By on February 23, 2017

tesla factory fremont

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]

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28 Comments on “Tesla Could Have Trouble Meeting Its Looming Production Targets...”


  • avatar
    shedkept

    “After posting a profitable fall quarter, Tesla returned to spending more than it made.”

    Financed by the government, run like the government.

    • 0 avatar
      Chocolatedeath

      Dems fighting words brother.

    • 0 avatar
      SCE to AUX

      “Financed by the government, run like the government.”

      Clever quote, except it’s not true.

    • 0 avatar
      Compaq Deskpro

      If I was Trump I would make sure that Tesla succeeds by any means necessary. Nothing should be allowed to get in the way of the speeding train of progress being piloted by Elon Musk.

      • 0 avatar
        cdotson

        Trump would be wise to be completely hands-off Tesla. Succeed or fail, it’s a win for Trump if he remains hands-off. If they fail it’s because green tech isn’t ready for prime time and can’t be mandated; if they succeed it’s because they weren’t regulated to death and brought good jobs to Murica.

        No politician should get involved and upset the optics of a win-win situation. Hitch your wagon to a company (Obama/Solyndra) and they had better succeed.

        • 0 avatar
          carguy67

          Or, hitch your wagon to a company that succeeded (Obama/Tesla).

          https://www.scientificamerican.com/article/obama-has-done-more-for-clean-energy-than-you-think/

          • 0 avatar
            2manycars

            I really don’t care about so-called clean energy. Tesla should be permitted to succeed or fail on its own merits, without any help or interference from government goons, and without scams like selling carbon credits.

      • 0 avatar
        RRocket

        Which part isn’t true? As of 2015, Tesla had received ~$5 billion in gov’t subsidies.

        • 0 avatar
          SCE to AUX

          @RRocket: $5 billion in government subsidies?

          This has been discussed here many times before.

          Are you referring to:
          1. The Federal and state EV subsidies which go to buyers, not the mfr, and which apply equally to every EV mfr?

          2. The corporate welfare tax exemptions for its factories in CA and NV, which are common among all mfrs, and does not take the form of a check written to Tesla, GM, Ford, Hyundai, FCA, BMW, VW, Toyota, Honda, etc?

          3. The Federal loan which was paid back early many years ago, unlike the bailout money sent to GM and FCA?

          • 0 avatar
            Big Al From 'Murica

            Don’t the Federal and state subsidies go to the manufacturer when the customer leases? That is significant as many EV’s are leased.

      • 0 avatar
        mcs

        Actually, Trump is probably going to jump in and help Tesla. One threat to Tesla is the upcoming Mercedes EQ series, the Audi Electrics, and Porsche Mission-E. Trump might implement a border tax to make it a little tougher for the imports to compete.

        • 0 avatar
          SCE to AUX

          It’s unlikely any of them will touch Tesla’s relatively lower price or higher volume.

          • 0 avatar
            mcs

            It looks like they are going to match cost and volume. They’ve also succeeded in reducing the amount of inert material in the batteries resulting in increased density. I’ve seen estimates that they can bang out a cell in 2.5 minutes versus 12 to 22 hours (due to the drying process). They’re in pilot production now and have delivered early production cells to major customers. I’m a smaller operation and will hopefully get samples at some point.

            The company developing the process is planning on licensing the process to larger companies.

  • avatar
    SCE to AUX

    Meeting demand is important, but it’s only the beginning. They are woefully ill-equipped to service their growing fleet.

    On the bright side, I didn’t expect to see my Model 3 for two years from its pre-order (meaning March 31, 2018), so that expectation may still hold true. I’m #61025, IIRC.

  • avatar
    Tstag

    Tesla will get away with this for now but when the likes of Jaguar and co really pile in hard with electric cars then they will face stiff competition in what’s still a small market. For example The Jaguar I Pace looks fab and it’s coming very soon at a Tesla competitive price and it’s not the only one…..

    • 0 avatar
      SCE to AUX

      That’s true as far as the product goes, but there are challenges that other players face:

      1. Are they really interested in losing money on EVs, and are they really interested in spending development money on them?

      2. Where will they source their batteries? Nobody today has the battery capacity to build 500k EVs annually, which is why Tesla wisely decided to build its own factory for that purpose.

      https://qnovo.com/is-there-enough-lithium/

      • 0 avatar
        mcs

        @sce: There are some major battery manufacturing process improvements coming down the pike. The new processes require much less space and increase the speed (and we’re talking about a huge increase) at which the electrodes can be manufactured. Gigafactory capacity could be more than matched by anyone implementing the new technology using far less space.

      • 0 avatar
        orenwolf

        I’m sure there’s going to be some second-mover advantage going on for non-Tesla EVs, but I think I’m ok with that (as is Musk, who’s goal has always been to push the world towards affordable, desirable EVs regardless of manufacturer).

        As you say though, the supply line for batteries isn’t something you just call out and get – look at how at one point Apple was consuming the majority of the flash market in iPods as another parallel – that required some serious forward thinking on scale, something that’s clearly in place with the Giga factory concept.

        That being said, there’s more to what Tesla is offering than cars. I think it’ll be a pretty big shift at a lot of the incumbent automakers to start worrying about things like frequent feature upgrades via OTA downloads, mobile service offerings, and an available charging network (and direct sales!) in the way Tesla has. There’s more on offer than “just an EV” in their design.

  • avatar
    indi500fan

    If Tesla’s Fremont workforce is anything like California as a whole demographically, I’d say Elon will have some UAW “partners” quite soon.

    In the last couple decades, I think Ford has probably done the best with the UAW, so my advice to him would be to hire a promising junior domo from Ford labor relations staff.

    • 0 avatar
      SCE to AUX

      You may be right. A happy workforce doesn’t consider unionization.

      Tesla was mistaken if they thought the privilege of working for them would be sufficient to avoid labor problems.

      But I think they can dodge the UAW bullet if they learn from the transplants, and then move quickly to address the issues.

      • 0 avatar
        indi500fan

        I think Musk had great timing to start up when the economy was bad and jobs scarce. Now things have changed a bit.

        With California going to $15 min wage, why bust your butt on the line for $17 when you can flip burgers? They might be successful with that in the Nevada battery plant which is a lot different standard of living area and a RTW state.

        Tesla will either ramp up compensation at Fremont or have the UAW do it for them.

  • avatar
    Scott_314

    I’m considering taking out a short position in Tesla at $25, and an equivalent long position assuming the stock grows to $500.

    No one knows what’s going to happen with Tesla. But one of these scenarios will probably happen in the next few years, and it would be fun to be part of the hype train either way.

  • avatar
    Big Al From 'Murica

    “Tesla could have trouble meeting its looming production targets”

    In other news, The sky is blue and the Pope Catholic…Details at 11!

  • avatar
    redmondjp

    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.

    • 0 avatar
      SCE to AUX

      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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