Tesla can't deliver 50-55k cars 2015?

Matias said:

Tesla delivered 21,577 units in the first half 2015. Tesla sees third-quarter production and deliveries of about 12,000 vehicles including a few Model X SUVs. If Tesla Q4 delivers 12000 Model Ses, that leaves 4443 Model Xes to be delivered Q4.

In CC and in shareholder letter Musk spoke about problems with Model X manufacturing and also said, that those problems could interfere with Model S manufacturing;

"Correct. I mean, we do think that it's going to be quite a challenging production ramp on the X, and if we are faced with a choice of deliver great – we only want to deliver great cars, so we don't want to drive to a number that's greater than our ability to deliver high quality vehicles, so – and the nature of the production ramp which is basically an exponential ramp that then becomes an S-curve, is basically for every week longer that it takes us to climb up that exponential is about an 800 vehicle reduction of the X"
-----

But we actually have now produced several Model Xs off the Tesla production line, but this is a complex machine with several thousand unique components. So there are still a lot of low volume parts for suppliers on the Model X. And – but with each week, we keep building more and more Xs off the line with greater and greater part maturity. And then (17:18), we expect to do our first delivery of production of Model Xs at the end of next month.
------
Well, I think there's – some things are definitely a lot more challenging than others. And the Model X is I think a particularly challenging car to build. Maybe the hardest car to build in the world. I'm not sure what would be harder.
------
I don't want to sort of name specific suppliers, but our biggest challenges are with the second row seat, which is, it's an amazing seat, like a sculptural work of art, but a very tricky thing to get right. The falcon-wing door actually seems to probably not be a critical path item. There are some interior components, interior trim that are possibly on a critical path. But it's always hard to say exactly what lies in a critical path because it tends – these things tend to play schedule leapfrog and it's kind of a set of constraints that one day is this constraint, then the next day it's another constraint.

The pace of progress is really dependent on which supplier is the slowest and least lucky. So, if a supplier has unexpected challenges which can range from force majeure to simply having to redo a design because the initial design was wrong. But when you have a complex product like the Model S with thousands of – that's dependent on thousands of suppliers, you can say that the pace of progress is determined by the thousand least lucky and slowest. But if we knew in advance which one of those would be, we would take action. So the – yeah, it's -"

In shareholder letter they wrote;

"We are now targeting deliveries of between 50,000 and 55,000 Model S and Model X cars in 2015. While our equipment
installation and final testing of Model X is going well, there are many dependencies that could influence our Q4 production and
deliveries. We are still testing the ability of many suppliers to deliver high quality production parts in quantities sufficient to meet
our planned production ramp. Since production ramps rapidly late in Q4, a one-week push out of this ramp due to an issue at
even a single supplier could reduce Model X production by approximately 800 units for the quarter. Furthermore, since Model S
and Model X are produced on the same general assembly line, Model X production challenges could slow Model S
production. Simply put, in a choice between a great product or hitting quarterly numbers, we will take the former. To build longterm
value"

Based on all that I think it is quite possible, that Tesla can't meet guidance's lower limit of 50k cars.

Click to expand...

Nice theory - derived from a WAG. No one has said they plan to deliver 12k Model S and 4443 Model X. While, yes, the best guess here at TMC is that Tesla is planning to make around 5k Xs this year, if anything their words above are a word of caution on that.

They could very well be planning to deliver 16443 Model S and 0-5000 Model X. As quoted above, they are aware of the potential impact of half-ready Model Xs sitting on and occupying the line, blocking S production. So my personal WAG is, that they will make sure the suppliers can produce all parts in enough quantities before ramping production beyond the Sig customers and in the event they see trouble during the ramp (i.e. a supplier reports they have an issue), they will pull the lug on X production in time to prevent blocking S. Still, this means they may only make 50k cars if X were to be completely held up until Q1.

In my mind that is a worst case scenario, though. What is more likely to happen, is that if any one supplier has problems ramping quickly enough, they may only produce a lot fewer Xes per week - basically dictated by the speed of that supplier - so we may end up with 52k or 53k cars in the end.

mrdoubleb said:

Nice theory - derived from a WAG. No one has said they plan to deliver 12k Model S and 4443 Model X. While, yes, the best guess here at TMC is that Tesla is planning to make around 5k Xs this year, if anything their words above are a word of caution on that.

