Perhaps riding a bit on the Starman high of this week’s SpaceX triumph, which included the successful launch of a special payload (Musk’s Tesla Roadster) into space, the one-liner that Tesla CEO Elon Musk blurted out near the start of a financial call for the automaker may have fallen a little flat: “If we can send a Roadster to the asteroid belt we could probably solve Model 3 production . . . it’s just a matter of time.”
A great many reservation holders for the Model 3, Tesla’s more affordable mass-production car, are likely wondering just how long that time might be. Yet investors have been remarkably unfazed by a spate of reported losses—including its biggest quarterly loss ever of $675 million in the last quarter of 2017. During the update, Musk was awash in a seemingly parallel universe of contradictions—simultaneously griping about how hard it is to mass-produce vehicles and criticizing how slow and antiquated current auto production is.
Still Talking Ramp-Up
The numbers say a lot. More than seven months after the production start for the Model 3, Tesla still isn’t making them as rapidly as it makes its more expensive niche models, the Model S and the Model X. Through the end of the year, Tesla had delivered just 1542 Model 3 sedans but claimed that it had reached a production rate of better than 1000 a week. By the end of March the automaker hopes to reach 2500 units a week, a rate that will at last see the Model 3 outpace the company’s production rate for its older models. And by the end of June, it’s aiming to reach the 5000-a-week rate it had targeted at the end of last year.
With the production ramp-up, plus development of vehicle projects such as the Model Y crossover, the Semi, and the second-generation Roadster, Tesla is burning cash at a record rate despite strong business on its energy-storage side. Simply put, if Tesla could deliver more vehicles, its financials wouldn’t be so lopsided. “At some point in 2018, we expect to begin generating positive quarterly operating income on a sustained basis,” the company said in a press release accompanying the update.
Musk briefly discussed Semi development as moving on schedule and hinted at a plant announcement later this year for the Model Y, which will be largely based on the Model 3. “A big part of our manufacturing capability is going to come from how simply we manufacture the products,” he said.
Some Assembly Required
Automation in battery-module assembly has been at the core of the Model 3 hiccups. That in itself is a bit ironic, since Musk has been a longtime advocate of a high level of automation—the “alien dreadnought” look is what he said the company was going for in facility design—and has said in the past that it would be a key to Tesla’s rapid ramp-up with Model 3. But during the update he turned to engineering VP and former Apple executive Doug Field, who seemed to contradict that idea by saying that at Apple, with simpler products, rapid ramp-up was made possible through a very high level of manual assembly.
As Musk talked through Tesla’s multitude of issues with slow Model 3 production, he criticized today’s auto assembly lines for moving at just 0.2 meter per second—”grandma-with-a-walker speed”—and noted how much room for improvement there is in production speed within the auto industry. Minutes earlier in the call, he’d pointed to Ford’s legendary River Rouge plant—more a triumph in layout and vertical integration than in automation—and noted that “the competitive strength of Tesla, long term, [is] not going to be the car, it’s going to be the factory.”
Tesla says that 2018 will be a transformative year, and, given the make-or-break reality of the financials, it had better be. SpaceX is looking like a splashy success, but Tesla still has a lot to prove.
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