This week, in conjunction with the company’s investors meeting, Tesla conducted its Battery Day event as select stockholders sat in Tesla vehicles parked in an open lot, drive-in movie style.

The headlines from the event feature Founder and CEO Elon Musk’s plans to again make an electric automobile targeted for the mass market, this time targeted at the $25,000 price point. He further stated a goal to produce 20 million vehicles annually. Musk indicated to the audience that in order to accomplish this goal the cost of vehicle batteries has to be dramatically reduced from current levels. To accomplish this goal, Tesla itself plans to achieve advances in battery chemistry and cell manufacturing that will facilitate more than halving of existing battery costs.

Tesla supply chain

The timetable for these related goals is roughly three years from today, which tends to be the equivalent of light years among the cult of Tesla’s investors. Musk himself took to Twitter the day before the event to tamp down the timing of these aspirations.

Tesla’s investors responded to the messages of Battery Day with a next day 6 percent decline.

Perspectives

Supply Chain Matters has often been impressed with the brilliance of Elon Musk in his scientific thinking and his notions of taking on rather significant challenges. That stated, Musk tends to have extremely high aspirations which can lead to breakthrough, but often lead to a lack of specifics and over-promising.

Prior Model 3 manufacturing crisis periods were reflective of having to fly an entire automated assembly line from Germany to France in 2018, and subsequently Musk himself taking up temporary residence and sleeping quarters on the manufacturing floor in order to meet rather lofty output numbers given the challenges of the shop floor and of the supply network. The consistent presence of the hockey-stick output goal in the final weeks of the quarter is often the testament to such challenges.

Our readers in the automotive industry well know that annual production numbers of 20 million or more require highly integrated production and supply network flows among multiple global facilities. Three years from now, Tesla will have production presence among three continents, and will be viewed as a globally based auto maker, and the challenges that go with than mantle. Further, whatever ends up being the timing of the 20 million vehicle goal, it’s a sure bet that there will be a heck of lot more global competitors in the market at that point. The competitive stakes are far higher and even more challenging.

In their reporting on Battery Day, both Bloomberg and The Wall Street Journal noted that Tesla has yet to meet its 2016 goal for the $35,000 Model 3 sedan, the initial candidate for the mass-produced electric vehicle. Musk indicated his frustration to investors indicating that what troubles him the most is that Tesla does not yet have that truly affordable car.

Regarding the 20 million annual vehicle production goal, the electric auto maker is working all-out to meet the 500,000 produced vehicles indicated for this year. The manufacturer produced a total of 180,000 vehicles in the first half of this year, with analysts expecting a range of between 125,000 to as much as 190,000 vehicles this quarter.  Musk himself sent out an All Hands-on Deck email this week indicating to the company that vehicle deliveries are the top absolute company priority over the remaining 10 days of the quarter. The hockey-stick once again.

There is  a reason why the production levels of many global auto makers are not ramping in 2020, that being a disrupted economy and the ongoing COVID-19 virus that continues to cause significant rates of infection levels across the U.S. and now, possibly returning to such levels in Europe. Workers continue to be concerned about workplace safety and auto makers need to be able to factor such concerns in production expectations.

As we have noted in many of our existing automotive supply network focused commentaries, most global auto makers are scrambling to be able to develop new models of electric vehicles over the next three years. The huge cost outlays for such development has led to many global auto makers to partner with another to share the costs of electric drive train development, in in many cases, sharing common electric drivetrain platforms. In the specific area of batteries, many of these same automakers are electing to partner with dominant global battery designers and producers, the bulk of which are located across Asia. Few auto makers seem willing to assume the mantle of leading innovation in battery chemistry and production. That was before this week’s event.

Further, all of this raises the question of what the overall global supply of lithium or other chemistry battery production will be in three years, and whether much of that will reside in China or other parts of Asia. Musk himself indicated that without intervention, Tesla expects significant shortages of battery cells by 2022 and beyond.

China continues to dominate in the supply network of battery manufacturing. With the increasing and escalating trade tensions among the U.S. and China, Tesla may well find itself trying to appease both governments in a geo-political atmosphere of de-coupled supply networks for deemed critical materials.

 

Reader Takeaway

From our lens, Supply Chain Matters views the event as aspirations not meeting certain realities of global manufacturing and supply network challenges. This is not to dampen or hamper juices for breakthrough innovation and challenging status quo thinking. It is rather a realization that being the global leader in electric vehicle design and manufacturing involves leadership in balancing revenue growth, financial management including profitability, vehicle reliability and customer services as well as breakthrough innovation.

The implication is that Tesla teams have quite a lot of additional work to accomplish and challenges to overcome.

Lofty goals and under delivering is not the cocktail of long-term success.

 

 

Bob Ferrari

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