Global electric auto and solar power producer Tesla reported Q1-2017 automobile production and delivery performance this weekend, and the numbers provide both good, or concerning news, depending on perspective. 
The automaker reported that it had delivered just over 25,000 vehicles for the March-ending quarter, establishing a quarterly record. Total deliveries consisted of 13,450 Model S and approximately 11, 550 Model X vehicles. These numbers were characterized as a 69 percent increase over the year-ago quarter. However, the year ago, quarter is perhaps not a meaningful benchmark, given Tesla’s strategic objectives.
As noted in our last Tesla operational and business performance focused commentary, the company still has a long way to go to meet its milestone of producing upwards of 500,000 vehicles across all model lines on an annual basis by 2018.
There are many areas all along the supply chain that could prove to be weak links, not to mention the steep ramp-up needs for both the battery gigafactory and the Fremont facility. We called attention to a published San Jose Mercury Times expose commentary in February indicating that long hours and reported unsafe working conditions was causing disgruntled workers to seek out potential external labor union assistance. The report indicates that during November and December, employees worked a minimum of 6-day workweeks to keep-up with production needs, as well as a supply chain disruption involving auto pilot technology, that skewed production output into December.
Included in Tesla’s Q4 production report was a notation that 2750 vehicles missed the production cutoff at the end of December, while a total of 6450 vehicles were classified as in-transit to customers. Thus, the recent Q1 2017 performance numbers had a total Q4 carryover of 9200 vehicles at the start of the quarter. Thus, net production could be interpreted to be 20,450 vehicles when one nets out the 9200 vehicle Q4 carryover and the 4650 vehicles that were still in-transit to customers at the end of the quarter.
A broader historic to the vehicles in-transit carryover numbers would be the following:
Q1-2016: 2615 vehicles in-transit
Q2-2016: 5150 vehicles in-transit
Q3-2016: 5500 vehicles in-transit
Q4-2016: 6450 vehicles in-transit
Q1-2017: 4650 vehicles in-transit
As Supply Chain Matters has previously observed, the above in-transit trending points to a building vehicle transportation and customer last-mile fulfillment challenge, that continues to weigh on overall operational performance. To reach its 500,000-annual performance goal in just under two years, both production, distribution and customer delivery processes must scale at a much higher rate.
Tesla is now completing an additional round of equity and debt supplemental funding to launch the scale-up of the new Model 3, designed to appeal to a broader consumer audience, and with higher pent-up demand for production output.
Which each passing quarter, there will be far more scrutiny surrounding Tesla’s operational performance as well as the underlying supply chain processes and management systems. While this week’s financial headline is that Tesla may be a more valuable company than perhaps Ford Motor Company or General Motors, we submit the broader determinant is overall consistent supply chain performance and scalability.
Bob Ferrari
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