They could very well be planning to deliver 16443 Model S and 0-5000 Model X. As quoted above, they are aware of the potential impact of half-ready Model Xs sitting on and occupying the line, blocking S production. So my personal WAG is, that they will make sure the suppliers can produce all parts in enough quantities before ramping production beyond the Sig customers and in the event they see trouble during the ramp (i.e. a supplier reports they have an issue), they will pull the lug on X production in time to prevent blocking S. Still, this means they may only make 50k cars if X were to be completely held up until Q1.

In my mind that is a worst case scenario, though. What is more likely to happen, is that if any one supplier has problems ramping quickly enough, they may only produce a lot fewer Xes per week - basically dictated by the speed of that supplier - so we may end up with 52k or 53k cars in the end.

Click to expand...

Two things to know:
- what's the 2015-2016 maximum quarterly demand for Model S?
- to which extent the production of Model S can be blocked by the ramping of X production?

If quarterly demand for S is 20K max and X's impact on the S is 1 week of lost production, then no issue. If S demand max at 12K and X's impact is half-running production lines, then OMG.

Your WAGs.

Everyone in the analyst community and the investor community seems preoccupied with the same issues. Ramp up of a new car, especially with unusual features such as the X back seats, seem to engender delays. Think of the Recaro seat for the S. Further think of the small production volumes for Tesla coupled with unusual features. Of course these represent hurdles for Tesla and of course they have less predicability than might larger volume manufacturers precisely because the scales are so small by auto industry standards.

Frankly, I think it is quite possible that all the impediments now foreseen might not materialise. It is also probably that initial production will continue to slide a few weeks while they sort out details. Opening the new paint line and the new production line simultaneously presents dozen of new robots, myriad new suppliers, major process control changes, and almost all of those supplied by outside firms. I do not wish to bet, but if I were to do so, I'd bet that the supplier problems are more with production technology than with parts supply. If that is true, Tesla will be able to ramp up quite rapidly once they get the lines running correctly. Then the supply chain issues will predominate, and almost all of those other than battery supply are far less problematic than are the production line issues.

So, net: I think the year will probably end out short, but that the production pace will be rapidly ramping up at year end, and that Tesla will probably introduce multiple shifts on one line early in 2016. So, tesla misses 4th quarter guidance, surpasses expectations for 1st quarter 2016.

Conclusion: I am adding to my shareholding before they get their act cleaned up.

it does not means TM has shuttered it's door nor the world is coming to an end. It's about recognizing an issues an adjusting which to me means great management.

Matias, thank you for starting this thread. I had similar queries, but unfortunately not much was discussed in the main short-term thread.

In q4, Tesla can ramp Model S production but we should also consider Osborne effect early into the quarter where some people will want to take a hand on Model X before committing to either of the products.

I think management knows bottlenecks with Model X since they have already produced 10s of them and hopefully will be able to resolve them timely to meet new guidance.

To lower the uncertainty in q4 ramp, Tesla should work to beat q3 numbers. All in all, IMO delivery will stay closer to 50k than 55k. That's my take.

Matias said:

In CC and in shareholder letter Musk spoke about problems with Model X manufacturing and also said, that those problems could interfere with Model S manufacturing;

Click to expand...

Matias thank you very much for your thoughts on the delivery number for this year.

Can you please help me to link the points about Model X you quoted above to an interference with Model S production?
As far as I can see the points you quoted are all about potential Model X issues.

As far as I know Tesla Motors has a strategy in place to de-risk the launch and ramp of Model X as good as they can.
In Q2 shareholder letter they mention e.g. the use of different paint shops for Model S and X during launch of Model X:

This month, we plan to start painting Model X in our new paint shop well before transitioning Model S painting there, to help de-risk this portion of our overall production ramp.

Click to expand...

I have the impression that there is currently no issue like an important supplier going bankrupt.
That would be a real issue!

