Tesla’s announcement of an electric semi-truck is a big deal – not only does it have the potential to disrupt one the nation’s largest industries, but it marks another leap forward in making Tesla’s grand vision a reality. That said, we caution that it will take years for the Tesla Semi to come to market.

Based on Tesla’s history, the most logical go-to-market approach would be staggered: Within about 3 years, Tesla could target short haul trucking (think of UPS or Fedex trucks that return to a depot to be charged at night). Then in about 5 years, Tesla could target long haul trucking, and, in 6-10 years, offer a fleet of trucks as a service. We expect the Oct 26th event will be short on details (we don’t expect details on pricing or  delivery date) and long on the opportunity. That opportunity is ripe for Tesla’s taking, considering legacy truck manufacturers’ past struggles with innovation.

In his 2016 memo, Master Plan, Part Deux, Musk elaborates on this vision (which we detail here) and explains Tesla’s ambition to “expand to cover the major forms of terrestrial transport.” This includes heavy-duty trucks and high passenger-density urban transport, among others. By electrifying more forms of transportation (roughly 30% of our energy consumption), Tesla would advance their vision of accelerating the world’s transition to sustainable energy. Although many of the details surrounding the truck have yet to surface, the implications are clear – and they are widespread.

The trucking industry is downright massive. Upending an industry with such deep roots that touches a sizable portion of our economic activity is not a simple or a swift process, but its core elements are ripe for today’s disruptive forces. Let’s put the industry into perspective:

• Trucks move roughly 70% of the nation’s freight by weight, and 82% of it by value.
• It takes 54.3 billion gallons of fuel to move this freight each year.
• It employs 7.3 million people, 6% of the U.S. working population, or 1 in 17 workers.
• Truck driver is the most common profession in 29 of 50 states.
• As of 2016 there were 1.5 million trucking companies in the country, 97% of which operate fewer than 20 trucks.

sources: American Trucking Association, Trucker Path

All of this equates to a massive logistics operation that is optimized down to details like tire pressure. As former GM vice chairman, Bob Lutz says, “these are people that operate by spreadsheets,” and the cost savings attainable with electrification and autonomy are too large to ignore. Fuel and driver labor make up 65% of the per mile cost of moving goods on wheels, so discounts on both fronts could have a measurable effect even on the end cost of goods.

Can Tesla pull it off? With concerns mounting about Tesla meeting its existing demand with limited manufacturing volume, many criticize the company for overextending into distracting business lines like energy storage and semi-trucks. Remember that this has been on Tesla’s to-do list since the beginning, and that this vehicle will likely not be commercially available for several years, by which time their manufacturing output will be formidable. Not to mention, Musk says the semi will be made mostly from Model 3 parts.

Further, critics of electric trucking point to range as its number one shortcoming. However, almost a third of all trips made by semi-trucks are regional outings within 100 to 200 miles. In other words, Tesla’s truck doesn’t have to go very far to access a huge market. After working closely with the trucking industry during the design process, Musk said, “they already know that it’s going to meet their needs, because they’ve told us what those needs are. So it’ll really just be a question of scaling volume to make as many as we can.”

Don’t count Tesla out of true long-haul trucking, though. While a traditional truck can travel over 1,000 miles on a single tank of diesel, the combination of electric and autonomous trucking could change routes and infrastructure if it gains traction. Tesla has filed a patent for a battery swapping mechanism that could cut recharging time well under that of filling up 300 gallons of fuel. They have also expressed interest in platooning, where autonomous trucks are synced together drafting a lead vehicle which, in addition to being safer, can also improve range.

Electric offers better performance. Medium and heavy-duty trucks account for about a quarter of all greenhouse gas emissions in the transportation sector today. Electric rigs will not only cut down drastically on emissions, but power from the grid is also cheaper (not factoring in any of Tesla’s future goals concerning energy). Furthermore, electric trucks are far more powerful than their traditional diesel counterparts. This is due to the flat torque RPM curve delivered by an electric powertrain, which offers much quicker, smoother acceleration and eliminates the need for slow and cumbersome 10 or 12-speed transmissions used today. In a recent interview, Musk said, “if you had a tug of war competition, the Tesla semi will tug the diesel semi uphill.”

The larger, longer-term opportunity is autonomy. We have written at length in the past about self-driving cars for human transport, but autonomy will not stop there. Long-haul trips on straight interstate highways – this is the low-hanging fruit of autonomous vehicles. If Tesla succeeds in enabling these trucks to drive themselves, it is easy to imagine a future where other vehicles like busses, delivery trucks, or waste collectors operate autonomously, opening up a substantial market opportunity. Trucking routes and charger networks could transform as autonomous platoons move goods faster and cheaper than ever before. Thousands of small trucking companies with fixed routes could be replaced by fleets of on-demand autonomous semis. Removing the driver also increases safety as semi trucks, while only representing 1% of traffic are involved in over 10% of fatal accidents. With a semi truck several years away and fully autonomous trucking even further down the road, the concept may seem like a dream for Tesla – but we would urge caution in betting against Musk and Co. in turning those dreams into reality.

Special Thanks to Will Thompson for his work on this note.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.