Yesterday after market close, Tesla released a Form 8-k to clarify Elon Musk’s comments the day prior regarding needing to move equipment from Germany to reach production ramp goals.
Tesla, Inc. is clarifying the following statement made by Elon Musk, Tesla’s Chief Executive Officer, during Tesla’s fourth quarter and full year 2017 financial results conference call held on February 7, 2018:
“[We] expect the new automated lines to arrive next month in March. And then it’s already working in Germany so that’s going to be disassembled, brought out to the Gigafactory and reassembled and then go into operation at the Gigafactory. It’s not a question whether it works or not. It’s just a question of disassembly, transport and reassembly. So we expect to alleviate that constraint. With alleviating that constraint, that’s what gets us to the roughly 2,000 to 2,500 unit per week production rate.”
The “2,000 to 2,500” units per week cited in this comment refers solely to the capacity of the additional automated battery module manufacturing equipment that is currently located in Germany, and not to Tesla’s total Model 3 production run rate or to the capacity of the automated battery module equipment that is already present at Gigafactory 1. Tesla’s ability to meet its target of 2,500 per week by end of Q1 2018 is not dependent on the additional equipment that is currently located in Germany, as that equipment is expected to start ramping production during Q2 2018. With respect to battery module production, Tesla’s ability to meet its target of 2,500 per week by end of Q1 2018 is dependent only on the equipment that is already present at Gigafactory 1, as well as the incremental capacity that is currently being added through the semi-automated lines that were also discussed during the conference call.
As stated in Tesla’s Fourth Quarter and Full Year 2017 Update Letter:
“We continue to target weekly Model 3 production rates of 2,500 by the end of Q1 and 5,000 by the end of Q2. It is important to note that while these are the levels we are focused on hitting and we have plans in place to achieve them, our prior experience on the Model 3 ramp has demonstrated the difficulty of accurately forecasting specific production rates at specific points in time. What we can say with confidence is that we are taking many actions to systematically address bottlenecks and add capacity in places like the battery module line where we have experienced constraints, and these actions should result in our production rate significantly increasing during the rest of Q1 and through Q2.”
Tesla claims that they don’t need the new automated line equipment from Germany to reach their 2,500 Model 3 cars/week production rate by end of Q1 2018. However, at this point, Tesla has lost much of their credibility regarding Model 3 production ramp guidance.
In order for Tesla to regain investor confidence, they need to do what they say they’re going to do. This means, they need to reach 2,500 cars/week by end of Q1. I, personally, think this is going to be difficult to achieve.
In the Q1 earnings call, Elon mentioned that having to make a new automated battery module assembly line costed them 6-9 months of time. So, if they original goal was 5000 cars/week by end of Q4 2017, then that goal is pushed off by a minimum of 6 months. So it appears that Tesla is aiming for end of Q2 2018 as to when they can reach 2,500 cars/week. But this is likely an aspirational goal, and perhaps not realistic. But we will see in less than 2 months. Tesla will release their Q1 delivery (and production) numbers at the beginning of April. If Tesla does manage to reach 2,500 Model 3 cars/week by that period, they will dispel all doubt and disappointment regarding the Model 3 production ramp.