Will Tesla add a third production line in 2016 to meet growing demand for S/X in 2017

[DaveT]

The problem, however, is that one line rate will be maxed out at 50-60K units/year, and this rate will be fully utilized for MS by the end of this year. TM will need second line by end of the year to tune production of the MX. They are not talking about this yet, because it is not a 100% certainty at this point, but that what I believe the plan is. If you remember, they for a long time were talking about 800 cars/week by the end of this year, before switching to 1000 cars/week by the end of this year. Based on all circumstantial evidence that I posted numerous times before, including the Panasonic data, I expect this 1000 cars/week by end of this year to be updated again to 1200 cars/week by the end of this year.

I agree that the production line will be producing 1000+ Model S cars/week by the end of the year. I really would like to believe they can and will do 1200 cars/week by the end of the year, and they could possibly have the batteries for it, but I don't know. I think it's possibly it could be an internal aspirational goal for Tesla, but we know publicly that they've committed to 1000 cars/week and 35k cars delivered as guidance. And if I had to choose one, I'd go with guidance as my expectation.

I have to admit though, the Tesla job fair they had a couple months had me confused. If Tesla is ramping just to 1000 cars/week by year-end then do they really need to be recruiting so many people? I don't know. But on the realistic side of things, ramping to 1000 cars/week will be quite an achievement and while we all hope they'll do more, I think it's probably more hope right now than solid.

Regarding Tesla needing a second line by end of year to test/tune for Model X, I'm not sure if I agree with you on this. Can't they can test/tune for the Model X during a 3rd graveyard shift?

 

[SteveG3]

for me at least this exchange from the Q4 '13 earnings call is where I get confused. Elon clearly talks about an additional change that will occur in the fall, but he describes it as both "a new line in the factory" and "sort of a new final assembly line" in the very same answer.

Firstly, this is something clearly referring to the fall as opposed to what's going on right now... there is more to come. I would lean to it being just as DaveT is saying, just enhancement of the one and only assembly line, and take his mentioning "a new line" as shorthand for a new final assembly line rather than an entire new line. I'm not completely convinced about this though because the comments from Sproule reported on today suggested ~800 cars/week going on already, going up 25% when work now starting is taken care of, that is, 1,000/week. If we're getting to 1,000 per week with current work, what's the work in the fall for?

While I think it's more likely that they are not starting work on a second line in the fall, it's not totally clear to me what Elon was saying. Elon may have been unclear by design. If so, I'd speculate it might be because they are considering different plans for how much expansion they do in the fall, and he doesn't want to raise expectations yet. I don't think starting in on a second line by year end is out of the question. Let's hope for good questions the upcoming call.


"next question comes from Elaine Kwei with Jefferies.
Elaine Kwei - Jefferies LLC, Research DivisionFirst, on the production guidance for ending the year at 1,000 car a week rate, that sounds like it's 2 lines going full-time at roughly a 20,000 a year type of rate and a pretty good step-up from, I think, some of the previous guidance. Could you help shed some light on what's getting you there? And is that pretty much where you'd be maxing out?
Elon R. Musk - Co-Founder, Chairman, Chief Executive Officer and Product ArchitectSo we are constructing a new line in the factory. So it's a little -- before I answer, it's a little complex because there are many pieces that go into making a Model S. Some of which are production-constrained, and some of which are not. So to get to this sort of the hype, the sort of 1,000-plus production rate, we do need sort of a new final assembly line, which we're in the process of constructing. And then we'll transition the final assembly to that, hopefully, around the end of the third quarter or thereabouts. Then there's sort of separately a body construction line, which is where you create the body in line and sort of the welded assembly, welded and bonded assembly. That's also taking place. That's not needed to achieve the production rate but will help with production efficiency, and will also be the -- where the Model X is -- it will be sort of a next-generation body assembly facility for the X and then the S. So I'm not sure -- it will be quite a long answer to give you sort of the full story, but that's -- maybe those are the sort of highlights.
Elaine Kwei - Jefferies LLC, Research DivisionSure, that's really helpful. And with that 1,000 a week with the new -- the final assembly line, is that -- with that, I assume that's not with that maxed out, and that's sort of using part of their capacity. And then there's -- there would be additional capacity beyond that once the construction is completed. Would that be fair to assume?
Elon R. Musk - Co-Founder, Chairman, Chief Executive Officer and Product ArchitectYes. It's fair to assume that we will be able to go to higher numbers if the demand is there to -- yes, yes."


