Tesla (NASDAQ:TSLA) Betting on Risky Production Methods
$TSLA, $F, $VLKAY
Tesla’s (NASDAQ:TSLA) CEO, Elon Musk has taken many risks with “way out” technology in his company’s cars on the way to passing Ford (NYSE:F) market value.
Now Mr. Musk is pushing the boundaries in the factory that makes his EVs (electric vehicles).
Conventional automakers test a new model’s production line by building vehicles with relatively cheap, prototype tools designed to be scrapped once they deliver doors that fit, body panels with the right shape and dashboards that do not have gaps or seams.
Tesla, at Mr. Musk’s direction, is skipping that Key step and ordering permanent, more expensive equipment as he races to launch the Model 3 sedan on a self-imposed volume production deadline of September, Mr. Musk has never made a dead line on any money with Tesla.
Mr. Musk’s high risk decision underscores his willingness to forego long-held industry practices. Tesla is not the 1st automaker to attempt to accelerate production on the factory floor, no other has putting this much faith in such a production strategy succeeding.
Mr. Musk says he expects the Model 3 rollout to help Tesla deliver 5X its current annual sales volume, a Key target in the automaker’s efforts to stop its bonfire burning of cash, as he tries to see how much time and cost he can take out of the production process.
Tesla investors are counting on Mr. Musk’s factory floor success, with shares rising 39% since January as it struggles makes the jump from niche producer to mass producer quickly.
There are caution lights flashing on Mr. Musk’s risky experiment.
The production equipment designed to produce millions of cars is very expensive to fix or replace if it does not work.
Tesla has encountered quality problems on its existing low-volume cars, and the Model 3 is designed to sell in numbers as high as 500,000 vehicles a year, raising the potential cost of recalls or warranty repairs.
If Tesla has ‘unexpected’ production problems they will have a hard time dealing with them.
Mr. Musk says said that the use of “advanced analytical techniques” aka computer simulations, would help Tesla in advancing straight to production tooling.
Tesla has declined to confirm details of the call or comment on its production strategy.
The auto industry’s majors (Tesla is a bit player) have not been standing still.
Volkswagen AG’s (OTCMKT:VLKAY) Audi division launched production of a new plant in Mexico using computer simulations of production tools, and indeed the entire assembly line and factory, that Audi said it believed to be an industry 1st. That process allowed the plant to launch production 30% faster than usual, Audi said. An Audi executive involved in the Mexican plant launch, Peter Hochholdinger, is now Tesla’s VP of Production.
Tesla’s earlier decision to move directly to the final tools is in part because lower grade, disposable equipment known as “soft tooling” ended up complicating the debut of the problem-plagued Model X SUV in Y 2015.
Industry experts said that Mr. Musk’s working on a tight deadline had no time to incorporate lessons learned from soft tooling before having to order the permanent production tooling, making the former’s value negligible.
Extreme financial pressure is partly driving Tesla’s haste.
The quicker Tesla can deliver the Model 3 with its estimated $35,000 base price to the 373,000 customers who have put down a $1000 deposit, the closer it can log $13-B in sales, that is very questionable if not unattainable.
Tesla has yet to turn an annual profit, and earlier this year Mr. Musk said the company was “close to the edge” as it look toward capital spending of $2-2.5-B in 1-H of Y 2017.
Tesla has since raised $1.2-B in fresh capital in March and selling a 5% stake to Chinese internet company Tencent Holdings Ltd (0700.HK) .
Mr. Musk speaks to investors about his vision of an “alien dreadnought” factory that uses AI (artificial intelligence) and robots to build cars faster than human assembly workers could manage and virtually eliminating all humans in the process.
There are limits to what technology can do in the heavily regulated automobile business.
For example: Tesla will still have to use real cars in crash tests required by the US government, because federal rules do not allow simulated crash results to substitute for data from a real car.
|NASDAQ:TSLA||308.03||24 April 2017||2.43||309.22||310.55||306.02||5,078,700|
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