Since this came out as part of the Tesla earnings, here's my recap from their earnings release and call....
- Tesla will be late getting up to 5,000 units a week of Model 3. It will happen at the end of Q1 instead of the end of this year. The bottleneck is batteries.
- Some lines are at only 500 cars a week. Namely the battery pack assembly, body shop welding and final vehicle assembly.
- The $2.92 a share loss was much bigger than the $2.27 analysts expected.
- The company burned $1.4 billion and has $3.5 billion in cash. Raising money shouldn't be necessary.
- Automotive gross margins fell from 28% to about 18% and will slip to 15% next quarter.
- Auto revenue grew 10% to $2.4 billion as sales of Model S and X grew.
Revenue is at risk, though. Tesla will divert resources from Model S and X to the Model 3.
- Tesla didn't say much about China. The company added a supercharger station with 50 chargers in Shanghai, but no word on a new plant.
- Musk expects to spend $1 billion on capital expenditures next quarter. That's consistent with expectations for ramp up for Model 3.
- Tesla installed 109 megawatts of ``energy generation systems'' in the third quarter. It acknowledges this is an underwhelming figure: ``the lower deployments are in large part a result of deliberately de-emphasizing commercial and industrial solar energy projects with low profit and limited cash generation.''
As to the battery delay.... Tesla says it's the suppliers fault. "key elements" of the battery module assembly had to be taken over and redesigned, Musk says.
EDIT
- most importantly, Elon has moved his desk to the giga factory as that is where the largest bottleneck is.
”Other lines, such as battery pack assembly, body shop welding and final vehicle assembly, have demonstrated burst builds of about 500 units per week and are ramping up quickly.”
If you can do burst runs of 15 km/hour, that doesn’t mean you can run a three hour marathon.
”The company burned $1.4 billion and has $3.5 billion in cash. Raising money shouldn't be necessary.”
To get that $1.4 billion in revenue, they will need to sell 40k Tesla 3s at $35k each, or 3,000 a week. To get it in margin, even assuming the average model 3 will sell for $50k, they will have to sell 12,000 a week or so (at 20% margin)
=> If things go as planned, I guess they will need about half their money in half a year or so before turning a profit. That doesn’t leave very much in case things go worse than planned (for example, they plan for 25% margin on model 3, but currently don’t have that on their more expensive models, and they plan to sell more of their expensive models, but can decrease production, so, presumably, they have quite a few of them in inventory)
Tesla may have a fantastic future ahead of it, but it also may fail spectacularly fairly soon, or just have a decent future ahead of it that doesn’t warrant its current share price.
"key elements" of the battery module assembly had to be taken over and redesigned, Musk says.
Tesla seems to be taking the opposite approach to Apple here. In my observation, Apple drives its suppliers extremely hard to achieve the quality it requires. Tesla, on the other hand, is too eager to bring any sundry part in house (e.g. car seats). Apple's approach appears to work in that it pushes suppliers to do what's necessary. I worry that Tesla, having already bitten off a large bite to chew, is inviting too much distraction that will, in the long run, not put Tesla in a stronger position (there is a reason most automobile manufacturers outsource their seats after all).
The most worrying is the slowing production of models S and X, coupled with what I'd call a collapse in the gross margins of those products. Why is the margin declining so drastically?
I don't want to be that guy, but there are specific Unicode characters for opening and closing quotes now, so we don't need to deal with the weird usage imposed by limited typesets anymore.[1] For some reason, the two separate backtick characters are really bugging me visually. That's all I wanted to say. Thanks in advance for bearing gracefully with my nitpicking, letting me express that makes me feel better.
>> - Auto revenue grew 10% to $2.4 billion as sales of Model S and X grew. Revenue is at risk, though. Tesla will divert resources from Model S and X to the Model 3.
This is curious. If the S and X are profitable, why divert resources from them? Not enough? Well maybe they should not have just canned a bunch of people?
Yeah I know, the ones they let go may not be the ones they needed for the 3. But it still seems strange all these things taken together.
> "the lower deployments are in large part a result of deliberately de-emphasizing commercial and industrial solar energy projects with low profit and limited cash generation."
The bottleneck is absolutely not batteries. From the document, they specifically state that they have multiple steps which are only able to operate for short periods at 500 cars per week, which basically means 500 cars could be produced if you take how things went for two hours and assume that rate can be maintained for a week.
"Leading up to the end of September, we saw new-high Model 3 VIN numbers in the wild almost every other day, culminating in number 521.
