Tesla Q2 2018 Vehicle Production and Deliveries
ir.tesla.com
ir.tesla.com
How many Model 3s could Tesla produce at its current facilities? 7,000? 10,000? 15,000? It wouldn't be enough to remotely satisfy the demand.
Truth is that once delivery picks up, more people will start to order since currently people like me think it's pointless to order a car that you would have to wait a year to get and that - in most parts of the world - you can actually not order yet. The orders are likely to increase proportionate to the production capacity as Model 3 will be made available around the world.
This company could build 3 Giga Factories around the world that each produce 10,000 Model 3s per week and demand would still not be met. Heck, they could have 10 Giga Factories and they might still not satisfy demand for Model 3.
And then there is the future demand for Model Y and - once they get economy of scale and battery prices go down a bit - demand for cheaper, smaller cars.
All this demand could be met by other car manufacturers if they too produced long range EVs of similar or better quality than combustion engine cars. But no-one does and no-one will for an other year. Don't say Nissan Leaf; it's not long range. And when they finally do, in 2-3 years or so, are you going to take a chance on one of the first competitive EVs from VW, Mercedes, BMW, Ford, General Motors, Hyundai, Fiat, Toyota or Mazda or are you just gonna stick with Tesla, which by then comes with even better specs than today?
Tesla is the Apple of the car world. There is still room for other producers to make the Android cars that spend 3-4 year playing the catch up game of being one-two models behind in specs, and then maybe finally catch up in 5-10 years. But Tesla will get the better customers and the fat margins if the traditionalists don't hurry. And hurry a lot.
The only thing that holds Tesla down is whether they can scale production fast enough not to let others in. Forget about finance by now. They are not going bankrupt.
Production cycles in cars are at least 3 years. So the traditional manufacturers that more or all have announced they will market a competitive EV in 2019-2020, will get a second try in 2022-2023. I talk about their second try because it's unlikely that they will produce truly competitive EVs next year in their first try. Range and price are the main factors, and the range they talk about is generally 350-450 km, so a bit less than the Model 3 currently being produced, which have a range of 510 km. Tesla has historically upgraded their models with better batteries so it's a good bet that in 1-2 years Model 3 will have even better range. And the ones that they talk about now that have a range comparable to Model 3 are generally priced more like Model S or Y, so for a much smaller market.
In other words, I expect the old car manufacturers to market truly compatible EVs in 3-4-5 years. If Tesla can double it's production of Model 3 and other medium or low priced cars every year Tesla can produce
10k weekly mid 2019
20k weekly mid 2020
40k weekly mid 2021
80k weekly mid 2022
Needless to say that if that were to happen, and they produce 4 million EVs yearly in 4 years, it would be very hard for most of the others to get any footing in the market.
Maybe Tesla could achieve that by simply copying the existing production lines at the current Giga Factory or somewhere else in the world. We think that they would have to build huge factories which in itself takes time, and that they would have to innovate and automate much more than now but maybe part of the production could be achieved by adding more tents and hiring more people. Do we know?
Honest question: where on earth do you get this idea? You actually think there is global demand for ~800,000 vehicles with an ASP of ~$55k USD?
What are you basing this insane demand off of? Tesla won't even report the current backlog numbers. If they were increasing, you don't think they'd be boasting about it?
Where does the unlimited demand come from?
>And when they finally do, in 2-3 years or so, are you going to take a chance on one of the first competitive EVs from VW, Mercedes, BMW, Ford, General Motors, Hyundai, Fiat, Toyota or Mazda or are you just gonna stick with Tesla, which by then comes with even better specs than today?
Wait, you're saying you're not going to trust manufacturers that have been building and servicing millions and millions and millions of cars for, some of them, over 100 years, but instead you will trust Tesla who hasn't even proven they can sustainably build and service the few hundred thousand they've got on the road? Aren't EVs supposed to be simpler than ICEs?
I simply cannot understand this thinking.