Matias said:

In shareholder letter "Furthermore, since Model S and Model X are produced on the same general assembly line, Model X production challenges could slow Model S
production"

Click to expand...

That's what I read as well. I thought I missed something.
It's only the general assembly line that is some kind of bottleneck with strong interference of Model S and X.
Other parts of the production like stamping, body in white, paint shop, battery assembly, drivetrain assembly, pre-assembly, quality control, ...
do not have that strong interconnection of Model S and X.
Thanks!

I think we simply do not have a particularly good description of the Fremont factory and its choke points. Everyone that visits is under NDA.

Given Tesla's comments so far, I do not believe the Model X is produced, end to end, on a completely separate assembly "line" and even the term "line" is probably misleading. It is likely that running Model X through in the early days causes Model S line production disruption.

On the other hand, and again, this is vague, it does seem possible that the plant expansion can produce Model S at greater numbers. However, it isn't simple to just double Model S production - even if the Fremont plant could handle it, there wouldn't be enough component supply. If there were far more parts commonality between the Model S and the Model X, then it would have been simpler. However, some shortfall due to Model X production difficulties could probably be taken up by increased Model S production, up to the limits of component supply. If something went really wrong with Model X production, then possibly Tesla could place increased orders for Model S components, but there would be a delay. Hence no perfect taking up on the slack.

I suspect that the original plan was for 50% of each at full run rate approaching 1600-1800/week by the end of Q4. They order the parts for that. Let's say the Model X critical path for production 2nd row seats can only be made, during Q4, at the 200/week rate average across the entire quarter. The question becomes... if Tesla knows this far enough in advance, could they place orders for Model S components, suppliers build enough of those components, and could they build enough Model S to take up the slack. Further, will the market order enough Model S, to the tune of 1400-1500/week to still make year end delivery numbers?

Of course, if things go right with the Model X production, they can actually exceed the 55k number. This is what Musk was referring to as "luck" as they are at the mercy of whatever difficulties arise in their suppliers. With new designs, new production, there's always going to be risk.

For long term investors, this should not change the story of the stock. In the short term, there's a lot of money to be made and lost in both directions.

Matias said:

In shareholder letter "Furthermore, since Model S and Model X are produced on the same general assembly line, Model X production challenges could slow Model S
production"

Click to expand...

That would be if a change requires stoppage. But if the key issues relate to suppliers, that's a low risk. If there's a small parts issue, Tesla can increase S production and compensate later with a higher ratio of X. Some issues can also be dealt with by holding cars and waiting for parts to come in:: seats can potentially be installed afternholding cars for a while. That that becomes a margin issue, rather than a numbers issue. So the key risk is failure to ramp fast enough, or a major hold-up on a part after an issue is found.

ItsNotAboutTheMoney said:

That would be if a change requires stoppage. But if the key issues relate to suppliers, that's a low risk. If there's a small parts issue, Tesla can increase S production and compensate later with a higher ratio of X. Some issues can also be dealt with by holding cars and waiting for parts to come in:: seats can potentially be installed afternholding cars for a while. That that becomes a margin issue, rather than a numbers issue. So the key risk is failure to ramp fast enough, or a major hold-up on a part after an issue is found.

Click to expand...

Thanks for that point, ItsNotAboutTheMoney.
Normally a missing part does not slow down / stop a line.
The cars with missing items, e.g. correct windshield or SW version, during assembly are pushed through the assembly line and stored in a special area.
They are then "repaired" at a later point in time in that special area.

BTW BMW has about 10% of vehicles that need individual work after assembly!
Just nobody knows that and everybody thinks a bimmer is perfect right from the beginning

In other words this also known as 'shooting yourselves on the foot'. Designing a sub 3 second electric SUV with a range of 250 miles,and bringing it to volume production - that in itself is a monumental challenge and would have stood by itself and will sell like hot cakes, there is no need to add untried new gimmicks around traditional mechanical car design elements like doors, handles and seats. Not in your first iteration. Tesla could hit its targets and goals for the next 5 years without any of these complications.