But since the beginning of October, nothing. I can’t find a single one above 521 with VIN picture evidence on any forum.
It’s unlikely to end up this way, but the sole evidence we have to date is this: Tesla is on track to deliver zero Model 3 units in October.
Of course, I don’t believe it will be exactly zero. However, it’s no longer an impossibility. It’s looking like my previous estimate of 240 units may be way too high."
Tesla says today they produced only 260 vehicles in October--and it's unlikely very many of those got all the way to end users!
From SeekingAlpha October 17: "At this stage, I'll continue to roll the dice one more time in favor of betting that for a third full month, the Chevrolet Bolt EV will out-sell the Tesla Model 3 in the U.S. - and probably by a very wide margin, along the lines or 10:1 or more. Maybe even 100:1 or an infinite margin."
Even if you consider Elon Musk a sort of demigod (as much of the tech industry seems to), the leap from 260 vehicles a month--which indicates the vehicles are still being made mostly by hand--to 5,000 a week is going to be incredibly difficult to make in just a few short months.
What does it mean to "outsell" something when that something is backordered into the foreseable future? Personally I will wait until Tesla goes bankrupt before I buy a bolt but I'm still betting that, despite Tesla's lack of ability to predict their own production capability timeline (uh hello, pretty much every tech company that ever existed), that I won't have to.
seeking alpha is a user contributed site. they don't predict anything. their authors do. and most off them have terrible track record and are trying to push their newsletters , funds, and other crud on an dwindling supply of dumb mom & pop investors who read the site
As an engineer who has zero investment in Tesla, I truly hope they overcome this setback. Simultaneously, I know from experience that failure is a real possibility.
At this point, it’s nice to have the additional transparancy into the current production bottleneck.
The first two zones of a four-zone process to produce battery packs are being completely reworked, and this is something they only found out about after they were already failing to deliver on promised production goals?
I've mis-estimated a lot of things in my career, so I'm trying to be sympathetic, but it seems like someone with production line experience should have been able to test individual parts of the production line before committing to thousands of units per month.
> But a problem with a subcontractor, compounded with other issues, forced Tesla to start over in certain areas, delaying production.
> “We had to rewrite all of the software from scratch,” Musk said, adding that they’d redone “about 20 to 30 man years of software in four weeks” for the battery module.
Maybe I'm just overcautious, but I would prefer not to be anywhere in the vicinity of a high-discharge actively cooled 100kWh battery whose control system was written, presumably as a rush job, in four weeks.
Yeah doing 30 man years of software in 4 weeks is nothing to brag about. It's like assuming putting 9 women together can output a baby in a single month.
assuming a man year is 40h/week and those 4 weeks were a crunch of 80 hour weeks, then 125 people worked on the same piece of software, assuming no ramp up time.
What on earth is in that control software since it take 20-30 man years to write?
I mean, charging profile based on input variables such as temperature, total capacity, current capacity, health, available power ect. And then for discharging.
The battery and it's controller ought to be a black box you can either feed power or request power from, and query for data. Either I'm missing something fundamental, or the SW stack is a mess.
The great thing about corporate missions & goals is that they are written so broadly:
"Our goal when we created Tesla a decade ago was the same as it is today: to accelerate the advent of sustainable transport by bringing compelling mass market electric cars to market as soon as possible. " (https://www.tesla.com/blog/mission-tesla).
Thanks to Tesla - seriously(!! COULD not and WOULD not have happened without them), we now have a compelling mass market electric car on the market.
So this is the real reason that they had those 'performance-based' layoffs. If you need to fire a certain number of employees, just give bad performance evaluations to those people and fire 'for cause.'
As a company, Tesla can use whatever nonsensical management techniques they want. But firing people 'for cause' will unreasonably hurt otherwise productive people in their future careers. And it will make future candidates far more wary to ever want to work there.
Or maybe they could normally keep lower performing employees around, but cash is getting tighter so they decided to let some of them (less than 4%) go.
"Cash being tight" and "firing some employees for performance reasons" are not mutually exclusive.
I listened to the whole earnings call that just happened, Elon said they had laid of 2% of their work force which is much low than industry standard for yearly layoffs.
Elon quoted GE which lays of the bottom 10% of their staff every year. It's not that bad.
Did you not listen to the earnings call? Annual performance evaluations are standard practices in the industry(and other industries). Tesla laid off a mere 2% of their workforce while GM laid off 10%!
