Tesla Could Have Trouble Meeting Its Looming Production Targets

Matt Posky
by Matt Posky
tesla could have trouble meeting its looming production targets

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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  • 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.

  • Jeff S Time for Elan to buy them out. There was a rumor that Elon was buying GM with even a video but when I googled it I could not verify it.
  • Wjtinfwb One of Nissan's best, from their last days as a scrappy, Mazda type builder of fun cars. Too bad those days are gone.
  • Wjtinfwb Didn't care for the E60 when introduced, compared to the previous generation. But up against some of BMW's latest offerings (new 7), it's a breath of fresh air. This car with a conventional 6-speed manual would be another 10-15k at least as it looks very well kept.
  • SPPPP Very nice shape, but I just never warmed to the E60 car like I did the earlier generations of the 5-series, or the contemporary 3-series.
  • Mike Beranek They're building a brand-new "vending machine" in Schaumburg, right on my way home from work. Maybe after they go belly up, I could buy it, build out living space on the top floor, and use the rest to display my awesome car collection (ha!)