http://seekingalpha.com/article/2033061-tesla-motors-management-discusses-q4-2013-results-earnings-call-transcript?page=2&p=qanda&l=last


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update... unless the work that is shutting down the plant for 2 weeks is part of an ongoing process that wont be completed until the end of the third quarter. that is, the shut down is two weeks, but the a larger project this shutdown is but one aspect of wont bear the fruit of 1,000 cars/week until the end of the third quarter.

 

[DaveT]

Firstly, this is something clearly referring to the fall as opposed to what's going on right now... there is more to come. I would lean to it being just as DaveT is saying, just enhancement of the one and only assembly line, and take his mentioning "a new line" as shorthand for a new final assembly line rather than an entire new line. I'm not completely convinced about this though because the comments from Sproule reported on today suggested ~800 cars/week going on already, going up 25% when work now starting is taken care of, that is, 1,000/week. If we're getting to 1,000 per week with current work, what's the work in the fall for?

Mulder1231 posted this slide from TMC Connect, http://www.teslamotorsclub.com/attachment.php?attachmentid=54090 . On the slide it says:
- "Model S/X High-Volume Assembly Line Summer 2014"
- "Model S/X Body Center Early 2015"

So when Elon said in Feb 2014, "So to get to this sort of the hype, the sort of 1,000-plus production rate, we do need sort of a new final assembly line, which we're in the process of constructing. And then we'll transition the final assembly to that, hopefully, around the end of the third quarter or thereabouts." - it's possibly that they moved it up from end of Q3 to beginning of Q3 (currently).

Also when he said "Then there's sort of separately a body construction line, which is where you create the body in line and sort of the welded assembly, welded and bonded assembly. That's also taking place. That's not needed to achieve the production rate but will help with production efficiency, and will also be the -- where the Model X is -- it will be sort of a next-generation body assembly facility for the X and then the S." - He's probably referring to the Model S/X Body Center, now pushed to Early 2015.

It's somewhat confusing because Simon Sproule said (Tesla Idles California Plant to Retool for Electric SUVs - Bloomberg) "The $100 million upgrade will add 25 robots and modify the factory’s body and general assembly lines, he said." - So it seems like they're doing the body line as well. But it could be that the $100 million will be spent over several months, starting from the new high-volume general assembly line and ending with the new body center for S/X in early 2015. Perhaps, not all the upgrades are happening in the two week factory shutdown. Or another possibility is the slide shown at TMC Connect could be out of date, and they've decided to do the new body center during the two week shutdown.

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On a side note, I wish I could just interview Elon Musk for 30 minutes every 2 months or so. I'd ask him a ton of questions and post the video for everyone to watch. That would probably clear up a lot of confusion on various topics in the investors group. I'd ask him about ZEV credits, details on Model X timeline, status of Gen3 work and timeline, GF plans, and a ton more.

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I feel like the analysts on the conference calls don't ask the right questions. They're mostly looking out the next 3-6 months and are trying to update their financial models and such. They're not representing long-term investors IMO.

Also the media who interview Elon, while I enjoy all the interviews, they don't ask the deep/substantial questions that long-term investors are wanting to ask and know about.

I think there's definitely a lack of interview/questions asked from true/diehard long-term Tesla investors. I wish we had more an opportunity.

 

[SteveG3]

Mulder1231 posted this slide from TMC Connect, http://www.teslamotorsclub.com/attachment.php?attachmentid=54090 . On the slide it says:
- "Model S/X High-Volume Assembly Line Summer 2014"
- "Model S/X Body Center Early 2015"

So when Elon said in Feb 2014, "So to get to this sort of the hype, the sort of 1,000-plus production rate, we do need sort of a new final assembly line, which we're in the process of constructing. And then we'll transition the final assembly to that, hopefully, around the end of the third quarter or thereabouts." - it's possibly that they moved it up from end of Q3 to beginning of Q3 (currently).