Seeing as how this is an issue in one of their core competencies, this is concerning. Tesla wants to be a battery company(amongst other things). I hope that with this redesign, they're actually fixing problems and working their way to viability. Its easy to doubt Teslas viability(and I think they're overvalued for sure)but Musks teams are solving hard problems at SpaceX so I think they at least have a shot...
Disclaimer: I own Tesla shares. Tesla has a long history of taking far longer and far more money to achieve a goal than they forecast. They don't show signs of adjusting their forecasts based on previous misses. For the last couple of years the market has given them a pass for that when the market has punished other companies for far less. Tesla has gone to the well again and again to raise money. One concern is that if market support drops, they may not be able to go to the well again. And history suggests that they will need to and will miss their revised goal as well.
> What is the main practical selling point of a model 3 over, say, a leaf?
Much better value, larger size, better fuel economy, more conventional, more power, more range, and superchargers.
Cost per mile of range: $200 for the 2018 leaf, 132 for the Model 3. 147 hp vs 258 hp, 10" of extra length and 6" of extra width, over twice the range at less than half the capacity.
The Tesla is way superior to any other electric car on the road. The supercharger alone makes it the obvious buy for almost all consumers.
Assuming you're talking about the new Leaf which isn't yet available in the US ...
* 50-100% greater range
* Better acceleration and handling (and RWD/AWD)
* Access to the Tesla Supercharger network enabling long-distance travel
* Much better UX and constant improvements in OTA software updates.
* Buying from a company that is all-in on electrifying and decarbonizing the world, and isn't just dipping in their toes for the granola crowd.
* A way more attractive car compared to the Leaf's awkward hatch
There's good information at the Daily Kanban.[1] They describe what corners Tesla cut, and why it backfired. "Tesla has not yet built a Model 3 using the automated tooling", says one of the people from the company that builds the automated tooling.
Normal testing and tweaking time for a new body assembly line is 6 months to a year, and before that, sections of the line are run in test at the supplier's factory. Tesla skipped all that. It didn't work out well.
I feel like I should cancel my reservation of Tesla Model 3. Something tells me that subscription-based autonomous cars will be here before my Model 3 and will render purchasing cars useless. Anybody in a similar boat?
I've been considering cancelling my preorder. As late as they'll be (assuming they do deliver) and my estimated place in line, the other manufacturers will have competitive offerings
I don't follow official statements closely but it sounds like they are using this retooling as an excuse for low demand for the S and X. This way they get to have their cake and eat it too: low S/X numbers justified and re-energized promises for increased 3 production.
[+] [-] chollida1|8 years ago|reply
- Tesla will be late getting up to 5,000 units a week of Model 3. It will happen at the end of Q1 instead of the end of this year. The bottleneck is batteries.
- Some lines are at only 500 cars a week. Namely the battery pack assembly, body shop welding and final vehicle assembly.
- The $2.92 a share loss was much bigger than the $2.27 analysts expected.
- The company burned $1.4 billion and has $3.5 billion in cash. Raising money shouldn't be necessary.
- Automotive gross margins fell from 28% to about 18% and will slip to 15% next quarter.
- Auto revenue grew 10% to $2.4 billion as sales of Model S and X grew. Revenue is at risk, though. Tesla will divert resources from Model S and X to the Model 3.
- Tesla didn't say much about China. The company added a supercharger station with 50 chargers in Shanghai, but no word on a new plant.
- Musk expects to spend $1 billion on capital expenditures next quarter. That's consistent with expectations for ramp up for Model 3.
- Tesla installed 109 megawatts of ``energy generation systems'' in the third quarter. It acknowledges this is an underwhelming figure: ``the lower deployments are in large part a result of deliberately de-emphasizing commercial and industrial solar energy projects with low profit and limited cash generation.''
As to the battery delay.... Tesla says it's the suppliers fault. "key elements" of the battery module assembly had to be taken over and redesigned, Musk says.
EDIT
- most importantly, Elon has moved his desk to the giga factory as that is where the largest bottleneck is.
[+] [-] Someone|8 years ago|reply
That sounds better than what Tesla claims. http://files.shareholder.com/downloads/ABEA-4CW8X0/549293785... (emphasis added):
”Other lines, such as battery pack assembly, body shop welding and final vehicle assembly, have demonstrated burst builds of about 500 units per week and are ramping up quickly.”
If you can do burst runs of 15 km/hour, that doesn’t mean you can run a three hour marathon.