They say it right in the OP:
"The remaining net Model 3 reservations count at the end of Q2 still stood at roughly 420,000 even though we have now delivered 28,386 Model 3 vehicles to date."
edit: "maybe"
There is easily a demand for millions of cars within the upper end of the mid price segment like Model 3, and once the price of batteries goes down just a bit, EVs can reach the lower end of the mid segment.
We are not at the cheap segment yet, but it's just a matter of battery prices going down (through economy of scale; we actually don't need any breakthroughs in technology).
Then factor in charging networks. Right now, I don't have any supercharger near me. Next year I will. In 4-5 years I will have plenty.
As for not trusting the traditional manufacturers, I stopped buying Nokia and Ericsson and never came back, ones Apple marketed the iPhone. Not because they had had bad products or weren't trustworthy anymore. Just because it was obvious they produced the old tech and were behind on the new. People stopped buying horses and carriages when Ford produced his cars. Horses served us well for millennia.
And the hundreds of thousands of Teslas already driving billions of miles on the road are still driving well without the engines and expertise of BMW, right? People trust Tesla's tech now.
~$55k USD would be roughly equivalent to a 5 Series/E Class/A6. Combined, about 300,000 of these cars are sold per year in Europe. So to sell 800,000 Model 3s worldwide you've got to replace every single one of those BMW/Merc/Audi sales, and then some.
In 2006, the market for smart phones was tiny. A couple of years later, people paid 3 times more for a phone than they ever thought they would.
Yes, $500 for a phone is not the same as $50,000 for a car. But who would have thought that people would readily shed out $599 for a cell phone before Apple made that market? The amount of people able to pay $50,000 for a car is increasing every year due to the economic growth in Asia and elsewhere and Tesla expands the market of people interested in expensive cars in Europe and America beyond the usual motor enthusiasts to people like me.
That and most people don't actually pay anything for their phones, they get them on contract (in the us). As far as I know in Europe, smart phones are less common among poorer communities.
And an iPhone provides more reason utility over a palm pilot than a model three does over a used Toyota that costs 1/5 as much.
The original iPhone was priced at $499 for 4GB, $599 for 8GB.
Remember that before iPhone launched, Apple was already a leader in handheld consumer electronics with the iPod, with a level of operational expertise that more than matched any competitor. Not to mention lots and lots and lots of cash and time to spend on solving the hard problems before they had to launch. All luxuries that Tesla lacks.
I love what you said and the enthusiasm that goes with it. Yes. Tesla are showing the way.
But if you're an investor you might buy shares in some of the other manufacturers, they will also benefit from an electric shift and their shares are considerable cheaper.
Their financials, OTOH...
For comparison, the Renault Zoe and Chevrolet Bolt EV have a higher range than the standard Model 3. Both of them have also sold more than the Model 3 so far and have a lower price. These cars are in a different class than the Model 3, but it seems that traditional manufacturers won't have any trouble producing long range electric cars.
Renault Zoe has a range of 240 km Chevrolet Bolt has a range of 380 km.
So none of them compares to the Model 3 actually produced.
Of course they don't, 'cause the Model 3s actually produced are friggin' expensive. That screeching sound y'all hear right now? That's the goal posts being dragged another 10 yards back.
Interestingly enough, the Bloomberg model 3 tracker's [1] estimates appear to have been quite accurate:
2018-03-31: 12,383
2018-06-30: 39,872
======
diff: 27,489
As an aside what is the real world version of "technical debt?" Tesla's tent factories has helped them accelerate manufacturing, but is that a technical debt they'll have to come back and fix later? I've also read people speculate it could increase warranty return/recall rates due to contaminants (e.g. dirt, dust, etc) in the tents, which if true, could be another source of future debt.
“GA4, our new General Assembly line for Model 3, was responsible for roughly 20% of Model 3s produced last week, with quality from that line being as good as our regular GA3 line. We expect that GA3 alone can reach a production rate of 5,000 Model 3s per week soon, but GA4 helped to get us there faster and will also help to exceed that rate.”
They now have the second line in the temporary structure which let them test some different methods and can provide some pressure relief while they rework the main GA line.
