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Model III - Your Case: On Time or On Jonas Time?

Discussion in 'TSLA Investor Discussions' started by Bgarret, Dec 19, 2016.

  1. Bgarret

    Bgarret Model S ownin' Michigan scofflaw

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    #1 Bgarret, Dec 19, 2016
    Last edited: Dec 19, 2016
    Model III rollout is THE story for Tesla & TSLA. Gigafactory - sure...nice. S & X....keep em' hummin' off the line. Model III is make or break (or make or GOOGLE) for Elon et al. Thought it would be worth some end of year challenge to put out your case - good or bad - for delivery of Model III in 2017....or 2018.... Please give reasoning and an approximation for production ramp and time frame. I'll get is started with some quick thoughts that I reserve the right to edit later as I'm winging this a bit:

    My Case: Volume deliveries in 2017 of the Model III. Start of Production in August/September of 2017, delivery of all employe Model III by Halloween of 2017 and Christmas presents for about 25,000 Model III reservations holders for their 2017 tax returns. Total 2017 production of about 40,000, with an exit run rate of 4,000/wk at the end of 2017. Total S III & X deliveries for 2017 - 140,000 - 75% CAGR.

    Rationale:

    1. This is THE mission for Tesla (MPLAN 1.0). Model III is sustainable transportation for (most) the masses.
    2. Tesla has done this before. The naysayers will point out the missteps of Model S production ramp and Model X production ramp. It will not be seamless, but this is both First Principles and Design thinking. This is not an Engineering driven (German) or Business driven (Big 3) approach. Design, design, design....iterate, iterate, iterate. Chevy is driving it's Bolt 150k miles then checking to see how their parts held up. Tesla is redesigning the parts as soon as they are bolted on the vehicle. (see multiple earning calls where Elon discusses the number of parts that have been improved). The "mistakes" the "hubris" are part of the process.
    3. The Model III has 2 platforms to beta test features: Model S & X
    a. All Glass Roof - Q4 2016
    b. Sensor suite and AP2.0 - Q4 2016
    (c). HUD - ?
    (d). New Interior - ?
    (e). Falcon Wing Doors for the Y????
    4. Positive Cash flow from Operations. If S & X continue to sell as they have been in Q3 (and hopefully Q4), Tesla will have positive cash flow from operations to ease the fiscal stress of Model III Ramp. If Tesla Energy adds....Johnny bar the door.
    5. Adults in the Room - There are many great "old hands" at Tesla, but they have been adding some impressive newcomers - Hochholdinger -Audi - Production, Bell - Volvo - Interiors, Jeff Dahn - Academia - Battery Scientist, Grohmann Engineering - Production, Wheeler - Google - Financial. Some of these are recent, but Hochholdinger, Wheeler, Jeff Dahn and Grohmann will have had material impact on Model III and Gigafactory. The biggest adult in the room may be Panasonic - more reticent to make "risky" or quick investments, seems to have decided to more or less go all in with Tesla - Battery, Factory, Storage, Solar.
    6. The Gigafactory - If it works as planned, will streamline pack production, reduce costs - thereby increasing margins, make ramping easier (how many times were the S & X battery constrained?). It is the biggest moat to anyone producing more than mid-double digits of electric vehicles.
    7. The Executive Team - in Elon, J.B. and Wheeler we trust (I would say Jason, but when your last name is Wheeler, and you are the CFO for a Auto/Energy company....well.) For those who have been on conference calls for 3+ years, I'm liking the Elon, J.B., Wheeler show just fine. I think they have a good chemistry and a fair chance at success.

    Full Disclosure... I believe. I have followed the company closely. I have made money from investing and trading TSLA. I drive a Model S & have a Model III reservation. I believe Bloomberg New Energy Finance when they say that electric cars will surpass ICE cars in 2023 for cost....and everything else except production (and the author admitted that was before Tesla moved up the 500k goal by 2 years). I believe in 140k in 2017 and 400k in 2018, and 1.0 million by 2020. And many will point out if Tesla does this, they will have "failed". But they said 500k in 2018!!! I'll take it, because I will have my "vintage" 2014 Model S - that is superior to any other EV on the market, and I will have my autonomous Model III for my wife that hates to drive. And my 2018 and 2019 LEAPS will be just fine.

    Please make your cases.....and have a Merry Christmas, and a Profitable New Year.

    Cheers
     
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  2. neroden

    neroden Happy Model S Owner

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    Internal target is July 1 2017. Standard contingency time of three months gets you to October 2017; six months to January 2018.

    I believe it'll be between October 2017 and January 2018.
     
  3. AlMc

    AlMc 'Senior Moments' member

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    I do believe Jonas is off on the timeframe. I am not sure if this is deliberate ( trying to be a PIA for EM/personal or trying to get his *friends* in TSLA at $200 now), he is plain wrong or he has some inside info ( TM directly or suppliers indirectly).