Instead those engineering resources could have been used more on strengthening and improving the electric drive-train and the battery elements. In addition to working on design changes and fixes for drive train failures now they will be chasing mal-functioning door handles, and possibly future issues around gull wing doors and the 'work-of-art-sculptured' seat. Totally unwarranted distractions.

Some discussion over in the Model X section; I apologize for the re-post, but here's my thoughts from over there:

NigelM said:

Here's my calculation:

• Optimistically Tesla might reach 13,500 deliveries in Q3, you have to look at what they produced in Q2 vs what they delivered. They started the quarter with well over 1,000 cars en route but not delivered yet.
• An all-time optimistic record, with a successful referral program might see up to 15k Model S in Q4.
• Both those numbers need to be tempered by Tesla's acknowledged risk of "operational challenges in the delivery organization". I see Tesla delivery folk working their butts off already, without doubt there are going to be issues when deliveries continue to grow at such a pace.
• Founders Model Xs get delivered in late September. With Model S there was a pause of a few weeks prior to Sigs, this allowed some additional real-world verification by the Founders. Expect to see something like that again.
• Sig Model Xs will start very slowly in October. This car is 70% new parts and highly complex.
• Ramp will be careful and measured. Remember Tesla has clearly stated they won't rush for the sake of quantity over quality.
• October may see as few as 100-200 cars as they are scrutinized individually by QA folk.
• Assuming all parts deliveries are perfect and on-time production could ramp in small steps up to several hundred a week by the end of December; but don't forget there's a big difference between production and delivery. Delivery time could be anything from a few days to 5 weeks depending where in the country you are.
• In summary I see a realistic 2-3,000 Model X being produced this year, and the only way they all get delivered is if parts production is perfect and they prioritize local west coast deliveries after the Sigs.
• Total for all cars 49-52k.

Sorry if anyone thinks I'm being a downer but if I had a reservation number above 3,000 I'd be really crossing my fingers and hoping like hell but prepared to recognize that I'll get my car in 2016, if I have a number above 4,000 I'd temper my expectations completely and resign myself to getting my car next year.

Click to expand...

I'm definitely at the low end of Tesla's target range for deliveries, they might produce more but getting them delivered before Dec 31st will be a challenge.

I won the TMC guess contest for the 2014 deliveries estimate. I think I may win again for 2015. Things are smooth with the MS but the MX appears to still have a few birthing pains.

Didn't Tesla say in Q1 or Q2 of 2014 that they would deliver 100,000 cars in 2015? Lord... or am I misremembering?

mkjayakumar said:

In other words this also known as 'shooting yourselves on the foot'. Designing a sub 3 second electric SUV with a range of 250 miles,and bringing it to volume production - that in itself is a monumental challenge and would have stood by itself and will sell like hot cakes, there is no need to add untried new gimmicks around traditional mechanical car design elements like doors, handles and seats. Not in your first iteration. Tesla could hit its targets and goals for the next 5 years without any of these complications.

Instead those engineering resources could have been used more on strengthening and improving the electric drive-train and the battery elements. In addition to working on design changes and fixes for drive train failures now they will be chasing mal-functioning door handles, and possibly future issues around gull wing doors and the 'work-of-art-sculptured' seat. Totally unwarranted distractions.

Click to expand...

Yeah, the "dazzle" stuff makes me cringe, especially when it causes problems that take up valuable warranty reserves and engineering resources. What's done is done though, and we'll get to see how this works out over the next few months. Tesla certainly cannot do this with Model 3 though, not if they want to be shipping in the volumes they want to be shipping around 2017/18.

AmpedRealtor said:

Didn't Tesla say in Q1 or Q2 of 2014 that they would deliver 100,000 cars in 2015? Lord... or am I misremembering?

Click to expand...

I believe the projection was a "run rate" (speed of production) of 100k cars/year, or 2k cars/week.

I posted 2014 2Q shareholder letter in another thread discussing the delivery rate so it looks like its being discussed here as well.
"Provided that we execute well and there are no serious macroeconomic shocks,Tesla’s annualized delivery rate should exceed 100,000 units by the end of next year." (2015)

http://files.shareholder.com/downloa...r%20Letter.pdf