Tesla: the new king of the road?

Jonathan Wright
Jonathan Wright
Fidelity Personal Investing17 November 2017

In this current age of disruption, Elon Musk, the electric vehicle pioneer and head of Tesla motors, has boldly ventured into another new territory - the world of road haulage. The company has unveiled its first electric articulated lorry, designed to challenge the diesel truck as the new king of the road.

You’ve got to hand it to Elon Musk, he knows how to wow an audience. As journalists and investors gathered for the launch of the new Tesla ‘Semi’, they probably weren’t too surprised to see the entrepreneur jumping out of a streamlined, futuristic truck to promote its virtues.

However they were stunned when a shiny red sports car was driven out of the truck’s trailer. According to Elon Musk, the new Tesla roadster will be the “fastest production car ever made, period.”

Both vehicles represent a new attack on the internal combustion engine, but more significantly the truck, which will have a range of 800km when it goes into production towards the end of 2019. As 80% of routes driven by freight trucks are fewer than 400km Tesla can certainly see a new market to disrupt. It’s the next step in Elon Musk’s mission to move the world away from fossil fuels through projects including electric cars, solar roofs and power storage.

As with its other vehicles, Tesla is trying to out-innovate its rivals on design and safety as well as engine technology. The new truck uses cameras instead of wing mirrors and features an autopilot function to keep it in lane. This means if the driver has a medical emergency the truck will stay in lane, gradually slow down to a halt and call the emergency services automatically. While it’s not self-driving it’s a stage further towards driverless lorries.

It makes sense to see why Tesla is targeting road haulage. Several tech companies see long-haul trucking as a prime early market for self-driving technology, citing the relatively consistent speeds and little cross-traffic trucks face on the American highways and the benefits of allowing drivers to rest while the trucks travel. But that’s still some way off in the future, but perhaps not as far as we may think.

It’s not been a great few months for Elon Musk as Tesla has been struggling with profitability as it deals with production bottlenecks and low output. The mass-market Model 3 is behind schedule due to factory delays which Mr Musk has described recently as “production hell”. While his followers may be applauding this admirable new move into road haulage, some investors may be more cautiously optimistic on how the company will deliver on its ambitions.

Meanwhile Volkswagen Group, keen to put their diesel emission scandal behind them and flourish in the growing Chinese market, announced yesterday it plans to spend 10 billion euros by 2025 to develop and manufacture all-electric and plug-in hybrid vehicles. These cars will comply with China’s upcoming stringent pollution rules, as the country battles with smog in its key cities. It’s safe to say that the future of transportation is going to be electric.

Yet this comes at a time when the United States is expected to account for more than 80% of the increase in global oil production in the next 10 years and will produce 30% more gas than Russia by that time, the International Energy Agency (IEA) said on Thursday.

At a UN climate conference in Bonn, IEA head Faith Birol said the growing influence of the US “has implications on the oil markets, prices, trade flows, investment trends and the geopolitics of energy” and the US would become the “undisputed leader of oil and gas production worldwide” thanks to the development of fracking technology.

The US will be a key battle ground between innovative, more environmentally-friendly electric technology versus established fossil fuels, already employing thousands of Americans and generating large tax revenues.

Norway on the other hand is considering its dependence on oil. Yesterday Norway’s $1 trillion sovereign wealth fund said it was proposing dropping oil stocks from the fund, given the country’s own oil revenue through its stake in the state-backed company Statoil. While the Norwegian central bank which runs the fund said the view was not based on any prediction of future oil and gas commodity prices or the sustainability of the sector, the move would make the country’s wealth “less vulnerable to a permanent drop in oil and gas prices”. The proposal which needs to be approved by the Norwegian government and parliament, will be closely watched by investors as around 6% of the fund is invested in oil and gas stocks.

The world is certainly changing at a fast pace. Next Friday is Black Friday, a term we’d never heard of a couple of years ago until Amazon disrupted how we shop. The arrival of electric, perhaps one-day fully driver-less vehicles will be a game changer and as investors we need to stay ahead of the game. Traditional car companies and big oil will be eyeing Tesla’s moves very carefully.

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