It’s been a good quarter for Tesla, but – according to Elon Musk, the chief executive of the electric car company – it’s not enough. Between April and June this year, the company made 87,048 cars and delivered about 95,200, as logistics capacity – getting vehicles to customers – is finally catching up with production. Previously, Tesla's best for quarterly deliveries was 90,700 vehicles in the last three months of 2018. But the firm has yet to catch up with Musk’s target to make even more cars, and that won’t be easy.
The year had not begun well, as the company disappointed investors by producing only 77,100 cars. Given that Tesla has promised to deliver at least 360,000 car this year, and produce “significantly higher” numbers than that, Musk will have to push his assembly workers to make at least 97,926 cars a quarter during the second half of the year, which is a big challenge for a factory that’s said to be nearing full capacity.
Can Tesla deliver? Its manufacturing line has been on a bit of a roller coaster ride so far; the company hasn't really shown that it can consistently produce vehicles at peak levels for a sustained period of time. “This past quarter, it seems as if there was a monumental effort made just to hit targets, so increasing that number moving forward seems like a tall order,” says Jessica Caldwell, the executive director of industry analysis at Edmunds. “Elon Musk is notorious for casually throwing out very ambitious sales targets and then falling short, so there certainly isn’t a concrete expectation that Tesla will keep its promise to investors.”
One concern that has been raised is that Tesla’s Fremont facility – a factory that once housed a joint venture of Toyota and General Motors – has never produced more than 428,633 cars in any one single year; back then, the factory was estimated to have annual production ceiling or around 500,000 cars. But that’s a historical glass ceiling, a number based on fossil fuel technologies.
Since Tesla moved into the plant in 2010, it has seen massive, billion-dollar investments and upgrades, so pushing even beyond the production limit of 500,000 cars may be achievable – and especially reaching the bottom end of the 360-400,000 deliveries guide. Still, every factory has its limits, so how many cars could be produced at Fremont now? Giacomo Rossi, senior consultant for mobility Europe at Frost and Sullivan says his company’s research indicates that Tesla's factory can actually produce up to 600,000 vehicles a year – which, given production numbers during the first half of the year, indicates plenty of room to grow.
Still, he dosn't think Tesla will hit the target this year. "We can expect a ramp up to 100,000 per quarter by Q3," he adds. Potentially the company will be able to deliver by 2020. And Tesla’s real problems are global market demand and commercial distribution, he adds.
Musk has been relying on makeshift tents to create extra production capacity in the past, which would suggest that in its current set-up the plant might already be operating at pretty much full capacity. In June 2018, the company erected an outdoor production line inside the tent.
But Tesla’s expansion in China could solve the problem. Its Shanghai Gigafactory should be ready to produce cars at volume by this autumn. If that can be achieved, then the Fremont facilities would not need to be pushed so hard to increase production. “China growth alone could bridge the gap for the extra five to ten thousand [cars] needed during the third and fourth quarter to meet [Musk’s] annual guidance,” says Craig Irwin, Wall Street analyst at Roth Capital. European deliveries are also set for growth, so “we think Tesla is pretty clearly out of the woods.”
Still, high volume manufacturing is not easy. There are always learning curves as new models are ramped up to scale, and Tesla is still relatively new to this industry. “Now Tesla has put keys for 225,000 Model 3s in customers’ hands, they have had ample opportunity to thoroughly de-bottleneck and reduce necessary rework” of manufacturing flaws, Irwin adds.
According to Alyssa Altman, senior VP for transportation at Publicis Sapient, there’s so much focus on production that Tesla owners complain that if they have an issue with a part, they need to wait months to get it sorted. “This, in itself, shows how far the company has to go to become effective in the long-term – one good quarter of deliveries is not enough,” Altman says.
While the factory should be able to cope with increasing production, the workforce might not. The company is already plagued by high staff turnover. During the past few days, three of Tesla’s top people left: Peter Hochholdinger, senior production manager, Jan Oehmicke, head of European operations, and Tesla's vice president of engineering, Steve MacManus. “Major turnover, layoffs, and supply chain inefficiencies, and bringing up new employees probably create the largest risk to execution,” says Irwin, adding that he’s very concerned about the continued staff turnover. “This elevates all sorts of risks, and not just related to production.”
Rossi, in contrast, believes that Musk’s leadership is well recognised by the markets and will ensure that Tesla will be a credible manufacturer despite the staff churn. Tesla, he says, is evolving just like any other company, moving from pioneer in automotive product innovation to becoming a mass market manufacturer. Instead of factory capacity, Tesla might actually be facing a potentially much bigger problem, warns Irwin: the cost of batteries for electric vehicle has been rising sharply this year, and this might neutralise or wipe out any of Tesla’s recent efficiency gains.
This article was originally published by WIRED UK
