Tesla Could Have Trouble Meeting Its Looming Production Targets

Matt Posky
by Matt Posky

After posting a profitable fall quarter, Tesla returned to spending more than it made. However, its fourth quarter losses, announced on Wednesday, were substantially less than originally assumed by analysts. The electric carmaker’s stock price continued to climb during the final three months of 2016, despite losing $448 million from its operations.

Tesla has been throwing a lot of money at projects and acquisitions. It recently purchased SolarCity and Grohmann Engineering, so going into the red was to be expected. However, the dark cloud looming in the distance isn’t related to capital — it’s about production.

In 2016, the automaker anticipated building roughly 90,000 vehicles but only managed to birth 75,000 into existence. In its most-recent quarterly letter to investors, Tesla says it should begin limited production on the Model 3 in July before ramping up to 5,000 weekly units during 2017’s final quarter and reaching 10,000 vehicles per week “sometime” in 2018.

It also has to meet continued demand for its current models. Tesla has received 49 percent more global orders for its vehicles in the final quarter of 2016 than it did for the same period in 2015. “We expect to deliver 47,000 to 50,000 Model S and Model X vehicles combined in the first half of 2017, representing vehicle delivery growth of 61% to 71% compared with the same period last year,” read the letter to investors.

That’s a goal of roughly 110,000 cars, which includes the first round of Model 3s it hopes to roll out this summer and the S/X Models it needs for the second half of this year. That means Tesla effectively has to double its production volume as soon as possible, and then do it all again to even approach CEO Elon Musk’s earlier production promise of 500,000 vehicles per year by 2018.

While that timeline seems unlikely, the company does seem committed to hustling to meet demand and is finalizing the locations for three additional Gigafactories. In its shareholder letter, Tesla confirmed that it was expanding its massive battery-producing complex in Nevada and “expects to finalize locations for Gigafactories 3, 4, and possibly 5.”

In case you were wondering, Gigafactory 2 is the Tesla solar plant in New York State. The company anticipates production of its solar roof to kick off in the latter half of this year.

Meanwhile, Musk is continuing his fight against the growing unionization efforts at the company’s Californian production facility. He suggested that unionizing could impact Tesla’s cost structure and offer no benefit to workers — people he now needs more than ever to meet these lofty production targets.

[Image: Tesla Motors]

Matt Posky
Matt Posky

A staunch consumer advocate tracking industry trends and regulation. Before joining TTAC, Matt spent a decade working for marketing and research firms based in NYC. Clients included several of the world’s largest automakers, global tire brands, and aftermarket part suppliers. Dissatisfied with the corporate world and resentful of having to wear suits everyday, he pivoted to writing about cars. Since then, that man has become an ardent supporter of the right-to-repair movement, been interviewed on the auto industry by national radio broadcasts, driven more rental cars than anyone ever should, participated in amateur rallying events, and received the requisite minimum training as sanctioned by the SCCA. Handy with a wrench, Matt grew up surrounded by Detroit auto workers and managed to get a pizza delivery job before he was legally eligible. He later found himself driving box trucks through Manhattan, guaranteeing future sympathy for actual truckers. He continues to conduct research pertaining to the automotive sector as an independent contractor and has since moved back to his native Michigan, closer to where the cars are born. A contrarian, Matt claims to prefer understeer — stating that front and all-wheel drive vehicles cater best to his driving style.

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  • Art Vandelay Art Vandelay on Feb 23, 2017

    "Tesla could have trouble meeting its looming production targets" In other news, The sky is blue and the Pope Catholic...Details at 11!

  • Redmondjp Redmondjp on Feb 24, 2017

    Everybody is still drinking the flavor-aide, I see . . . Look at Tesla's cashflow year-over-year. Negative every single year except for one. And their capital improvement spending in order to ramp up for the new model is going to be a whopper. And they have also borrowed a record amount of money as well. Having worked for several manufacturing companies, one of which practiced open-book management in which we had quarterly all-hands offsite meetings with the CFO and went over the books, we quickly learned that effective cash management is critical. You run out of cash, and the doors close. It's as simple as that. You can't pay your employees, your suppliers, your taxes, or the power bill. And that's exactly what is going to happen to Tesla because there is no way that they can make enough profits to cover their costs. I really would like to see them succeed, but anybody with a rudimentary understanding of accounting and business fundamentals can see how this story ends.

    • SCE to AUX SCE to AUX on Feb 25, 2017

      Paradoxically, I suspect Tesla has already reached "too big to fail" status, while at the same time being the much-cheered underdog. I really can't envision the spectacle of closing all their plants and sending the workers home, without a horde of investors rallying to prevent it. Basically, that's how they remain afloat today.

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