If Supply Chain Matters readers have been following along our streams of blogs related to Tesla are probably aware that the global electric automaker has had its share of growth and supply chain scalability challenges. It’s the good news notions of groundbreaking technology and a cult following of loyal customers, fueling demands for vast scalability in supply, manufacturing, and global distribution of completed vehicles.

In addition to producing the increasingly attractive and rather expensive all-electric Model S and Model X sedans, the supply chain is now in the throes of preparing for the ramp-up of volume production of the less expensive, broader market appeal Model 3 sedan targeted at a sales price of $35,000.  The latter vehicle began pilot production in early February with plans to produce upwards of 5000 Model 3 vehicles weekly by the end of this year. That is an aggressive timetable from many supply chain perspectives.

To prepare for Model 3 volume production needs, both the existing “gigafactory” in Nevada that produces lithium-ion batteries, and Tesla’s existing production assembly site in Fremont California have undertaken square footage expansion. The Fremont facility itself will expand by up to 4.6 million square feet, adding upwards of 3100 additional jobs.

As noted in our prior blog commentary at the time of Tesla’s report of Q4 and 2016 financial reporting, the company has amassed upwards of $18 billion in debt with total cash on-hand amounting to $3.4 billion at fiscal year-end. That condition prompted Founder and CEO Elon Musk to call for an additional round of a combination of upwards of $1 billion in bond and equity financing to provide an added cushion for capital investments needed to ramp Model 3 production. As we pen this blog posting, a breaking news report indicates that China based Tencent Holdings has invested a reported $1.8 billion in Tesla, amounting to a 5 percent stake in the company. Tencent acquired its stake in a combination of the added stock offering by Tesla and shares purchased on the open market. While Tencent’s stake is reported to be passive, it does represent that Chinese company as the fifth largest shareholder of Tesla stock. Tencent own’s China’s largest social network, WeChat, and is recognized as the world’s largest electronic games publisher.

Regarding the ongoing scalability challenges of Tesla, the San Jose Mercury Times published an 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. At the same time, the high cost of living within Silicon Valley forces production workers to have a reported reliance on overtime to survive financially. The report further indicates that all Tesla employees were recently asked to sign a supplemental non-disclosure agreement indicating that all observations of work activities, schedules or production plans are confidential information.

As noted in our last Tesla 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.

The market stakes are high, along with the rewards. In the end, the supply chain, including product management and manufacturing will serve as the critical enablers to Tesla’s bold expansion plans.

 

Bob Ferrari

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