Last Friday, Tesla conducted its long-awaited Model 3 customer handover event that unveiled the final production versions of the new entry-level, mass-produced electric car, along with announcing the delivery of the first 30 cars to designated employee customers. Initial deliveries to select employees is an established tradition at Tesla, since these initial completed vehicles will be continually evaluated by employees for performance and reliability metrics.  Tesla Model 3

We now know a lot more about this new vehicle, but at the same time, less about how Tesla will manage the huge production ramp-up.

The Model 3 will feature two different versions including one that extends the electric car’s range to a noteworthy 310-mile range. However, customer will have to pay an extra $9000 for the extended range option. Even more compelling is that if a customer where to add all the available add-on options, including the extended range batteries, enhanced autopilot, premium upgrade package and other options, the total price of the fully loaded Model 3 is just below $60,000.  That perhaps narrows the notions for the mass-produced car for the masses, but it does reinforce the need for Tesla’s quest for profitability.

The more expensive extended battery version has now begun production with the real-wheel drive version. Standard battery Model 3’s is slated to begin production by November.  It is not until the first-half of 2018 that the all-wheel drive versions enter production while international models with right-hand drive commence production and delivery in the second-half of 2018.

Founder and CEO Elon Musk spoke plainly regarding the supply chain and manufacturing challenges currently facing Tesla. He stated: “Frankly, we’re going to be in production hell”. Further stated was that this tough period of Tesla’s production ramp-up will last at least six months, but maybe longer.

From our Supply Chain Matters lens, Musk maybe understating the challenge.

Musk spoke to a delivery schedule of around 100 Model 3’ s in August and just above 1,500 in September. By December, Musk believes that Tesla’s manufacturing and supply chain teams will begin achieving more meaningful production volume rate of upwards of 20,000 Model 3 deliveries monthly. That is roughly the equivalent to the total production volume of all of Tesla model vehicles during Q2 alone.

Once again, such production goals are rather aggressive for any single final assembly manufacturing facility and there can be little tolerance for supply chain or manufacturing snafus.

To add added background to the challenge, Tesla’s web site currently indicates that customers reserving a new Model 3 today can expect a mid-2018 delivery date. While Tesla will not publicly declare the total number of existing customer reservations for the Model 3, some in media and investor channels are speculating that there are upwards of 400,000 – 500,000 existing reservations with customer deposits.

In reporting Tesla’s recently completed Q2 financial performance, Musk pointed a severe production shortfall of 100 kWh lithium-ion batteries packs. According to the earnings release, production of all-important electric battery packs averaged 40 percent below planned supply up until early June. Musk further indicated a need to open as many as three new battery factories as well as active consideration for opening a second automobile production facility, perhaps in China. These are all indicators of scale-up challenges, and imply the use of added capital to fund such investments.

As noted in our Supply Chain Matters commentary related to Tesla’s Q1 operational performance, which each passing quarter, there will be added scrutiny surrounding Tesla’s operational performance as well as the underlying supply chain processes and management systems. While Tesla stock valuations continue to reflect a perception of being a more valuable company than perhaps Ford Motor Company or General Motors, we continue to submit the broader determinant is consistent supply chain performance and scalability.

Up to this point, the sheer dedication, stamina, and creativity of individual Tesla employees has helped to deliver expected performance numbers. At some point, energy levels will succumb to the sheer scale of what remains to be accomplished.

Readers can view video of the entire customer handover event at this YouTube web link.


Bob Ferrari

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