FredTMC
Model S VIN #4925
yes, agreed. So TM should manufacture EU cars in Q3 rather than Q2 to avoid trashing Q2 sales.
TM needs to beat guidance. It's not enough to just "meet" it
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2Q 2013 Model S Deliveries Potential Surprise
- Thread starter DJ Frustration
- Start date
yes, agreed. So TM should manufacture EU cars in Q3 rather than Q2 to avoid trashing Q2 sales.
TM needs to beat guidance. It's not enough to just "meet" it
So instead they'd trash Q3?
Seems short term thinking to worry about which side of some arbitrary marker in time the cars get marked as revenue. Elon stated pretty clearly in the investors meeting he wasn't going to focus on short term effect on the stock.
Rla
Member
You wanna tell that to the EU customers??
I'm from the EU, not capable of ordering yet, but my fellow EU 'countrymen' would skin you (and Elon) alive if they'd delay their Model S for some accounting benefit. These people are sooo anxiously awaiting the Model S, it ain't a pretty anymore.
Now given that deliveries in the EU will happen during Q3, you might see a huge boost for Q3 sales, just like it did for the US sales.
Once the car is in the hands of the EU 'consumerreports' organisations, I'm sure the same sort of reviews/awards will get published.
Disagree. They were clear at the last Conf Call what they expect the numbers to look like and why. Restructuring timelines to play games with the numbers is a bad idea both from a "do what you say" perspective and from a "slimy move" perspective.
And on top of that you unnecessarily annoy out-of-North-America customers.
I also want to add that 2013 is all about the 25% gross margin and not about shipping volume. So, don't expect TM to ship 25k units this year. I think that's just unnecessary speculation at this point. They gave guidance at 21k units... I expect them to slightly beat it by 1-2k units but again that's a minor issue. The major issue is that they've committed to 25% gross margin by the end of the year and they're fully focused on that.
Also, according to the Goldman Sachs factory tour interview a few weeks ago, one line/shift can produce 20k units per year. So, I would imagine that's why their guidance has always been 20k for 2013 (though they boosted it by 1k at the 1st quarter earnings call).
2014 is a different story. I think they can really push volume next year, 35-40k units.
Also, according to the Goldman Sachs factory tour interview a few weeks ago, one line/shift can produce 20k units per year. So, I would imagine that's why their guidance has always been 20k for 2013 (though they boosted it by 1k at the 1st quarter earnings call).
2014 is a different story. I think they can really push volume next year, 35-40k units.
+100 this is exactly where my thinking is. I'm modeling for anemic growth in numbers (only at the edges); At times they will ramp some slowly for next year- but this year is all about getting the efficiency at 1 full production line. If they can't do this, any growth in 2014 (stock and otherwise) will be jeopardized. It's a long road, even in a Model S
CapitalistOppressor
Active Member
PeterW
Member
Please explain. I understand there would be initial set up costs, but once up and running why would the second shift be any more expensive to run than the first?
If they sell twice as many cars with 2 shifts running why could they not have the same gross margin?
What if they set up the second shift during Q3 and dealt with set up costs before Q4?
It's all about labor costs. To set up a second shift on the same line there are two options:
1. Use the same people from first shift, but give them overtime. But this still isn't enough man power, so you need to hire temp labor. Overtime + temp labor is very, very pricey. No way to reach 25% margin with this approach.
2. Hire another shift worth of people. But this is basically doubling the workforce and requires a massive amount of work to hire and train people. I would imagine you keep 1/2 your people on shift #1 and move 1/2 your people to shift #2. Then, you'd hire 1/2 more new people for shift #1 and 1/2 more new people for shift #2. It would take some time for the new people to get up to speed. And there's no easy way to do 1/2 shift. It's either 1 shift (with 1 shift of workers) or 2 shifts (with 2 shifts of workers). To do 1.5 shifts is extremely difficult and I think it would require the 1 shift of workers plus overtime and temp labor.
All in all, it's easiest to just focus on 1 shift on 1 line and max out efficiency. Once you reach 25% gross margin with this, then you launch your second shift on the same line by basically doubling your workforce. But then your volume output jumps from 20k units a year to 40k units a year. Thus, this is why Elon has been forecasting 20k units (now 21k) in 2013 and 35k+ in 2014.
Lastly, my hunch is that the 20k units for one shift (one line) isn't exactly fixed. I think it's a bit flexible and they probably do a bit more on one shift and keep 25% margin (maybe up to 24k annual run-rate on one shift?).
