The Addressable Market for Cybertruck shows why it’s Day 1 for Tesla πŸ“πŸ”πŸ—

Let’s take a look at the top 20 best selling vehicle models in the United States in 2018. Notice anything about what kind of cars are selling?

North America loves Trucks & SUVs

The first thing that sticks out to me is that the best selling cars are all pickup trucks and SUVs. As much as people talk about Tesla’s advanced technology or how fast they’ve grown, the truth is they haven’t even really shown up to the party. In the most popular vehicle categories, Tesla isn’t even competing yet.

This makes sense, if you think about Tesla’s history. To build a zero-emissions vehicle you have to be able to store all the energy you need in the battery. To move a bigger vehicle, you need a bigger more expensive battery. That means it was a lot easier to make a sedan with good range at an affordable price than bigger models like SUVs, CUVs and Pickup trucks. This is why the Model X and Model Y have slightly less range than their sedan counterparts.

But now, battery technology has advanced to the point that Tesla can start expanding it’s product lineup to cover all existing vehicle segments. With Model S, Model X, and Model 3 Tesla quickly became one of the best selling vehicles in it’s class. If you thought that growth was amazing… wait until you see what happens when Tesla starts competing in every vehicle segment consumers care about.

The Great Chicken War: Why do Americans want Trucks and SUVs?

I’m so glad you asked –– this is where the story gets good, so grab your popcorn. 🍿

Well, believe it or not it all dates back to 1961 when the Germans and French decided they were tired of chicken –– American chicken at least. They put very high tariffs on imports of US chicken, which hit chicken farmers hard. This period from 1961 – 1964 of tensions related to chicken are known as “the chicken wars”.

President Lyndon Johnson did not like this one bit. “You’ll eat our chicken and you’ll like it!!!” he tweeted angrily from the toilet one morning as he announced a retaliatory 25% tariff on imports of foreign light trucks. (This is how trade negotiations work, right?) Would you be surprised if I told you this “chicken tax” is still US law to this day?

So what does the Germans and French not wanting our chicken have to do with the Tesla Cybertruck? Well, for one thing it means that the Big 3 Detroit Automakers have been insulated from foreign competition for over 50 years. This is the problem with tariffs. They protect companies by coddling and babying them with an unfair competitive advantage. But when the competition inevitably arrives… the incumbents have long since gone stale and forgotten how to compete.

That’s exactly what happened to the market for pickup trucks. Automakers have gotten very comfortable with this very profitable segment. If you don’t believe me, just look at the fuel economy.

Competition Keeps Things Clean

Over the years, more fuel-efficient cars from places like Japan forced US auto makers to make their cars cleaner too. US regulators saw these new fuel efficient cars, and passed tougher fuel economy standards so all car makers were forced to make sure their cars didn’t pollute the air too much.

That didn’t happen with trucks. Because the US pickup truck market was blocked from foreign competition with a 25% tariff, Detroit didn’t have to compete with fuel-efficient pickup models made in Japan.

That’s because the US Government’s Corporate Average Fuel Economy (CAFE) standards specify different pollution standards for “light trucks” compared to other cars.

Don’t want your car to have to follow strict pollution standards? Just call it a truck.

Fuel Economy Standards Changed the Car Market

Once the US government started setting limits on how much your car could pollute, and what kind of efficiency standards it needed to achieve, people started making different cars.

The station wagon gave way to the minivan, which is categorized as a light truck instead of a passenger vehicle. Eventually this lead to the rise of the SUV too.

Since pickups didn’t have to follow the same fuel economy standards, they slowly started to replace muscle cars as the performance vehicle of choice. Supposedly this power was needed to haul large loads, but it is also just fun for 85% of pickup drivers who don’t use their cars for work.

In 1978 the US introduced a new “gas guzzler” tax –– but pickup trucks were exempted from the tax! Again and again, regulations and taxes pushed people towards inefficient higher-polluting trucks because legacy auto wasn’t allowed to build cars that were so inefficient. Remember, figuring out how to make cars that don’t release emissions is complicated and expensive. More expensive means it’s harder to sell to the consumer, who can’t really tell that it’s cleaner. It’s a hard sell.

Furthermore until 1999 light trucks were not required to meet the same safety standards as cars, further reducing the cost relative to other cars.

