The Tesla Cybertruck And Its Impact On Pickup Trucks Everywhere

The Tesla Cybertruck has officially been unveiled, and it is a beast of a truck (aside from a couple broken windows). There’s really no good comparison for the design of the Cybertruck, but to me it looks like it’s part-war tank, part-Lamborghini Aventador, and nothing at all like any of Tesla’s previous vehicles.

For my first impressions, check out the video below.

For a deeper analysis of the Cybertruck and Tesla’s pickup truck opportunity, keep reading.

 

There are 3 trim levels being built, and their full specs are listed below.

Tesla Cybertruck Specs

Impressive specs to say the least, but that’s almost expected anytime Elon Musk gets on stage to reveal a Tesla product. To really understand how this truck might fit into the pickup truck market, let’s take a look at how the Cybertruck compares to existing pickup trucks, Tesla’s potential market size for the vehicle, and the emerging EV truck competition they might face.

Tesla Cybertruck Competition (Today)

There is nothing quite like the Tesla Cybertruck on the roads today. It truly is in a class of its own, and that’s a double-edged sword for the company. On the one hand, this truck will make people stop and stare everywhere it goes. On the other hand, it’s too early to tell if those stares will ever turn into vehicle sales. The Cybertruck is so far from the norm that there really is no precedent for something like it.

But despite the unique design, the product is a true pickup truck without compromise. So it’s important to first understand the pickup truck market before we think about how Tesla’s Cybertruck might steal market share.

The first thing you must know about pickup trucks is that they’re are a vehicle designed for North American life. And more specifically, life in rural areas of the US and Canada. Low fuel costs, wide roads, and an abundance of rough terrain makes them the most effective way to get around and haul tools, equipment, and basically anything else.

The second thing you need to know is that the pickup truck market isn’t nearly as fragmented as the car market. The top 3 pickup trucks account for 66% of America’s total pickup truck sales, while the top 3 car models in the US account for just 12.7% of overall car sales. Disrupting the top 3 pickup trucks means unlocking a massive market worth over $100 billion per year.

So it makes sense that Tesla takes a swing at the trucking industry. There is so much upside in trying to build a revolutionary truck in a market with only 3 major players. But before we get into Tesla’s market size and potential, let’s look at key specs for Tesla’s Cybertruck competition. The Ford F-150, the Chevy Silverado, and the RAM.

 

Tesla Cybertruck Competition

Understanding The Pickup Truck Market

While spec sheets are useful as a rule of thumb, and Tesla looks great on the spec sheet above, spec sheets aren’t everything. First, the Cybertruck isn’t even in production yet, so we must take those figures with a grain of salt. And second, pickup trucks aren’t as easy to compare as cars.

Imagine a spec comparison of fast cars like the Tesla Roadster and the Porsche Taycan. The entire purpose of those cars is to go fast, making them easy to compare. Once you know their 0-60 times and top speeds, you’ve got a pretty good idea of how the cars perform.

But the complexity of pickup trucks can’t be reduced down to a single metric like horsepower, or towing capacity. Pickup trucks serve a wide variety of customers, and they need to perform a wide variety of tasks.

Some truck owners use their trucks to haul their boat to their cottage. Others use their truck to support their small business. Others still may be moving heavy equipment, construction materials, or natural resources like dirt and gravel. All of these use cases require trucks with different features and strengths.

Two Ways To Win Truck Customers

Since truck owners have such wide variations in their feature requirements, the obvious solution for manufacturers has been to produce lots of different truck variations. That’s exactly how the big 3 truck makers are solving this problem today.

Let’s look at RAM trucks as an example.

There are 5 different RAM truck models available today. The RAM 1500, the RAM 1500 Classic, the RAM 2500, the RAM 3500, and the RAM Chassis Cab.

But each of those models consists of many more trim levels. There are 8 different trim levels of RAM 1500 trucks on Dodge’s website. There are also 6 more RAM 1500 Classic trims, 8 more RAM 2500 trims, 7 more RAM 3500 trims, and 16 RAM Chassis Cab trim levels. That’s 45 different truck variations that RAM must build. These models have different body panels, different engines, and even different platforms. And that still doesn’t even consider all the additional features and upgrades that customers can add to their vehicles.

Ford and Chevrolet are tackling the wide spectrum of trucker demands in the same way. There are 25 F-Series trim levels available today, and 14 trim levels of Silverado trucks.

An Alternative Solution

But Tesla doesn’t play that game. One of the biggest learnings from Tesla’s Model 3 ‘production hell’ was that fewer car variations meant more efficient manufacturing. This isn’t a particularly new idea, but it’s a major shift in product design for the auto industry.

Today Tesla only sells 2 versions of the Model S, 2 versions of the Model X, and 4 versions of the Model 3 (only 3 available online). And last night Elon Musk revealed there will be only 3 Cybertruck models as well. This will give Tesla a major leg up in manufacturing efficiency.