Also when he said "Then there's sort of separately a body construction line, which is where you create the body in line and sort of the welded assembly, welded and bonded assembly. That's also taking place. That's not needed to achieve the production rate but will help with production efficiency, and will also be the -- where the Model X is -- it will be sort of a next-generation body assembly facility for the X and then the S." - He's probably referring to the Model S/X Body Center, now pushed to Early 2015.

It's somewhat confusing because Simon Sproule said (Tesla Idles California Plant to Retool for Electric SUVs - Bloomberg) "The $100 million upgrade will add 25 robots and modify the factory’s body and general assembly lines, he said." - So it seems like they're doing the body line as well. But it could be that the $100 million will be spent over several months, starting from the new high-volume general assembly line and ending with the new body center for S/X in early 2015. Perhaps, not all the upgrades are happening in the two week factory shutdown. Or another possibility is the slide shown at TMC Connect could be out of date, and they've decided to do the new body center during the two week shutdown.

- - - Updated - - -

On a side note, I wish I could just interview Elon Musk for 30 minutes every 2 months or so. I'd ask him a ton of questions and post the video for everyone to watch. That would probably clear up a lot of confusion on various topics in the investors group. I'd ask him about ZEV credits, details on Model X timeline, status of Gen3 work and timeline, GF plans, and a ton more.

Dave the first part you wrote drawing on Mulder's slide is a good fit for the pieces we have. It's also consistent with Model X having been moved out 3-6 months... if that was going to happen for other reasons anyway, why not focus first on ramping up to 1,000/week, and follow with getting capacity to build X on same line as S in early 2015.

As to talking with Elon... hey, I'd love to get to do that myself, but I'm sure you'd do a great job. fwiw, I don't think it's completely unrealistic to think Elon would allow one spot on these earnings calls for a TMC rep to ask questions, sort of an open source analyst. The man is quite open-minded.

Just saw what you wrote about media, analysts, etc. vs. die-hard long term investors, enthusiasts. very much agree. I think that's why people get so frustrated with quality of questions at annual meeting (obviously, not yours). Fortunately, we do have some quite good in depth interviews on youtube, but yes I can think of several critical questions I've never heard him asked.

 

[DaveT]

As to talking with Elon... hey, I'd love to get to do that myself, but I'm sure you'd do a great job. fwiw, I don't think it's completely unrealistic to think Elon would allow one spot on these earnings calls for a TMC rep to ask questions, sort of an open source analyst. The man is quite open-minded.

Just saw what you wrote about media, analysts, etc. vs. die-hard long term investors, enthusiasts. very much agree. I think that's why people get so frustrated with quality of questions at annual meeting (obviously, not yours). Fortunately, we do have some quite good in depth interviews on youtube, but yes I can think of several critical questions I've never heard him asked.

If we could get access to Elon on a regular basis (ie., 30 minutes every 2 months), then I think we could have a different person interview Elon each time. Or we could have some people rotate.

The analysts on conference calls are usually covering dozens of companies (ie., the entire auto industry) so there's no way IMO they're going to dedicate as much time and energy into the company as a hardcore individual who has the majority of their assets in TSLA. The result is 1/2 the questions on the conference car are "can you give us color on next quarter's production", etc. (And the other half of questions are "what do you think of fuel cells?", "i3?", etc.) They don't care where they company ends up in 5 years, because it's totally inconsequential to them. They're paid to give their forecast for next quarter and set price targets out a year max. It just seems like they don't fit with what Elon's trying to accomplish.

 

[SteveG3]

The analysts on conference calls... They don't care where they company ends up in 5 years, because it's totally inconsequential to them. They're paid to give their forecast for next quarter and set price targets out a year max. It just seems like they don't fit with what Elon's trying to accomplish.