They have been planning to expand and build new buildings at the Freemont plant for quite a while now [1], so I would expect the 'Tent' line to move to a more permanent location eventually.
[1] https://www.reddit.com/r/teslamotors/comments/8s9913/teslas_...
Edit: As someone in the reddit comments pointed out, the new Tent/GA4 line is on the location of an already planned new building (#11 in the drawing), so perhaps the line stays in place and a more permanent building is built around it.
I would find that really interesting.
There are legitimate reasons to be skeptical of Tesla, but that's not what I'm talking about. I'm talking about a tidal wave of sudden strong anti-Tesla (and anti-Musk in general) stuff that started hitting social media. For me the "tell" is that a lot of it repeats the same talking points or variations of them or even the same phrases and slogans. You also had obvious astroturf sites like "stop Elon Musk from failing again" popping up around the same time. Shortly after I saw that appear I heard people online (and off!) using that exact phrase and other exact talking points. That is a propaganda campaign. You don't get that organically.
There are companies that will do this for any cause you'd like as long as the payment clears. For a few million you could probably increase belief in the flat Earth by a factor of 10-100. It's a fairly large industry. The human mind is for sale.
But there's also very likely an organized effort to keep negative Tesla stories flowing on a non-stop basis.
Both can be true.
I'm a gigantic Tesla fan. I hope they dominate the auto market. Unfortunately, with that kind of market cap, they quite literally have to. So yeah, there are a lot of people out in the world who are betting against Tesla, which is not a totally crazy thing to do.
I don't know if there's some organized attempt to depress the stock, but I can imagine that there are a lot of traders who are pulling their hair out as to why the stock is valued the way it is. To me this explains why there is a decent amount of anti-telsa sentiment online, looking to point out anything bad they perceive out of the company.
1.) Software Skills - Autonomous driving, over the air updates, giant screen + app, future possibility of ride sharing network. Most people see the legacy automakers as very deficient in software.
2.) Semi-Truck Project - This can go a lot of places.
3.) Supercharger network. It’s sort of like also owning the gas stations. They already have a huge lead in DC fast charging.
4.) Expertise in batteries/packs/Gigafactory. This is pretty much the entire game going forward.
5.) Ancillary battery products, Powerwall and Powerpack. Battery storage is expected to be a gigantic industry by itself.
6.) Solar Roof - Also expected to be a gigantic industry by itself.
I'll grant you they could have an edge here, but would listen to arguments the other way. Plenty of talented software people out there, and Tesla has no monopoly
Semi-Truck Project
They were not the first, and are behind other companies right now. No capital to manufacture it.
Supercharger network
You're right, it's like owning the gas stations. And gas station owners will do the same. Installing chargers isn't hard. Very shallow moat.
Expertise in batteries/packs/Gigafactory
Most of which is Panasonic, but they do have some high tech pack management systems. Probably an advantage at this point.
Ancillary battery products, Powerwall and Powerpack.
Low margin, competitive space.
Solar Roof
Solar City bail out is complete and the company is being written off internally. Does the Solar Roof even exist? Last I heard it was still "in testing".
At the end of the day Tesla makes cars. Good, innovative, expensive cars. It's also a low margin, competitive space where companies operate at sometimes single-digit multiples of earnings.
The consensus on autonomous driving is that Waymo is in first, GM is a somewhat distant second, and everyone else (including Tesla) is in the dust. The other bits of software don't really matter if you believe that autonomous driving is the imminent future and manufacturer-owned autonomous ridesharing is going to be the future market.
> 3.) Supercharger network. It’s sort of like also owning the gas stations. They already have a huge lead in DC fast charging.
Gas stations, that famous category of thin margin retail? Tesla has been attempting to go a lock-in route of incompatible chargers, which dents the viability of a charging network if their vehicles don't pan out as well.
> 6.) Solar Roof - Also expected to be a gigantic industry by itself.
There's already a glut of solar panel manufacturing, and Tesla's solar arm has already distinguished itself by mostly being a failure.