”The company burned $1.4 billion and has $3.5 billion in cash. Raising money shouldn't be necessary.”
To get that $1.4 billion in revenue, they will need to sell 40k Tesla 3s at $35k each, or 3,000 a week. To get it in margin, even assuming the average model 3 will sell for $50k, they will have to sell 12,000 a week or so (at 20% margin)
=> If things go as planned, I guess they will need about half their money in half a year or so before turning a profit. That doesn’t leave very much in case things go worse than planned (for example, they plan for 25% margin on model 3, but currently don’t have that on their more expensive models, and they plan to sell more of their expensive models, but can decrease production, so, presumably, they have quite a few of them in inventory)
Tesla may have a fantastic future ahead of it, but it also may fail spectacularly fairly soon, or just have a decent future ahead of it that doesn’t warrant its current share price.
[+] [-] williamscales|8 years ago|reply
Tesla seems to be taking the opposite approach to Apple here. In my observation, Apple drives its suppliers extremely hard to achieve the quality it requires. Tesla, on the other hand, is too eager to bring any sundry part in house (e.g. car seats). Apple's approach appears to work in that it pushes suppliers to do what's necessary. I worry that Tesla, having already bitten off a large bite to chew, is inviting too much distraction that will, in the long run, not put Tesla in a stronger position (there is a reason most automobile manufacturers outsource their seats after all).
[+] [-] rsynnott|8 years ago|reply
Ah, the Kim Jong Il approach. The presence of Dear Leader will surely inspire the peasants as they work towards the Juche Ideal.
[+] [-] 11thEarlOfMar|8 years ago|reply
[+] [-] kbenson|8 years ago|reply
1: https://english.stackexchange.com/questions/17695/any-refere...
[+] [-] RayVR|8 years ago|reply
[+] [-] phkahler|8 years ago|reply
This is curious. If the S and X are profitable, why divert resources from them? Not enough? Well maybe they should not have just canned a bunch of people?
Yeah I know, the ones they let go may not be the ones they needed for the 3. But it still seems strange all these things taken together.
[+] [-] unknown|8 years ago|reply
[deleted]
[+] [-] gordon_freeman|8 years ago|reply
Just curious -- If they need to raise money afterall, how easy or difficult it would be for them to get the money cheaply?
[+] [-] _pmf_|8 years ago|reply
Euphemism for government funding running out.
[+] [-] pasta|8 years ago|reply
Those 'bugs' are a big problem for a company already behind in production.
I hope for Tesla this was just a single event. But new cars with new tech always have issues. You don't want that when you are already behind.
[+] [-] mandeepj|8 years ago|reply
production could begin in three years. Source - https://techcrunch.com/2017/11/01/elon-musk-says-teslas-chin...
[+] [-] zackangelo|8 years ago|reply
apparently he sleeps there sometimes too:
https://www.gearbrain.com/elon-musk-sleep-tesla-factory-2502...
[+] [-] dilemma|8 years ago|reply
Elon is the bottleneck
[+] [-] RayVR|8 years ago|reply
[+] [-] ericabiz|8 years ago|reply
"Leading up to the end of September, we saw new-high Model 3 VIN numbers in the wild almost every other day, culminating in number 521.
But since the beginning of October, nothing. I can’t find a single one above 521 with VIN picture evidence on any forum.
It’s unlikely to end up this way, but the sole evidence we have to date is this: Tesla is on track to deliver zero Model 3 units in October.
Of course, I don’t believe it will be exactly zero. However, it’s no longer an impossibility. It’s looking like my previous estimate of 240 units may be way too high."
Tesla says today they produced only 260 vehicles in October--and it's unlikely very many of those got all the way to end users!
From SeekingAlpha October 17: "At this stage, I'll continue to roll the dice one more time in favor of betting that for a third full month, the Chevrolet Bolt EV will out-sell the Tesla Model 3 in the U.S. - and probably by a very wide margin, along the lines or 10:1 or more. Maybe even 100:1 or an infinite margin."
Even if you consider Elon Musk a sort of demigod (as much of the tech industry seems to), the leap from 260 vehicles a month--which indicates the vehicles are still being made mostly by hand--to 5,000 a week is going to be incredibly difficult to make in just a few short months.
[+] [-] gcheong|8 years ago|reply
[+] [-] paulpauper|8 years ago|reply
[+] [-] revelation|8 years ago|reply
[+] [-] unknown|8 years ago|reply
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[+] [-] rconti|8 years ago|reply
[+] [-] asdfasdfasd333|8 years ago|reply
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[+] [-] dogruck|8 years ago|reply
At this point, it’s nice to have the additional transparancy into the current production bottleneck.
