022, which compares to an expected 14m passenger cars.
  • Estimated number of Class 8 semis on the road: 7.6 million.
  • Average life expectancy: 10-15 years of use.
  • Average miles per day: Long haul truckers can legally drive up  to 11 hrs, or about 700 miles per day. The average is closer to 475 miles per day which factors in loading and unloading time. When drivers are on the open road, the average is likely 650 miles, which means the 500m range of the Tesla Semi may not be enough for many drivers until the high speed charging network is fully built out.
  • Annual fuel and maintenance: Estimated to be $110K which includes fuel ($82k), insurance, taxes, tolls, licensing, permits, tires and maintenance.

The current market leaders:

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Tesla
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Cook’s Crisis Management Superpower

Cook’s Crisis Management Superpower

Tim Cook knows that the art of diplomacy is letting someone else have their way.

Recently, Elon Musk declared war on Apple over App Store fees and content moderation. In 2021, the company faced similar pressure in a case against Epic Games which landed in Apple’s favor for 9 of the 10 counts. The more recent case of Musk v. Apple took place in the court of public opinion—an arena where Musk excels. It looked like Musk and Cook were on a collision course, with Apple having more to lose than a Twitter account. In the end, Cook put on a masterclass in crisis management which appears to have won over Elon and cooled tensions between the two companies.

What was at stake?

For Twitter: There is little at stake. Musk suggested that Apple considered banning the Twitter app on the App Store. About half of US-based Twitter users are on the iPhone, so a ban would be a significant headwind for Twitter’s business. The reality is that risk was viable since Apple was not considering a Twitter ban.

For Apple: There was more at stake. Musk’s influence now reaches into Washington, a city that big tech wants to avoid. Over the past two years, the largest US tech companies have been summoned by Capital Hill to answer questions about anticompetitive behavior. While little has come out of those hearings so far, the threat of Congress breaking up some of these companies still lingers. Musk declaring war on Apple could act as the catalyst that brings Apple back into the bullseye of government regulation.

Cook has been here before

I’ve watched Tim Cook navigate crises over the past decade. Some more notable recent episodes include:

  • 2016: Apple’s role in privacy is tested with the request to unlock San Bernardino shooter’s iPhone. Cook writes a letter to customers outlining his views on privacy.
  • 2018 & 2019: Rising tariffs in China could be a pitfall for Apple products. Cook meets with President Donald Trump five times in a year to solidify a path were Apple is not subject to the tariffs.
  • 2020: Pressure builds for Apple to impose changes to App Store pricing. Cook decides to lower the take rate for small developers.
  • 2021: Covid restrictions in China highlight the geopolitical risk to Apple’s supply chain. Cook quickens the pace of moving manufacturing to outside of China.
  • 2022: Musk declares war on Apple over App Store policies. Cook meets with Musk to ease the tensions.

Masterclass with Tim Cook

Cook’s ability to manage times of crisis is one of his superpowers. His playbook is simple: attack the problem and be flexible.

  • Attack mode: In theory, it’s easy to say “move fast” to fix an issue. In practice, it’s hard because the first instinct of most is to avoid conflict. Embracing conflict to improve the odds of success has been in Cook’s DNA since he first rebuilt Apple’s operations from 2000-2010.
  • Be flexible: I’ve observed Cook’s open-minded approach to negotiation. For example, early in 2018, when President Trump suggested that Apple products would be subject to rising tariffs, Cook met with the president and likely revealed that Apple was ready to accelerate its investment in the US. It was a win for President Trump and a win for Apple to avoid the tariff blacklist. In 2020, Cook read the room around developer frustration on App Store fees and quickly moved to reduce them for smaller developers. And, most recently, Cook’s meeting with Musk likely followed assurance that Twitter would safely remain in the App Store despite the lack of content moderation clarity on Twitter. What’s genius about Cook’s flexibility? All of the things he “gave” on were in the best interest of Apple.

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Apple, Tesla
3 min. read Show less
Battery 101: The Beneficiaries of Electrification

Battery 101: The Beneficiaries of Electrification

In the final segment of our Battery 101 series, we highlight the companies best positioned to benefit from the electrification of everything. While we have identified around 20 companies that are well capitalized and targeting the battery space, we see one to two key companies in each of the three categories of electrification: mining, materials and manufacturing.

Miners: 

Livent (NYSE: LTHM) Livent has been in the lithium mining and refinement business for 80 years. The company went public in 2018 and has a market cap around $5B. Livent is headquartered in the US, and mines lithium in Fénix, Argentina. The lithium is shipped to five refining facilities in the US, UK, Argentina, China and India. In 2022, the company opened its North Carolina facility for lithium refinement. Revenue is expected to almost double in 2022 and consensus expectations are for 33% growth in 2023, inline with the growth of the broader EV market. 

Most appealing about the Livent opportunity is that it’s the largest lithium mining company with a US-based management team which reduces its geopolitical risk. While 65% of last year’s revenue came from China buyers, Livent is working to diversify away from China to buyers within the US and Western Europe.

Materials:

Redwood Materials (private)Founded by JB Straubel, co-founder and former CTO of Tesla, Redwood Materials has maintained a relatively low profile when it comes to the discussion of next-generation foundational tech companies. The business model is unique: The company recycles batteries and extracts metals like lithium, cobalt and nickel. Next, Redwood uses those metals to manufacture new cathodes and anodes, which are sold in turn to battery manufacturers for the production of new battery cells. Recently, Redwood announced a deal to supply Panasonic with nickel cathodes. The company also has partnerships with Toyota, Volkswagen and Audi to recycle their EV batteries. Redwood has raised $792 million in funding and was valued at around $3.7B in September of 2021.

Most appealing about Redwood is their ability to recycle old batteries (low input costs) into the most expensive components of a new battery (higher margins). JB Straubel is one of the world’s most well-regarded battery experts, and the company is focused on supplying the most important components of batteries to manufactures within the US and Western Europe.

Manufacturers:

LG Energy Solutions (ticker: 373220-KR) A subsidiary of LG Chem, LG Energy is a Korean manufacturer of batteries that are sold to end customers like automakers. The company is the second largest EV battery maker, with about 15% global share, behind China’s CATL 35% share. LG recently announced a joint venture with Honda to invest $4.4B toward battery production within the US, where lithium battery production will begin in 2025.

Panasonic (ticker: PCRFY) The Japanese company is the fourth largest EV battery maker with about 10% global share. Panasonic is building a new $4B factory in Kansas which will which will begin to produce lithium batteries in 2025.

Most appealing about LG Energy and Panasonic is that they understand how to turn a profit by making EV batteries at scale and are expanding manufacturing capacity within the US. Both companies are based in countries with favorable ties to the West.

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Themes
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