Of course, fewer truck variations comes with its own set of challenges too. To get away with just 3 trim levels for the Cybertruck, the vehicle must be functional enough to fit the needs of all sorts of customers. The exact same vehicle must get the job done for the landscaper, the plumber, and the weekend adventurer. Because if the same truck can’t work for every trucking use case, the efficiency gains will be counteracted by the shrinking market size.

Tesla Cybertruck: Not For Everyone

And this is perhaps the biggest concern for Tesla shareholders. Elon has already stated that the Cybertruck “won’t be for everyone”, and the Tesla team is clearly going all-in on a bold sci-fi design theme. So the million dollar question we must ask is ‘will the Cybertruck’s performance be enough to sway traditional truck owners despite the bold, sci-fi design?’ More accurately, it’s the $150 billion question.

Because if we assume the average truck in America costs roughly $50,000, 3 million truck sales per year makes the US pickup truck market worth $150 billion each year. So there’s potential for a major revenue boost if Tesla can execute. After all, the company isn’t even doing $30 billion in revenue per year yet.

However, it’s important to say that ‘execute’ doesn’t necessarily mean ‘destroy Ford and steal all their customers’. Tesla doesn’t need a majority of US pickup truck sales to justify this product launch. There’s a very real possibility that the Tesla Cybertruck becomes a niche vehicle that sells at a healthy premium, and still provides a ton of revenue for Tesla.

Here’s a hypothetical.

If the Cybertruck steals just 10% market share in the US, that’s 300,000 vehicles sold per year. And once options and features are added, the average selling price is likely to be in the $65,000-$70,000 range. That’s a $20 billion per year revenue boost to the company, contributing as much revenue each year as the Model 3 is today. But the profit picture may be even more impressive.

Tesla Cybertruck Profit Margins

Historically, trucks have always had higher profit margins than cars, possibly due to the stranglehold that the top 3 trucks have on the US market. Ford is estimated to make $10,000 of gross profit for every F-150 they sell, making the F-150 the most lucrative vehicle in their product line-up. That’s a roughly 20% gross margin if we assume a $50,000 vehicle price.

Meanwhile, Tesla is already seeing margins of 20% or more on their cars, despite two major headwinds. First, they’re primarily selling $50,000 sedans in a crowded market. I’d imagine the Model 3 would have even better margins than it already does if there were only three major sedan manufacturers in the world. The level of competition in the sedan market naturally erodes profit margins.

Also, Tesla is paying massive shipping costs for international Model 3 sales, which eat into their overall gross margin. This cost is so prohibitive in some key markets like China, that Tesla is going straight to the source and simply building cars in China instead of shipping them. But since America dominates the global pickup truck market, Tesla’s shipping costs and tariffs will drop significantly.

So for the company that is already selling their cars at a 20%+ gross margin, it doesn’t seem unreasonable to see the Cybertruck commanding a 25-30% gross margin given the lack of competition and the low shipping costs. Now don’t get me wrong, I fully expect more competition in the EV truck space over time. But nobody knows how to build EVs like Tesla, and when you combine that with Tesla’s insanely popular brand, you get a Cybertruck with the most pricing leverage of any truck in America.

Tesla Cybertruck Competition (Tomorrow)

Now of course this pricing leverage can’t last forever. Rivian is coming out with an electric pickup truck in late 2020, and Ford is planning an electric F-150 for 2021. We should take both upcoming trucks seriously, but with a grain of salt. After all, we’ve seen lots of promising EV concepts over the years from ‘Tesla Killers’, but so far none of them have seen successful launches. In fact, the only EV in America that has outsold the Nissan Leaf’s 2014 sales is the Tesla Model 3.

That’s how low the bar is for EVs in America right now. And even though Rivian is backed by Ford and Amazon, it’s tough to believe they’ll hit their first car launch out of the park. Tesla has been building EVs for more than a decade, and if there was only 1 EV I could bet on to win over traditional pickup customers, I’d put my money on Tesla.

I don’t mean to knock Ford or Rivian, but the burden of proof is on them right now. Both companies have a chance to deliver amazing EVs, but right now it’s still just a chance. They’ve got little-to-no experience in EV production, and given the track record of non-Tesla EVs launched in the last decade, the task at hand is incredibly challenging.

The Bottom Line

Tesla really went all in on this product launch, and it’s clear they don’t have any regard for the status quo. That’s been in Tesla’s DNA since Day 1, so it’s encouraging to see Tesla’s ideals persist as the company grows. Cybertruck deliveries will start in 2022, so it will be a while before we see it on the roads.

Until then, it’s up to the established pickup trucks and new entrants like Rivian to give Tesla a run for their money. Because despite its bold, sci-fi design theme, the Cybertruck can outperform any truck in the world right now.