On November 16, Tesla unveiled its all-electric rig aptly named "Semi".
On November 16, Tesla unveiled its long-anticipated foray into the $726 billion world of trucking: A heavy-duty, all-electric rig aptly named "Semi." The truck itself is wildly impressive in our opinion—a 500-mile range, projected fuel savings of $200,000, and the industry's most advanced levels of automation—but what excites me the most, really, is the opportunity this truck signifies: The start, as I see it, of a once-in-a-lifetime radical shift in our trillion-dollar transportation economy.
As I have written about before, we are currently entering a period of a rapid change in our transportation systems. And as I see it, it's the innovator's dilemma playing out in the wild: Incumbents like General Motors are moving too slowly to adapt to an all-electric future—wasting billions of dollars on stock buybacks—while upstarts like Tesla, unencumbered by legacy business models, are forging a path into a clean, fully-electric, fully-autonomous future. (GM has spent almost $17 billion in the last several years buying back its stock, three times what Tesla has spent building Gigafactories—but I digress.)
Until this point, of the emphasis of electric and autonomous disruption has been focused on consumer cars, but trucking—and long-haul transportation systems in general—is a fascinating industry in its own right for investors looking for new ideas and themes. Noël Perry, a transportation economist, says the shift to autonomous trucking is "the most powerful thing to hit us since the building of the superhighways in the 1950s."
Perry, the principal of his own transportation consulting company, Transportation Futures, has tracked the trucking industry as an economist for more than 40 years. And he's also currently writing a book titled "Trucking 2030: A Radical Departure."
Among many predictions and insights into the future of trucking, Perry generally believes within about 15 years—through autonomous driving—the industry will double its productivity rates and cut travel times in half. And when this happens, it will have profound trickle-down effects on brick and mortar retail. After all, what's the point of going to a store if you can have pretty much any product delivered to your home immediately? "That's why it's so radical," Perry says.
I spoke with Perry at length recently regarding Tesla's ambitions and challenges, the future of transportation, and his macro perspective on the innovation taking place right now in the trucking ecosystem. Below is an edited transcript of our conversation. (Full disclosure: Worm Capital is long Tesla and all views are Perry's alone.)
Worm Capital: This week, we're seeing Tesla come out with their Semi, and clearly Elon Musk has talked about creating an all-electric, autonomous future. So, existentially, what does this mean for the trucking industry over the next 10, 15, 20 years? How do you see it evolving from what it is today to what it will be in the future?
Noël Perry: Well, "existential" is perhaps a useful word. A trucker wouldn't necessarily understand it, but what we're talking about is the biggest change in supply chain practice; maybe the biggest economic change since the invention of the steam engine back in 1810. This is a very big deal for transportation. It's probably at least as big for the economy as a whole, but we know for sure that it will turn the transportation business upside down.
Worm Capital: What do you mean by that exactly?
Well, if we eliminate the driver, we don't eliminate the loading issues, but we sure eliminate that sleeping business; which is 10 hours a day. So, you can double the productivity of the asset; not to mention that there's a whole bunch of other things which suggests that you would eliminate some of the slack time. And not only do you double the productivity, but you halve the transit time.
So, three things happen; I'll just sum them up. One is that the cost of trucking falls by at least 50%, if not more. No driver, double the passive productivity, and in essence, you eliminate most of the safety problems. And by the way, if you apply this [autonomous] technology, many of the concerns we have from a safety standpoint about large trucks go away and you can make the trucks bigger. So, the costs fall at least in half. Transit time falls at half too, because you're not waiting.
If you have automated trucks and automated delivery vehicles, you can get second afternoon or second morning delivery to any place in the 48 states by truck, with a 10 o'clock cutoff the previous day.
So, if I'm making an order today, it can go from a single inventory holding point, anywhere in the country, and be delivered two days later. If you expand that inventory coverage to three locations, I can deliver an order that I make at 9:59pm tonight, tomorrow morning.
Because you're running at 70 miles an hour, and you have automated picking at the distribution point, the automated delivery truck goes straight out. And so, what we're talking about is a revolution in inventory holding, number one, and also a very substantial adding to the retail revolution that's happening anyway.