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Thumbing a ride at the intersection of technology, autos and mobility
The Tesla logo on a Model S electric sedan at the Paris Auto Show on Sept. 30, 2016. (AP Photo/Christophe Ena)
Tesla intends to get its much-anticipated Model 3 electric car into production by July and could soon announce locations for additional Gigafactories to produce lithium-ion batteries needed for its vehicles and energy storage business. Yet the company also isn't ready to share full-year vehicle delivery targets just yet.
The maverick electric-car and clean energy company led by billionaire tech industrialist Elon Musk unveiled its plans as part of earnings results released Feb. 22. Launching the Model 3, with a $35,000 base price, on schedule is critical given Tesla’s track record of delays for previous new vehicles, most notably the Model X SUV that came out more than 18 months after an initial target date.
“Our Model 3 program is on track to start limited vehicle production in July and to steadily ramp production to exceed 5,000 vehicles per week at some point in the fourth quarter and 10,000 vehicles per week at some point in 2018,” Musk and Jason Wheeler, Tesla’s chief financial officer, said in a letter to shareholders. During a conference call, Musk also announced that Wheeler will leave in April and be replaced by former CFO Deepak Ahuja, who rejoins in March on a "long-term basis."
The company has a waiting list for its first moderately priced vehicle of about 400,000 people, who in 2016 each paid $1,000 to reserve a Model 3. Musk declined to provide an updated figure for reservations during the call, "as people read too much into it."
Tesla unveils the lower-priced Model 3 sedan at its design studio in Hawthorne, Calif. in March 2016. (AP Photo/Justin Pritchard)
Despite an assurance the car is coming soon, Tesla provided no target for deliveries of Model 3s in 2017. And as for its Model S sedan and Model X, which can sell for more than $100,000, the company said only that it plans to deliver between 47,000 and 50,000 in the first half of the year.
“In early February we began building Model 3 prototypes as part of our ongoing testing of the vehicle design and manufacturing processes,” Musk and Wheeler said. “Initial crash test results have been positive, and all Model 3-related sourcing is on plan to support the start of production in July.”
Revenue jumped in the fourth quarter and for the full year, boosted by the $2.1 billion acquisition of solar power installer SolarCity, approved in November and completed in January, as well as by increased vehicle sales. Baking in the new unit’s business, revenue grew to $2.28 billion for the quarter, up 88 percent from a year earlier, and to a best-ever $7 billion for the full year, compared with $4 billion in 2015. Revenue from auto sales and leasing, excluding energy business and other services, rose 79 percent in the quarter to $1.99 billion, and to $6.35 billion for the year from $3.74 billion in 2015.
The Palo Alto, California-based company in January estimated that it delivered 76,230 vehicles to customers in 2016, and produced about 84,000. Both figures were below its guidance.
Tesla’s net loss in the quarter narrowed to $219 million, or 78 cents a share. That was better than the $1.16 loss per share expected by Barclays analyst Brian Johnson. The company’s quarterly revenue also topped Johnson’s expectation of $2.12 billion.
Still, given the “nearly superhero status of Elon Musk” for many investors at this stage Tesla’s financials are less meaningful for some than its CEO’s vision for the future, Johnson said in a report before results were released.
President Donald Trump, right, talks with Tesla and SpaceX CEO Elon Musk, center, and White House chief strategist Steve Bannon during a meeting with business leaders on Feb. 3. (AP Photo/Evan Vucci)
“To the fervent Musk believer, the frequent sightings of Mr. Musk in Trump Tower and the White House only likely reinforced, along with now a successful rocket launch and landing, Mr. Musk’s standing as the potential successor to Steve Jobs.”
Ahead of the arrival of the Model 3, Tesla is scrambling to improve production processes to handle as much as a 10-fold expansion in output over the next three years at its Fremont, California, plant. To aid in that process, it bought Grohmann Engineering, a specialty German firm, late last year to automate more of the work.
“Grohmann Engineering is a world leader in highly automated methods of manufacturing, and this acquisition launches Tesla Advanced Automation Germany, which will help us innovate manufacturing processes to be used initially in Model 3 production,” Musk and Wheeler said.
A Model S sedan being built at Telsa's Fremont, California, plant. (Noah Berger/Bloomberg News)
During the results call with analysts, Musk was asked about the possibility of the United Auto Workers union attempting to organize the Fremont plant, following complaints by one employee about pay and conditions there.
"There is quite a strong effort by the UAW to unionize at Tesla," Musk said. He defended the safety record at the facility as having an injury rate in recent months that "is less than half the industry average," without providing detailed figures. Pay at the factory has also grown faster over the past four years than at any other auto plant in the U.S., Musk said.
"There are only disadvantages" if workers unionize, he said. "I don't think this is likely to occur."
Tesla has begun making battery packs at its $5 billion Gigafactory in Nevada, though the facility is far from complete. When finished the Reno-area operation will be the world's largest battery plant and play a crucial role in Musk's goal of driving down the cost of Tesla's power-storing devices. Even as construction work continues on Gigafactory 1, the company is moving ahead with plans for more such facilities.
“Later this year we expect to finalize locations for Gigafactories 3, 4 and possibly 5,” Musk and Wheeler said. Gigafactory 2 is the Tesla solar plant in Buffalo, New York, gained as part of the SolarCity purchase. Panasonic, Tesla's longtime battery and Gigafactory ally, is also partnering with it at that factory, the largest solar module assembly plant in North America.
The company didn’t immediately lay out specific financial goals for 2017, beyond plans to make capital expenditures worth as much as $2.5 billion.
During the call Musk also let a curious analyst know that he still isn't planning to combine his private aerospace company SpaceX with Tesla -- or to leave Tesla in the foreseeable future.
"I expect to remain with Tesla essentially forever. Unless somebody kicks me out."
Visualization by Graphiq
Alan Ohnsman covers the intersection of technology, autos and mobility. Follow him on Twitter and LinkedIn.
Source: Alan Ohnsman - Forbes
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