Tesla’s Truck Turns the Tables on Big Auto

The Tesla “Cyber Truck” will make or break the American auto industry and the fossil fuel industry.

Tesla is known for groundbreaking products, but the introduction of the “Cybertruck”, a vehicle that will be unveiled today, is an incursion onto decidedly unfriendly soil. The product comes with huge risk, but if successful, the Tesla truck will forever change the face of the auto industry.

Until now, Tesla has competed in vehicle segments in a very logical fashion. Indeed, unlike all other automakers who have jumped into electric vehicles, Tesla chose to start at the top of the market and work downward. In Tesla’s early years, Elon Musk, CEO, reasoned that electric vehicle technology was simply too expensive to make a reasonably priced vehicle possible. The technology would have to be improved and costs cut over time, much like how the cost of digital cameras dropped while their capabilities improved in the early 2000s.

While other automakers were trying to cram early and expensive battery technology into compacts and selling them at $40k a pop, Tesla introduced the high-end Roadster at $109k. People simple don’t spend $40k for a Focus with 80 miles of range, but they do spend $109k for a Ferrari. This is an approach that makes so much intuitive sense that it is difficult to understand why Tesla’s competitors, until the last year or so, continued to try selling overpriced compacts.

Expect GM, Ford, the UAW, Big Oil, and the dealership networks who despise Tesla to come out with guns blazing as Tesla threatens that last safe vestige of their outmoded domains.

Tesla continued down this path with the Model S and Model X, which were the first truly practical electric cars to hit the market. They received five star safety ratings, could carry five adults comfortably, had fast charging ability, and marketed at a price much lower than the Roadster at a (still expensive) ~$75k+. But again, the Model S/X were competing with other luxury cars in this segment from Audi, Porche, and BMW, so the high price of the batteries didn’t inhibit their success.

The Tesla Model 3 and Model Y represent another milestone on the path to affordable and sustainable transport. I have written about the importance of the Model Y here. These are cars that build on the experience and technology introduced with the Roadster, refined on the S/X, and perfected with the 3/Y. Indeed, the technology has matured enough and reached economies of scale such that these are also cars that are cheap enough for most of the population can afford them.

The Tesla Truck, however, is venturing into unfriendly territory, both in terms of the consumers who buy them and the companies that make them. For this reason, Tesla may be facing its greatest challenge yet. The blue-collar demographic that buys pickup trucks has traditionally scoffed and ridiculed these electric “golf carts.” Tesla faces an uphill battle in prying away customers loyal to their F-150s and big gas guzzling engines. They have to do this while convincing customers that electric vehicles have the power and endurance comparable to the trucks that they are used to.

The question we need to ask ourselves is if engineers in Silicon Valley will be able to understand the wants and needs of the plumber in Michigan.

Tesla faces another battle as well: against an unhappy GM and Ford. Pickup trucks are now the “big 2's” bread and butter. Pickup truck imports into the United States, as it happens, face a 25% import tariff, unlike regular cars which have a 2.5% tariff. This is one of the reasons why GM and Ford have such success in the truck market…competition is suppressed. These tariffs also make trucks highly profitable. The same reason that Tesla is attracted to making trucks in the first place (profit margins) is also the same reason Detroit is certain to pull out all the stops in defending their dominance.

Tesla’s entrance into this market segment is an existential threat for the Big 2 automakers. GM and Ford, once shining examples of American innovation and efficiency, are in retreat from the global marketplace. GM and Ford have exited from Europe, have virtually no presence in the major markets of Japan and Korea, they have a dwindling presence in South America and a precarious existence in China (not least of which is due to the ongoing trade war). Recently, in fact, GM and Ford stopped producing all sedans and smaller vehicles, leaving them dependent almost exclusively on SUV and truck sales in North America and China. If one (or both) of these markets face a new and successful entrant, like Tesla, then the very survival of Ford or GM could once again be in question.

Expect GM, Ford, the UAW, Big Oil, and the dealership networks who despise Tesla to come out with guns blazing as Tesla threatens that last safe vestige of their outmoded domains.

This is, of course, only true if the Tesla truck succeeds. I have no doubt that Tesla will produce a great vehicle. The question we need to ask ourselves is if engineers in Silicon Valley will be able to understand the wants and needs of the plumber in Michigan. If Tesla fails to convince truckers to give up their Superdutys, the Tesla Truck could end up a spectacular failure. If it succeeds, then Tesla will have certainly turned the tables on the traditional auto industry as we know it.

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