Tesla could transform the trucking business - and capitalize on high diesel prices

By William Gavin

The EV maker aims to finally kick its long-awaited Semi truck into high gear - unlocking a potentially huge opportunity, according to Morgan Stanley

Tesla's all-electric Semi is the company's ticket to becoming a winner in autonomous trucking, analysts say.

Diesel prices have reached a new record, likely making everything from grocery shopping to commuting to work more expensive. But for Tesla, that price spike represents an opportunity.

Tesla (TSLA) is ramping up the Semi - a fully electric, heavy-duty semi truck that was introduced in late 2017 and began rolling off a high-volume production line in April. CEO Elon Musk has also said Tesla will aim to offer self-driving Tesla Semis by 2027.

Morgan Stanley analyst Andrew Percoco wrote on Friday that he long believed Tesla was a "potential wildcard in the competitive landscape" of autonomous trucks. Now, the company is becoming a "credible emerging competitor," he said.

Tesla plans to host an inauguration event on Sept. 24 for the Nevada facility that had previously outlined a production target of 50,000 Semis per year. The vehicle has attracted orders from several major companies, including Walmart (WMT), PepsiCo (PEP) and Einride (ENRD), with the latter aiming to deploy 500 Semis.

Autonomous trucking could be a boon for the freight industry, thanks to a combination of lower labor costs and less fuel waste. Diesel costs are on the rise - reaching a new peak of $6 per gallon, on average, in the U.S. this week, according to AAA.

Percoco said that an autonomous fleet could be between six and eight times as profitable as a human-driven fleet. The "most important takeaway" for Tesla investors is what the company can make off its autonomous software, he noted. Tesla sells its Full Self-Driving advanced driver-assistance system to customers as a monthly subscription.

The analyst estimated that Tesla could generate between $12,000 and $18,000 per month for each vehicle, basing that figure off a subscription fee and an assumed amount of miles driven per month. By 2040, that could represent a $17 billion stream of software revenue, Percoco added, assuming that Tesla accounts for 13.5% of the market.

"Tesla Semi represents an underappreciated driver of earnings growth through 2040," he wrote.

Percoco, who is neutral on Tesla's stock, said his expectations for the Semi led him to raise the price target for his Tesla bull case to $840, from $820. His $400 base price target was left untouched.

Tesla's stock inched slightly higher in recent action on Friday, to trade at around $365 a share.

There are a few caveats. In a separate note to clients, Morgan Stanley analyst Ravi Shanker warned that while autonomous trucking is "more real than ever," it's also still just a "promise" until commercial production ramps up in 2027. Most of the vehicles currently on the road, even those generating revenue, are still basically prototypes, he added.

Tesla has also put the Semi's self-driving software on the back burner as it focuses on the newly deployed Cybercab and its other vehicles. Musk told investors in July he doesn't want the Semi to "be a distraction" over the next several months.

Morgan Stanley also sees Aurora Innovation (AUR) and Kodiak AI (KDK) as potential autonomous-trucking winners. The firm expects Aurora to control 22.5% of the autonomous-vehicle market by 2040, while Kodiak would have an estimated 8.8% share.

Shanker raised his price target on Aurora's stock to $18 from $14, and initiated coverage on Kodiak's stock with a $9 price target. Morgan Stanley has a buy rating on Aurora's stock and the equivalent of a neutral rating on Kodiak's.

Aurora shares were up nearly 3% in recent trading on Friday, while Kodiak shares gained more than 3%.

-William Gavin

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