Tesla’s latest EV will fill up on subsidies

Do people buy Teslas because they are cool or because they are efficient? The answer matters for the rollout of the electric-vehicle maker’s heavy-duty truck.

The company’s latest product is a Class-8 electric big rig. It will be competing in a very different market to the one for passenger cars that Tesla is used to. Truck buyers normally choose products following rigorous "total cost of ownership" calculations that combine the vehicle price with estimates of running expenses. There isn’t much room for branding and aesthetics in the low-margin logistics business.

Tesla must know this, but that hasn’t stopped it promoting its Semi as if it were a consumer product. "If you’re a trucker and you want the most badass rig on the road, this is it," said Chief Executive Elon Musk at a launch event last week. The first performance detail of the Semi you come across on the company’s website is its acceleration—not something corporate fleet buyers traditionally care about.

There may be method in this apparent madness: Truck drivers in the U.S. are in short supply, and a truck with an easy-to-drive electric powertrain and consumer appeal just might help companies recruit. But Tesla still needs to tick the total cost of ownership box, and electric big-rigs are even harder to make add up financially than electric sedans, given the inherent inefficiency of heavier, more powerful EVs.

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When it first revealed the Semi five years ago, the company said the vehicle would cost $150,000 for a version with a 300-mile range and $180,000 for a 500-mile version. At the time, a combustion-engine Class-8 truck would have cost roughly $120,000, with lower running costs expected to make up the difference. But Tesla hasn’t updated those prices, and both its passenger cars and the average diesel truck have gotten more expensive amid pandemic-era parts shortages.

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In the absence of fresh purchase prices, a more useful way to compare the two technologies is to look at the cost of the battery, which is the key additional component in an EV. Tesla still advertises a 500-mile range for its Semi, and Mr. Musk said on Twitter Friday that its battery used 1.7 kilowatt-hours of stored power per mile, implying a gargantuan 850 kilowatt-hour battery overall. Consulting firm BloombergNEF’s annual survey of battery prices, published Tuesday, found a cost of roughly $151 a kilowatt-hour this year, including the battery pack. Add all this together and the cost of the Semi’s battery would come in at well over $100,000.

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Even with the lower running costs of EVs, such calculations may explain why Tesla’s Semi project was stalled for so long. It was only in August, when President Biden’s Inflation Reduction Act was approaching ratification, that Mr. Musk announced the start of Semi shipments this month. Beginning in January, businesses will be able to claim a tax credit of up to $40,000 to bring the purchase price of an electric medium or heavy-duty truck in line with a combustion-engine equivalent.

California, where Tesla is making its first deliveries to PepsiCo, offers additional subsidies to trucking companies that buy electric. State-level incentives will likely remain necessary on top of Washington’s tax breaks to narrow the cost gap, according to one incumbent truck manufacturer.

Shorter-range trucks will also be easier to justify than 500-mile ones. Tesla’s Semi will compete with rival products that typically have smaller batteries: The latest version of Volvo’s flagship VNR Electric boasts a range of 275 miles with a 565 kilowatt-hour battery, for example. The 500-mile version of the Semi, which Tesla tested on a drive from its Fremont, Calif., base to a PepsiCo bottling factory in Lakeside, near San Diego, made a nice publicity stunt, but a cheaper 300-mile version, or smaller, is probably where the market is.

There is plenty of work for Class-8 trucks to do at shorter ranges, particularly in Europe. Johan Larsson, head of heavy-electric-truck business development in Europe for Volvo, points out that 45% of all the goods transported on European roads travel less than 300 kilometers, or about 186 miles.

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There is a place for electric big rigs, but it is one constrained for now by the need for large subsidies and small distances. Tesla’s cool factor won’t take the Semi very far.