Truck off!

Trucks provide us with almost everything we consume. They’re used at every stage of the production process – from the mine or farm, through the supply chain, and finally delivering to retailers. Haulage is a huge industry. Scania, DAF, Mercedes and Volvo are household names for their trucks alone – notwithstanding their car manufacturing.

But this world is just about to be turned upside-down, and you can profit.

We’re seeing a situation that’s been repeated many times in recent history: comfortable incumbents, used to making incremental changes to their designs. Then BOOM! A disruptor comes along, and they’re dead. Kodak is a prime example. Blockbuster is another.

And so it is with trucks.

There are already some great peripheral technologies starting to shake up the industry. Only last week, we saw a deal between Peloton Technologies and Omnitracs. This will allow vehicle-to-vehicle communications between trucks, so they can tailgate safely – saving up to 10% of their fuel. You won’t have to wait long for this; launch is slated for this year.

Late last summer, we saw big profits for investors in Otto, which sold to Uber for $680m. Don’t say you weren’t warned – we’d previously discussed the firm in our interview with Street Stream. Otto’s project is already making waves. Its high-level autonomy currently allows drivers to step out of the seat in highway conditions. That’s a boon for safety and productivity – freeing drivers from the long, tiring runs that contribute to fatigue. They arrive in the city alert, with their admin already done. It’s only a matter of time before Otto upgrades to unsupervised use, meaning cabs will be empty on motorways.

Despite the obvious merits of these technologies, our principle focus today isn’t control – it’s power. We’re looking at how the trucks of the future will be fuelled, in our “Truck Off”. Disruptor technologies will fight it out, to see who will own the 21st century haulage market.

First on to the Exponential Investor test track is Tesla. With an enviable record of training winners, Elon Musk’s contender is the newcomer to beat. PayPal, SpaceX, SolarCity – these are all medals on Musk’s mantelpiece. Tesla’s track record is awesome in its own right. It has come up with great disruptor products, such as the drool-inspiring Model S. Furthermore, the firm has also started tearing up the rule book with its Powerwall play in the home energy market. However, its (rumoured) big rig is still firmly under wraps. Notwithstanding this secrecy, there have been enough public statements to determine the likely direction for the firm.

So what’s Tesla’s vision for the future? Well, needless to say, it’s broadly more of the same. The firm is already soothing range anxiety with its consumer vehicles – 335 miles already, with a promised 600 to come in the next couple of years. What’s more, it’s building a network of “super chargers”, designed to power up the battery packs quickly. But that charging process is the Achilles’ heel of the whole process. Batteries are just sloooooooooooooow to charge. When you have to pay a driver and lease a lorry, idle time matters. For time-sensitive cargoes, that problem is compounded. It only takes a few minutes to fill a tank with diesel, so persuading fleet owners to switch will be tricky.

For short-haul use, it’s clear that Tesla’s technology is going to be hard to beat. Many distribution deliveries aren’t long runs. What’s more, destinations are often hampered by restrictive opening hours. This means that the charging-time issue isn’t always problematic – the lorries work regular hours, and they can be charged up overnight.

Weight is a bigger problem, but not all loads are heavy. Clothing, crisps, plastic bottles, etc, all offer realistic loads for a heavy rig pulling a lightweight trailer.

Our contender is a plucky upstart, who reckons it can beat Tesla at its own disruption game. Nikola Motor has unveiled a 1,000hp electric hybrid truck fairly recently. That’s some pretty awesome power. The last time I saw a 1,000hp road vehicle, it was a dragster. The advantage of a big, powerful engine is obvious – it’s nippy (for a lorry). Much lorry driving away from motorways benefits from decent acceleration: getting to top speed; pulling out of junctions; or powering up hills. More power means faster and safer deliveries. To be fair, high power is likely to be echoed in Tesla’s design, too – the firm currently has the world’s fastest-accelerating production car.

The tech behind Nikola’s truck is a hydrogen-hybrid design. This means the rig benefits from the best of both worlds. It gets to use flexible, easy-to-manage electric power. However, it can keep going without Tesla’s time-wasting recharging stops. Hydrogen can typically be transferred to the lorry’s tank almost as fast as diesel. The on-board fuel cells then convert it to electricity, charging the batteries at a constant rate.

But there’s a catch with hydrogen. Or, rather, two catches. (We’ve covered hydrogen before in Exponential Investor – so do check out our previous article for more information.)

Firstly, there aren’t actually many hydrogen refuelling stations. Fixing this issue isn’t anything like as simple as installing battery chargers. For a start, hydrogen is potentially explosive – so the regulations are pretty tight. Secondly, unlike electricity, the gas needs storing in tanks. In theory, it could be made on site electrically. However, that’s some time off. It will come first to large service filling stations. Smaller garages will need deliveries, and that adds costs.

Hydrogen may have a lot of energy per kilo (hence its use in rocket fuel) but it’s not dense. Everything associated with it is big: fuel tanks, tanker trucks and filling stations. Running a fleet from hydrogen is not unlike trying to live off marshmallows – you’d need much bigger cupboards than you would for a diet of peanut butter.

The second problem with hydrogen is about where the energy to make it comes from. Presently, the principle production process is based on fossil fuels. In the longer term, we’ll almost certainly produce it from renewables. There are two reasons for this forthcoming change. Firstly, only a fool would spend more money than necessary. Solar is falling fast in price, so it will soon make little sense to use fossils. Secondly, the intermittent nature of renewable energy means we’ll need to store the excess at peak production times, if we’re to have enough energy off-peak. Switching hydrogen production on and off is a great way to soak up excess capacity on the grid.

So, there are a lot of reasons why hydrogen might be a good idea for the new energy economy. Despite this, Musk calls hydrogen fuel cells “fool cells”.

Do we agree? Come back tomorrow, and I’ll give you my verdict. Plus, we’ll cover the response of some of the large incumbents to the threat from these upstarts.

Interim feedback to andrew@southbankresearch.com.

Best,

Andrew Lockley
Exponential Investor

Category: Technology

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