It was been a little over a month since our last Supply Chain Matters update on Tesla and its various supply network challenges, when we highlighted an Asian report indicating that battery technology provider Panasonic was suspending plans to expand the capacity of the U.S. based Gigafactory battery production facility.

As is usual, Tesla does not disappoint in providing noteworthy developments.  Tesla Model 3

These past few weeks, the electric auto maker has been dogged with a series of challenges not the least of which is a continuing working capital challenge.

A recent additional $2 billion bond infusion provided a short-term lifeline but the emphasis for Tesla remains scaling-up production and additional revenue and cash. Earlier this month, CEO Elon Musk told employees in a companywide email that the new funds raised were only enough to sustain 10 months of production operations, and called for “hardcore” expense control measures, including the company’s CFO signing-off on every expense and Musk himself personally signing-off on every 10th expense request. The company incurred a $700 million operating loss in Q1.

Reports of recent investor calls note that the company has re-iterated an intent to deliver between 90,000 to 100,000 in this second quarter, and a range of 360,000 to 400,000 vehicles for the full year.  That remains a tall order since the auto maker produced a little over 77,000 vehicles in the first quarter but could only deliver 63,000 vehicles.

In April, in an effort to deflect a less than stellar news cycle, CEO Elon Musk attempted to change the negative narrative toward autonomous driving cars and a fleet of on-demand Tesla Robot Taxis appearing next year. His stated vision was vehicle owners having the ability to push a button on a smartphone app to place their vehicles into commercial service. Of course, Tesla would reportedly collect a 25-30 percent commission on designated rides, similar to an Uber or Lyft service, and only Tesla vehicles would work with the automaker’s ride hailing service.

Also, in April, the company elected to suspend sales of the $35,000 base version of the Model 3 weeks after introducing it, which was a further indicator of ongoing challenges in margin and profitability. While customers can supposedly be able to order the base version by telephone, the lowest Model 3 version available online is a $39,500 version. In its reporting, The Wall Street Journal was quick to point out that the price change announcement was the fourth announced staring-point price change thus far this year. The publication also cited data from FactSet indicating that the average Model 3 sold for $57,000 in 2018, fueling speculation that the automaker had reached a ceiling of buyers willing to pay for the higher priced version, given growing industry competition.

Newest Developments

Business Network CNBC reported this week that the auto maker is now in the process of re-configuring its Fremont auto assembly facility to build both a Model Y SUV and a Model S refresh.

The Model Y is essentially the mid-size SUV edition of the Model 3 platform and according to the company’s CEO, will be introduced in the $47,000 price range, and at some point, be offered in a standard version $39,000 price target. The refresh of the Model S reportedly will include a more minimalist interior design and longer battery range.

The report cites employees as indicating that the company has barely begun to place orders for new production capital required to manufacture the Model Y, neither has there been an official announcement that Fremont preparations have begun.  The plan is reportedly to combine Model S and Model Y production in a single line, aiming for a September start for the Model S refresh.

This week, Reuters reported that photos of the new Shanghai China plant posted on social media appear to show that exterior construction is nearly done, and the automaker has held an employee recruitment event for required manufacturing and logistics workers.

That news comes after the official groundbreaking ceremony that occurred in early January. The ceremony highlight was the “switching-on” of the plant, yet the The Wall Street Journal and other business media reported that the reality was the existence of a literal empty field. It seems phenomenal that in four months, the plant could be characterized as nearly done.

Reuters also reported that Tesla would begin to accept pre-orders for the Chinese produced Model 3 as of today.  The vehicle is reportedly priced at the equivalent of $47,529 (328,000 yuan), 13 percent below those which are currently imported into the country. Of course, we have to cite caution with such a number since with the ongoing escalation of trade tensions among the U.S. and China, import tariff comparisons are rather fluid. According to the report, starting prices for five different versions of China produced Model 3’s range from 328,000 to 522,000 yuan, with vehicle deliveries expectations noted by Tesla as being 6-10 months.

Supply Chain Matters speculates that with the ongoing U.S. and China trade tensions that are escalating, Tesla needs to be very watchful in the coming months and weeks, including that the auto maker does not become entangled in the ongoing conflict.  Risks could either be in steeped-up government oversight, a sudden revisit of Tesla’s special status as a solely owned foreign manufacturer, new regulatory hurdles or even threats of cyber-attacks.

In the current times, nothing is a slam-dunk.

Bob Ferrari

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