[+] [-] pwinnski|8 years ago|reply
I've mis-estimated a lot of things in my career, so I'm trying to be sympathetic, but it seems like someone with production line experience should have been able to test individual parts of the production line before committing to thousands of units per month.
[+] [-] rsynnott|8 years ago|reply
> “We had to rewrite all of the software from scratch,” Musk said, adding that they’d redone “about 20 to 30 man years of software in four weeks” for the battery module.
Maybe I'm just overcautious, but I would prefer not to be anywhere in the vicinity of a high-discharge actively cooled 100kWh battery whose control system was written, presumably as a rush job, in four weeks.
[+] [-] j7ake|8 years ago|reply
[+] [-] sobani|8 years ago|reply
assuming a man year is 40h/week and those 4 weeks were a crunch of 80 hour weeks, then 125 people worked on the same piece of software, assuming no ramp up time.
Is this even possible?
[+] [-] hvidgaard|8 years ago|reply
I mean, charging profile based on input variables such as temperature, total capacity, current capacity, health, available power ect. And then for discharging.
The battery and it's controller ought to be a black box you can either feed power or request power from, and query for data. Either I'm missing something fundamental, or the SW stack is a mess.
[+] [-] penglish1|8 years ago|reply
Thanks to Tesla - seriously(!! COULD not and WOULD not have happened without them), we now have a compelling mass market electric car on the market.
The Chevrolet Bolt.
[+] [-] antiviral|8 years ago|reply
As a company, Tesla can use whatever nonsensical management techniques they want. But firing people 'for cause' will unreasonably hurt otherwise productive people in their future careers. And it will make future candidates far more wary to ever want to work there.
[+] [-] moduspol|8 years ago|reply
"Cash being tight" and "firing some employees for performance reasons" are not mutually exclusive.
[+] [-] crush-n-spread|8 years ago|reply
Elon quoted GE which lays of the bottom 10% of their staff every year. It's not that bad.
[+] [-] dayaz36|8 years ago|reply
[+] [-] sumitgt|8 years ago|reply
I've never received any communication about timelines at all.
[+] [-] S_A_P|8 years ago|reply
[+] [-] babesh|8 years ago|reply
[+] [-] jeffdavis|8 years ago|reply
Good thing tesla has a lot of vertical investment in batteries. The market is very competitive.
[+] [-] hwillis|8 years ago|reply
Much better value, larger size, better fuel economy, more conventional, more power, more range, and superchargers.
Cost per mile of range: $200 for the 2018 leaf, 132 for the Model 3. 147 hp vs 258 hp, 10" of extra length and 6" of extra width, over twice the range at less than half the capacity.
The Tesla is way superior to any other electric car on the road. The supercharger alone makes it the obvious buy for almost all consumers.
[+] [-] sxates|8 years ago|reply
* 50-100% greater range * Better acceleration and handling (and RWD/AWD) * Access to the Tesla Supercharger network enabling long-distance travel * Much better UX and constant improvements in OTA software updates. * Buying from a company that is all-in on electrifying and decarbonizing the world, and isn't just dipping in their toes for the granola crowd. * A way more attractive car compared to the Leaf's awkward hatch
[+] [-] vvanders|8 years ago|reply
[+] [-] _Codemonkeyism|8 years ago|reply
[+] [-] Animats|8 years ago|reply
Normal testing and tweaking time for a new body assembly line is 6 months to a year, and before that, sections of the line are run in test at the supplier's factory. Tesla skipped all that. It didn't work out well.
[1] https://dailykanban.com/2017/10/source-tesla-responsible-mod...
[+] [-] perseusprime11|8 years ago|reply
[+] [-] pmurT|8 years ago|reply
[+] [-] mudil|8 years ago|reply
[+] [-] ww520|8 years ago|reply
[+] [-] avs733|8 years ago|reply
https://jalopnik.com/elon-musk-just-yelled-shame-at-a-bunch-...
[+] [-] nickik|8 years ago|reply
That literally every Tesla/SpaceX story in the last 10 years.
[+] [-] glbrew|8 years ago|reply
I don't follow official statements closely but it sounds like they are using this retooling as an excuse for low demand for the S and X. This way they get to have their cake and eat it too: low S/X numbers justified and re-energized promises for increased 3 production.