Imagine your idea of a dream car is something like an Audi RS6 and that you lust after the four exhaust pipes and the noise they make.
Imagine that you have bought a few cars and worked somewhere in the auto trade for one of the big three. You would then sneer at this production volume and consider Tesla to be amateurs, nothing but a side show.
Imagine that you dropped out of doing something for society and have been rent-seeking for many years and no longer think of the collective good but just for yourself. You really would not care about the bigger ideas of moving to a carbon neutral world.
Imagine that you are baby boomer generation and simply do not think electrification of vehicles is a practical reality in your lifetime or your great grandchild's lifetime. For you the world is made of compromises and you were quite happy to gas children with lead in petrol for most of your life without questioning it.
Imagine that you gamble on the stock market or ponzi-coins and only think of opportunities to make money that way rather than creating something of value by actually investing in companies you believe in.
Imagine that you have a narcissistic personality and cannot for the life of you express an opinion that is positive about something you like. With such emotional limitations you could only criticise and point out failings.
Imagine that you work in the media and have the Western Media Mindset that is best described as passive aggressive. If you had to write stories then by definition, because you only work in the media and have never made a car or a component for a car in your life then you could only make stories about failures. Bad news sells papers, idle speculation gives likes and views that can be monetised.
There are lots of people in the world that have these traits and because Tesla are doing something a bit special it attracts them. They write nasty things and say nasty things. They also do not have anything better to do.
This is not to say that everything in Tesla world is perfect but the people with valid criticisms get drowned out by the empty vessels who are not quite empty as they are full of greed and other emotions best left in the playground.
We also live in a bubble and there are only so many places one can put one's money. Many things including everyone's houses are somewhat over-valued right now. Tesla's valuation is not over exceptional. The naysayers also lack the time to study their history and many successful manufacturers started out with massive backlogs and production difficulties. Citroen is one name that comes to mind.
I see Tesla problems as more akin to software engineering. It is easy to criticise a software product and see the many fixes that could be implemented easily but that is not how it works. This we all know on HN but pundits on the news don't.
Why are the people who are short the evil ones, but the people who are long the stock are never pumping it for selfish reasons?
People that go long still make money out of thin air, but at least their incentives are aligned with innovation and economic growth.
If there is something that bothers me about Tesla it’s their attitude when a crash happens.
The game being played here is: set super ambitious, unrealistic expectations to get people thinking/dreaming/talking about it. Eventually deliver on it.
Again, normally the public/market would punish hard a company that does this. In Tesla’s case I belive the tolerance for delays is greater due to the perceived value of what they’re doing.
For investors, overpromising for hype and underdelivering is a strategy which is likely to wear thin very fast. Especially on things like profitably and independence of new capital needs — production numbers themselves aren't independently inportant.
The flip side is that he also has a good track record of delivering on outlandish promises, even if they’re late. When he says he’s going to build a rocket that makes the Saturn V look like a toy and use it to put humans on Mars by 2024, the specific year is not something to count on but the rest has a pretty good chance of happening.
I think it would be better if he’d stop doing this, but I’d rather have wrong deadlines for amazing stuff that eventually happens than correct deadlines for mundane oversold crap as seems to be the standard procedure for so many.
Well, building car is hardly something that hasn't been done before. They seem to be suffering from extreme NIH caused by the illusion that 100% of the stuff they do has never been done before/need disruption.
That is based on the reports suggesting that Tesla is not failing with its electric powertrain, rather it is failing in traditional part of the car assembly which is sad because the experience in those area are massive, locally and abroad.
So basically, "Is that a bad thing?" Yes, if what I say is true, because it eats the lead that Tesla has to provide no specific benefit. No, if either indeed, there is a hard, never done before, and currently unknown ingredient to Tesla that is going to increase their lead once they get it right.
Or No, because, well competitors are starting to get on the market and Tesla slowing down a bit give them time to catch meaning a more competitive landscape, which is good for everyone on the consumer side.
