The start of Tesla Model 3 production and the subsequent ramp-up are increasingly becoming the focus of industry watchers and Tesla enthusiasts. We know more than ever about Tesla’s own plan for Model 3 production since the recent earnings and now it’s about gauging the company’s execution on this plan.
Most Wall Street analysts expect that it will be both late and slower to ramp to volume production than what the company is guiding. Goldman Sachs released a note claiming just that this morning and it sent Tesla’s stock down by 5%.
Lets first try to understand what is Tesla’s actual plan for the production ramp up of the Model 3.
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There are a lot of things at play and first off, it’s important to clarify the difference between orders, production, and deliveries.
We will be talking about production numbers here based on parts orders. CEO Elon Musk said during the conference call last week:
“So when we place parts orders with our suppliers, we’ve told them 1000 a week in July, 2000 a week in August, and 4000 a week in September. These are parts orders. Then the parts need to arrive, and they need to be turned into a car and the car needs to be delivered to customers.”
As we previously reported, deliveries will be concentrated in California and to Tesla/SpaceX employees first. Since the cars are not going too far away from Tesla’s Fremont factory at first, production should track close to deliveries. But after a few months, Tesla will start moving east and delivery delays can be relatively important, which is why we will focus on production numbers.
Based on Tesla’s parts orders and using a 10-day delay, we track a perfect execution of a Model 3 production ramp at about 80,000 units in 2017:
That would barely make a dent in Tesla’s backlog of over 400,000 reservations and again, that’s assuming a perfect execution, which is near impossible.
As Musk pointed out himself during the conference call last week, if only 1% of parts are not available in time, it could significantly slow down the ramp:
“It only has to be 1% and then we either have to make those parts manually at great cost or slow down the production rate. And it’s at great cost. We make something manually, as opposed through mass production, it can be 10, 20, 30 times more expensive.”
He later added:
“The rate of production is as fast as the slowest component in the vehicle. And when you have several thousand unique items, it can move as fast as the least likely and worst executing part of Tesla or our suppliers. That’s just the way it goes.”
Musk reiterated that so far everything is still on track, but a lot can still happen between now and July. Interestingly, he had previously mentioned that the stamping press that they ordered from Schuler could be the biggest bottleneck at this point.
The CEO is now confident that they will have the press, but he clarified that it will have to be “operating smoothly” in time:
“We are busy building out the stamping facility right now. The question is not whether the stamping press will be here. It’s going to be here well in advance of the Model 3. But the question is really how long does it take to work out the bugs in the stamping line? And how many iterations does this one have to go through to get it operating smoothly?”
He said that he will be overseeing some of the operations himself during the installation.
But the problem is not what Tesla knows could be problematic, but what will be in the near future. Those are the things that will drive the schedule.
If the plan is to produce around 80,000 units before the end of the year under perfect execution based on the planned parts orders, what do you think will be Tesla’s actual Model 3 production in 2017?
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