Agreed (though I think there are 2 or 3 that have quite an appreciation and enthusiasm for the scope of what Elon is working on).

as to your idea of regular talks, I couldn't tell you how to make it happen, but I think Elon actually really likes to talk to people who've taken a deep dive into what he's working on and have clear enthusiasm for it. I've seen him at events getting "meh" questions, and he just stays overtime, like he's lingering and thinking "if I stay here long enough, someone will ask me the kind of question that makes me so glad I do these events." (not to bash the people at these events, some do ask good questions, and nearly all seem enthusiastic and appreciative).

Oh yeah, and back on topic Dave. I get that in 2017, everyone will really be excited about Gen III, but don't you agree that if demand is there, an extra 60K S/X per year over 3 years (i.e. adding a third line) could mean ~$2 billion more in profits. $2 billion would cover most of another vehicle plant from what I've seen of costs to build other plants in recent years, or perhaps cover much of Tesla's investment in a future GF. Moreover, it may not be until 2019 or so that profits from Gen III pass those from S/X.

 

[DrDave]

I have to admit though, the Tesla job fair they had a couple months had me confused. If Tesla is ramping just to 1000 cars/week by year-end then do they really need to be recruiting so many people? I don't know. But on the realistic side of things, ramping to 1000 cars/week will be quite an achievement and while we all hope they'll do more, I think it's probably more hope right now than solid.

Regarding Tesla needing a second line by end of year to test/tune for Model X, I'm not sure if I agree with you on this. Can't they can test/tune for the Model X during a 3rd graveyard shift?

Tesla is running 2 shifts, but don't assume they are only 8 hours. They are more like 10 hours with the possibility to run 11 or 12 (depending on the area). Also they worked every Saturday in June, so at some point the OT and extra days burn people out. With the increase in production numbers by quarter, there will be more manpower needed, especially if the anticipated improvements by retooling of the current line take more time to appear than expected. I bet they are toying with the idea of running 3 shifts to ease hours/OT yet still have the factory producing cars at a rate that will meet guidance

 

[iadbound]

If we could get access to Elon on a regular basis (ie., 30 minutes every 2 months), then I think we could have a different person interview Elon each time. Or we could have some people rotate.

The analysts on conference calls are usually covering dozens of companies (ie., the entire auto industry) so there's no way IMO they're going to dedicate as much time and energy into the company as a hardcore individual who has the majority of their assets in TSLA. The result is 1/2 the questions on the conference car are "can you give us color on next quarter's production", etc. (And the other half of questions are "what do you think of fuel cells?", "i3?", etc.) They don't care where they company ends up in 5 years, because it's totally inconsequential to them. They're paid to give their forecast for next quarter and set price targets out a year max. It just seems like they don't fit with what Elon's trying to accomplish.

The quarterly earnings/projections/guidance cycle is killing long-term, thoughtful investment in so many capital intensive market segments. If your horizon is only three months, and for many CEOs and CFOs that's all there is, a company will eventually fail to manufacture the best products as it chases the next quarter's revenues. Elon, much like Jobs, is in a position where his force of will, deep pockets, and high profile allows him to have real long-term goals that entice investors to stay with, and continue to invest in, TSLA notwithstanding the exact outcome of each quarterly report (i.e., ignore the analysts to some degree). I wish more companies could do this because US manufacturing would benefit greatly. Sadly, the only companies that can get away with no results quarter-after-quarter are hot software companies with relatively low barriers to entry.

 

[c041v]

If we could get access to Elon on a regular basis (ie., 30 minutes every 2 months), then I think we could have a different person interview Elon each time. Or we could have some people rotate.

Tweet him. Seems to have worked for the Oatmeal and others, at least as far as establishing contact goes.

 

[ItsNotAboutTheMoney]

Also when he said "Then there's sort of separately a body construction line, which is where you create the body in line and sort of the welded assembly, welded and bonded assembly. That's also taking place. That's not needed to achieve the production rate but will help with production efficiency, and will also be the -- where the Model X is -- it will be sort of a next-generation body assembly facility for the X and then the S." - He's probably referring to the Model S/X Body Center, now pushed to Early 2015.