I don't know. We all know that, as anything, a modern car is very complex by itself and even the simplest modern production line requires far too much expertise to understand if you are not working directly in the field. So, you have to trust reports, which with an overhyped company like Tesla are more likely than not be laughingly biased in one direction or another.
It is a bit annoying that Tesla has such a track record of failing to reach their own objectives. It is bad IMO, because Tesla is not really under any kind of market pressure (no competition, and client queueing for years), their objective are only investors milestones. As an investor, I would really start thinking Musk is either delusional, hired the wrong people or is humouring me because in reality I'm the one lucky enough to be allowed to invest in Tesla and I should be grateful rather than wasting his time with silly metrics.
It only really matters if you are an investor though.
Consumer win both ways: either Tesla is giving the rest of the market a chance, or they are ready to revolutionised car production the same way the Japanese did in the 90's.
I would also argue that building a car is hard, and starting from scratch is insanely hard and was done before maybe a couple of times, 100 years ago. I may be wrong.
So to sum up: I am not surprised by Tesla’s behavior and think that the way they are framing their story may contribute to the success they had / will have.
Elon being so over confident that he ignores reality is the fear/problem. They made 5000 Model 3's a week after going basically -all out-. So yea, there are still issues and we will see how long it'll take to fix and if he'll need to raise again even though he strongly claims he won't need to.
The point is that he’s pushing really hard to make them realistic. And even if he gets 50% of the way there it’s still a massive win compared to being realistic/conservative.
Also, people’s imagination does not respond really well to boring/conservative.
Anyway, I think at this point Elon is fully aware of how hard this is.
One can certainly hope that Tesla keeps up this volume.
First group would predict failure to meet the manufacturing milestones constantly and others would predict success constantly.
Constant failure predictors would win 3 to 1.
Of course, meeting the goal with tent assembly line may dilute the achievement if Tesla manufacturing numbers drop 20-40% in next weeks.
Tesla has 1-2 years but it has very tight timeline to deliver. It probably has to dilute stock and take very high interest loans (and break yet one promise) to survive. Change of ownership for cheap price is also technically survival but not what investors have in mind.
It does not help that next regression might be come within next two years.
".. Q2 production totaled 53,339 vehicles, a 55% increase from Q1, making it the most productive quarter in Tesla history by far. For the first time, Model 3 production (28,578) exceeded .."
So the total Model 3 production was 28,756 in Q2, which is on average only 2212 vehicles per week. It seems that they have been able to pull up the production rate to above 5000 only in the very last week. Nevertheless that's an astonishing achievement.
From the May 2nd financial results letter:
"We continue to target Model 3 production of approximately 5,000 per week in about two months, although our prior experience has demonstrated the difficulty of accurately forecasting specific production rates at specific points in time because of the exponential nature of the ramp."
http://ir.tesla.com/static-files/1b240f1e-b519-4b40-b14b-fea...
But Tesla's production was 2270 vehicles at the end of Q1 and nevertheless the average production over the entire Q2 remained below that number. Didn't you find that surprising?
All of it. Anyone following this story knew they would announce 5000 cars produced at the end of the quarter, hell-or-high-water. Do you think they will produce 5000 cars this week?
They definitely aren't at a smooth sustainable build rate yet. They could probably maintain 4-5k/week on the Model 3 but in the pursuit of reaching higher output and increasing efficiency there will probably be more shutdowns this quarter.
I would expect that they might lean on the tent/GA4 line to let them do some more shutdowns and reconfigurations of the main line.
I think they've still got a ways to go before they have smooth and steady production output at the efficiency that they want.
Why not aim for sustained 5000/week, increase QA/reduce re-work and go from there? The fact that Musk is unable or unwilling to take that stance is a red flag for me and underscores my unease.
It's been hard to tell from the outside whether "late" just meant "we underestimated this, so we're late", or if it meant "we underestimated this so badly we'll never get there." Even when I started to believe it would just be a matter of time, I was concerned that there wouldn't be enough capital to get here. But flamethrowers or whatever got us here, and I'm impressed.
The next quarterly update will be sometime early August.
It was optional "technically", but mandatory in reality.