A match made in heaven combined with a perfect storm

When you look at the history, your head really starts to spin thinking about what the potential for this product could be. The stars are really aligned in Tesla’s favor.

Domestic pickup trucks have been protected for half a century from competition from the outside. Let’s see how they fare against their first competition in 55 years.

This has made pickups some of the least efficient cars on the market. I wonder how new hyper efficient zero emissions competition from Tesla will do?

Finally, lower standards have attracted drivers who want performance. I’m not sure about this, but I’ve heard Tesla does well at that too.

Of course, the same chicken tax tariffs that have protected legacy auto for decades will also protect Tesla when the Cybertruck comes to market.

Living like an American

While Ford sells more than 1 million F-150 in North America alone, you’d have a hard time finding one in Europe or Japan. That’s because of smaller streets and tougher fuel economy standards.

But guess what? The Cybertruck won’t be a big polluter –– it’s a zero emissions vehicle. And I’m willing to bet Tesla designed it to be a big seller all around the world –– not just in the US.

The US market is of course extremely important. It’s currently Tesla’s biggest market, because it’s easier to sell cars at an affordable price when you don’t have to ship them to another country (not to mention tariffs).

But I think the Cybertruck will do much better internationally than most other US pickup trucks. People around the world love American culture –– they watch American movies, and listen to American music, and many would love to drive an American truck… if they were allowed to. They haven’t been before. What will demand be like when they can?

I’ve heard from many people who would never have considered a pickup truck (in the US & Abroad) saying they’re very interested in Cybertruck. 1 million F-150 and half a million RAM trucks might seem like a lot… but is it possible demand for Cybertruck could be even larger?

Will it be competitive on price?

We know that Cybertruck is going to have a starting price of around $50,000. Compared to an F-150, I saved around $12,000 driving 44,300 miles in my Model 3 over the last 18 months. In other words, if you’re planning to use your truck much, it’s going to be an equal or lesser total cost of ownership than any competition from Ford. Remember, over 40% of F-150 sales have an ASP over $40,000.

How much revenue are we talking?

In the worst case scenario, let’s say long term demand for Cybertruck in the US is about 500,000 units a year. Tesla will sell between 360,000 – 400,000 cars in 2019, and around 500,000 in 2020. Even in the worst case scenario, half a million Cybertrucks a year is still enormous relative to Tesla’s total production today.

In the medium and extraordinary case, I could imagine 1 million – 2 million units of Cybertruck sold a year. Sounds crazy right? But why not?

It will be dramatically cheaper to operate and fuel. It will require far less maintenance. It will launch with a mature Autopilot stack. And it will enter the biggest vehicle segment in the US, and create segments that haven’t existed abroad.

This is exciting stuff. I’ll close with some napkin math:

In the last 12 months, Tesla generated $25 billion in revenue.

Half a million Cybertrucks at $50k each = … $25B in revenue

1 Million Cybertrucks at $50k each = $50B in revenue

2 Million Cybertrucks at $50k each = $100B in revenue

And the average selling price will obviously be much higher than $50k… probably $60k or $70k. It will be at least $50k.

In other words, this is Day 1 for Tesla. The electric vehicle revolution has just begun. Hold onto your butts shawties. It’s gonna be a bumpy ride.

6 thoughts on “The Addressable Market for Cybertruck shows why it’s Day 1 for Tesla πŸ“πŸ”πŸ—

  1. I think you are being way too optimistic here.

    First, regarding US market: while pickup trucks are the undisputed profit centres, and occupy the top spots in sales charts, the latter fact is only because there are so few models to choose from: in total sales, pickup trucks are actually well below even the battered sedans. And Model 3 seems to be sucking up sales from across pretty much all sedan segments — so I don’t expect the Cybertruck to get a larger portion of the pickup truck segment… Which means US Cybertruck sales will almost certainly be below Model 3.

    As for non-US markets, you laid out very nicely how the American love of pickup trucks is an anomaly created by very special circumstances. By the same logic, there is no reason to believe the rest of the world will suddenly fall in love with them as well, just because it becomes *slightly* easier to own them…

    Note that it’s not just about fuel economy. Just to mention one data point: according to official statistics, SUVs are three times(!) more likely to kill pedestrians in an accident than normal cars — and while I have no numbers for pickup trucks, no doubt they are even worse.

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