PeterW
Member
Thanks Dave. Actually your last paragraph is what I was looking for. If they have that flexibility and still can keep the 25% margin then hopefully they can reach their guidance for 2013.
I was just thinking they are looking to go to 2 shifts sooner or later and a second shift at the start of Q4 would mean 25k production for 2013 (probably a bit less than that).
I do think you are right though and they are not ready to do that yet. Also they have to do some retooling for RHD production later, and better to do that while still operating only one shift.
CapitalistOppressor
Active Member
Yes, the big issue with a factory shift is that you are most efficient at a certain flow rate. The Model S line is supposedly tuned for 20k/units per year per shift. If you hire a second shift you can efficiently build 40k units.
But if you try to build some number in between 20-40k you are going to be progressively more inefficient as you move closer to the midpoint at 30k. That's a simplistic way to put it, but it should generally hold true. That said, there is some flex on the margins, and its possible to efficiently improve flow speeds if you improve your work processes.
Supposedly some of the increase in production planned in Q4 (and resulting higher margins) will be a result of design changes (to the car, and presumably the factory processes). We don't know yet how much improvement we'll see, but we know Tesla needs to ramp up to a 23-25k rate in Q4 just to get to 21k delivered units this year.
What I don't quite understand is how Tesla is able to maintain essentially stable lead time for the deliveries of cars since March - maximum of three months. The demand increased since at least second half of April, the cars for NA reservations that are initiated now will be built along with blended EU production, yet the lead time does not change. Unless I am missing something, the only way to achieve this is to have increased production NOW.
When I was doing my first test drive on April 28 one of Tesla employees told me that wait time will increase as European production will start to be blended in at the factory. I also inquired about the same subject when making reservation for the P85+ (May25th) and was told that the increase in wait time could be coming, but Tesla store employees will not know it ahead of time, and was quoted approximately one month or slightly longer for P85+.
Thoughts?
When I was doing my first test drive on April 28 one of Tesla employees told me that wait time will increase as European production will start to be blended in at the factory. I also inquired about the same subject when making reservation for the P85+ (May25th) and was told that the increase in wait time could be coming, but Tesla store employees will not know it ahead of time, and was quoted approximately one month or slightly longer for P85+.
Thoughts?
Elon said about a week ago that he expects to close out the year at a 23k-25k run rate. He also said that basically the whole cars are made on one shift, but that there are one or two bottlenecks that require a second shift. I can't remember what they were, but I think it was painting the car.
Therefore, they cannot run two shifts now even if they wanted to.
Therefore, they cannot run two shifts now even if they wanted to.
The problem is really that current implied production rate of 400cars/week is not consistent with the quoted "same as before" wait time of up to 3 month, all the while the NA reservation rate have increased and additional EU delivery cars are about to be blended into the production.
Either my logic is lacking, or Tesla already manages to run at higher than 400 cars/week rate.
In my opinion that would be pretty stupid. Remember that Tesla has a European prep operation in Holland that they need to get running smoothly and artificial delays in shipping to play stock market games is just asking to piss off customers who are wondering if they're going to get delivery in time to get significant incentives.
I think you are right. The math would be something like:
Demand Jun-Dec (assuming 20k/yr in US, 15/day in EU, and 0 in Asia):
US: 20k* 7/12 = 11,667
EU: 15*365 * 7/12 = 3,194
TOTAL = 14,861
Production capacity Jun-Dec is approx. 400*30 = 12,000. This means that the waiting lists will be ~2,861 cars longer at the end of December than now. Assuming a ramp up in Q4, this could be cut, but not eliminated.
Current waiting list (US: 1 month; EU 5,300 res. numbers less 15% cancellations):
US: 20k/12 = 1,667
EU: 5,300 * 0.9 = 4,505
Total = 6,172
The conclusion is that it is likely that waiting lists at the end of the year will be something in the order of 8k-9k cars.
TM have indicated that starting June, capacity will be divided roughly 50/50 between EU and US cars. This would mean that for the rest of the year, US deliveries would have a production capacity of approx. 6k cars (vs. orders of 11.5k). The end of year waiting time would be the reverse of the current situation: A couple of months in Europe, 4-6 months in the US.
(It is important to note the assumptions in the calculations above, for instance that US demands stays at 20k/yr throughout the year, that EU demand stays flat, and that TM do not change the ratio of US to EU production).
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