It's somewhat confusing because Simon Sproule said (Tesla Idles California Plant to Retool for Electric SUVs - Bloomberg) "The $100 million upgrade will add 25 robots and modify the factory’s body and general assembly lines, he said." - So it seems like they're doing the body line as well. But it could be that the $100 million will be spent over several months, starting from the new high-volume general assembly line and ending with the new body center for S/X in early 2015. Perhaps, not all the upgrades are happening in the two week factory shutdown. Or another possibility is the slide shown at TMC Connect could be out of date, and they've decided to do the new body center during the two week shutdown.

Well, I expect that since the upgrade includes purchase of a significant number of robots and other equipment, a lot of the money will be spent up front on the hardware and then there'll be a two stage implementation: the final assembly (which, I really hope includes automated battery installation) during the two weeks, and then a gradual implementation of the body shop improvements with full implementation in the Model X production ramp, with the Model S coming after the Model X is all sorted.

 

[c041v]

Perhaps it is just me, but from the TMC connect pictures showing the high level factory retooling, it looked like a lot more than 20% of the factory was being used. Perhaps an attendee can confirm this to be the case?

I'm not worried by it as I think Gen III will either have a new factory, or they will figure out a way to allow 500k/year to fit into the exsiting, but I think the old Freemont production capcity numbers are something we can no long hang onto. There seems to be a lot of ancillary services.

 

[ggr]

Perhaps it is just me, but from the TMC connect pictures showing the high level factory retooling, it looked like a lot more than 20% of the factory was being used. Perhaps an attendee can confirm this to be the case?

I'm not worried by it as I think Gen III will either have a new factory, or they will figure out a way to allow 500k/year to fit into the exsiting, but I think the old Freemont production capcity numbers are something we can no long hang onto. There seems to be a lot of ancillary services.

No, that's only one building out of quite a few on the site.

 

[SteveG3]

No, that's only one building out of quite a few on the site.

what's more, my sense from Musk's comments at the annual meeting was that Tesla is indeed looking to produce ~500K vehicles each year at Fremont. c041v is correct in the sense that they've kind of spread out to date in the factory given the luxury of not having to yet be completely efficient with their use of the space as they are producing a small fraction of 500K cars. But they are planning for changes when they increase production and lose that luxury. IIRC, the purchase of the Lathrop facility (much smaller than Fremont) was part of their securing space to reconfigure their operations in the future and get Fremont up to 500K in production.

 

[eepic]

If we could get access to Elon on a regular basis (ie., 30 minutes every 2 months), then I think we could have a different person interview Elon each time. Or we could have some people rotate.

+1 on this. It would be great to have one TMC representative with our group deep-dive knowledge on earnings calls to ask long term questions. Perhaps some of the mods could pull some strings to make it happen...

 

[TSLAopt]

+1 on this. It would be great to have one TMC representative with our group deep-dive knowledge on earnings calls to ask long term questions. Perhaps some of the mods could pull some strings to make it happen...

I'd vote for DaveT, it is his idea being expressed first on here and I think we should come up with a way to help push for this.
poll? tweets to Elon? Contacting IR? Anyone have any good ideas?

 

[AlMc]

I'd vote for DaveT, it is his idea being expressed first on here and I think we should come up with a way to help push for this.
poll? tweets to Elon? Contacting IR? Anyone have any good ideas?

First, you must get the OK from DaveT that he really wants to do it. If he does we should get TMC administrator/moderator permission to set up a petition that many of us can sign. I would suggest that this be passed along by all us through a the TMC admin/moderators to IR with tweets to Elon. It can be set up as one of Dave Ts Google chats. I would suggest only Dave ask the questions. We could submit some for Dave to use and/or edit.

 

[DaveT]

First, you must get the OK from DaveT that he really wants to do it. If he does we should get TMC administrator/moderator permission to set up a petition that many of us can sign. I would suggest that this be passed along by all us through a the TMC admin/moderators to IR with tweets to Elon. It can be set up as one of Dave Ts Google chats. I would suggest only Dave ask the questions. We could submit some for Dave to use and/or edit.

I'd be fine with doing it. I've actually been thinking about this idea for almost a year. I'll post more of the background in a later post.