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Tesla Shares Details of Model 3 Production Woes in Q3 Earnings Update

Tesla officially announced earnings for Q3 2017 this afternoon, and with early delays in Model 3 production, all eyes were on the production lines, supply chains, and other aspects of the “production hell” that Tesla continues to work through.

Tesla officially announced earnings for Q3 2017 this afternoon, and with early delays in Model 3 production, all eyes were on the production lines, supply chains, and other aspects of the “production hell” that Tesla continues to work through.

Cutting right to the heart of the matter, Tesla shared that things continue to move forward in a positive direction:

“We continue to make progress resolving early bottlenecks related to these issues, and there remain no fundamental problems with our supply chain or any of our production processes.

The update speaks to just how easy Model 3 is to manufacture, which is a product of the sheer amount of work the team put into designing the car for manufacturing up front. From the letter:

“Model 3 has been designed for manufacturability, so the car itself is not difficult to build.”

While the vehicle is “easy to build,” however, it still has its challenges due to the sheer volume of innovative new manufacturing processes Tesla has integrated into the production lines. “Model 3 production process will be vastly more automated than the production process of Model S, Model X, or almost any other car on the market today, and bringing this level of automation online is simply challenging in the early stages of the ramp.”

The letter highlights battery module assembly at Gigafactory 1 as the single bottleneck that’s holding up the process today. Tesla notes that it intervened in the process and took over the critical manufacturing process, bringing it in-house from the vendor that developed the process. That’s reminiscent of the Tesla Model X production ramp where issues with the falcon-wing door mechanisms stalled the ramp early on.

Tesla brought its own top engineers in to focus on the battery module manufacturing automation to “fine-tune the automated processes and related robotic programming.” Whether its just Elon’s shoot for the stars mentality or the reality, Tesla shared that it believes it will be able to improve the line to the point that it will “ultimately be capable of production rates significantly greater than the original specification.”

Other pieces of the production process are already running as quickly as 1,000 units per week, including the stamping lines, paint shop, seat assembly lines, and drive unit manufacturing processes. Highlighting the complexity of juggling a production ramp across not just a global supply chain but across literally dozens of individual production lines that are effectively prototypes, Tesla shared that some manufacturing lines have only demonstrated a throughput rate of 500 units per week. These lines include battery pack assembly, body shop welding, and final vehicle assembly.

In total, Tesla is still extremely optimistic about Model 3 production, noting that:

“We currently expect to achieve a production rate of 5,000 Model 3 vehicles per week by late Q1 2018” …

… although, that comes with a caveat about how production ramps are unpredictable in nature and difficult to predict. Tesla also shared that the planned production ramp from 5,000 to 10,000 units per week will be announced at a future date, which is logical given the uncertainty with the current scope of the production ramp.

Getting down to the data, Tesla delivered a dismal 222 Model 3s in Q3 2017. Looking forward, Tesla shared that reservations for Model 3 were up significantly in the quarter, noting that, “demand for Model 3 is not going to be a constraint for quite a long time.”

Looking at the existing business, combined sales of Model S and X are up an impressive 18% vs Q2, consuming more market share of the luxury car market.

Elon and the team have high standards for the speed of the production lines as a means of maximizing value from its capital expenditures for Model 3. Elon spoke to this on the call, noting that the robots should be moving so fast that they should have to start worrying about air resistance and that “we should need a strobe light to see it.”

Comparing that to the Model 3 body welding video that was also embedded in the quarterly earnings letter, they still have a ways to go. The video does a great job of illustrating just how dense the production lines are and how much is going on at a single time. It’s like a NASCAR tire change on steroids as what seems like dozens of robots converge on the frame of the car as part of the welding process.

For the full details on the update, head over to Tesla’s Investor Relations website to listen to the webcast and to view the earnings update letter.

All images screen captured from official Tesla videos.

 
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Written By

I'm a tech geek passionately in search of actionable ways to reduce the negative impact my life has on the planet, save money and reduce stress. Live intentionally, make conscious decisions, love more, act responsibly, play. The more you know, the less you need. As an activist investor, Kyle owns long term holdings in Tesla, Lightning eMotors, Arcimoto, and SolarEdge.

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