    I do think we will get some positive *color* on the Q4 ER/CC in early February about the '3' and TE. I believe the beta reveal is Q1; production/reveal in mid/late Q3 with production starting thereafter.

    I think the ramp depends on TSLA PT/Cap raise. We get line #1 (old S line) producing 3s at a max rate of 2,000/wk exiting Q4 2017 *IF* NO cap raise and they fund things organically. If there is a cap raise then I can see a path to leaving Q4 2017 at 4-5K/week as they will be producing high volume on line #1 and the new line will be producing/ramping as the cap raise money will accelerate bringing it online.

    ****Another concern: They have to be able to DELIVER all these vehicles. No problem with staff deliveries but the logistics of tripling+ the number of deliveries your SCs can do becomes interesting

    So, no cap raise: Staff gets their 3s in 2017 and *maybe* a lucky 10k orders of non staff get theirs. I think we see a cap raise late Q1 2017 if PT >$240 to accelerate the completion of the mission statement.
     
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  4. ggies07

    ggies07 Supporting Member

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    They've said they will have volume production at the end of 2017. What is everyone's definition of "volume"? 25,000 or 100,000? I would think when talking about a car company, it's 100,000. When the Model 3 was revealed, Elon said they should be able to do 100,000-150,000 units before 2017 is up. I'm optimistic, and want the damn car......been waiting long enough now..... :)

    So I say at least 100,000 by 12.31.17
     
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  5. Turing

    Turing Member

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    5. Is a big one that doesn't get much attention with the model 3 timing discussion. Not only are top people like J.B and Elon far more experienced now, having gone through S/X ramp and supplier issues, but they have been able to bring on top people like Hochholdinger. How big of a difference will this make? Hard to say, but could be a significant improvement this go around.

    Another big potential improvement with the 3 vs S/X ramp is that Tesla is more credible now from the viewpoint of suppliers, Elon described it on a CC as insisting on only work with the "a team" at each supplier. Which implies that in the past Tesla likely did not get to work with the best teams at their respective suppliers and this led to delays and other supplier issues.
     
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  6. NeverFollow

    NeverFollow Member

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    #6 NeverFollow, Dec 19, 2016
    Last edited: Dec 19, 2016
    So far there are still a lot of unknown, such as the battery size?

    Unless you really need a car asap, and that you think that you will still be able to get the $7,500 tax deduction,
    I would wait may be for an extra year just to avoid any major glitches, as I will buy and not lease to keep it for several years.

    Also, I don't want to get a sedan, and I prefer wait for the model Y or hatchback version with 4WD and full AP.

    So my estimate is more toward 2019...
     
  7. EinSV

    EinSV Active Member

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    #7 EinSV, Dec 20, 2016
    Last edited: Dec 20, 2016
    @Bgarret -- Great thread and great post to start it off.

    This is a bit long-winded but tl;dr -- I predict launch on time (by Sept/Oct 2017), initial ramp perhaps a bit slower than predicted (25-75K in 2017), and going gangbusters in 2018 producing a total of 500K vehicles (S/X/3).

    Let's start with clearing the air a bit on history.

    When Tesla IPO'd in June 2010, it had one alpha prototype Model S and did not have possession of the Fremont factory yet. In fact the whole point of the IPO was to raise much needed funds to launch the Model S.

    In the IPO, Tesla predicted the Model S would be released in 2012. The first Model S was delivered in June 2012. On time. Tesla also predicted Model S would eventually reach production of 20,000 per year. In the first full year of production (2013) Tesla delivered over 20,000 vehicles.

    Tesla did not take possession of the Fremont plant until October 2010. The first Model S was delivered only 20 months later. Exactly in the time frame promised at the time of the IPO.

    The ramp to full production in the fall of 2012 did take slightly longer than Tesla predicted but by Q1 2013, Tesla was already essentially meeting its long-term production goals (4900 vehicles delivered in Q1 2013). Now, after its fourth full year of production, it is producing Model S at a rate of over 300% of its stated long-term goal.

    And since this thread is a check-in on Tesla's plan versus Adam Jonas' forecast, let's see where was our friend Mr. Jonas was. Well, in March 2011 he issued a research note calling Tesla "America's Fourth Automaker" with a huge (at the time) price target of $70 and the stock price skyrocketed. Tesla Soars On Morgan Stanley Upgrade; Sees 200% Upside Thank you Mr. Jonas.

    But then, in December 2011, six months before S deliveries began, Jonas slapped Tesla with a major downgrade, dropping his price target from $70 to $44. The stock tanked. Part of the downgrade was based on worries that the EV market would turn out to be smaller than expected. But part of it was due to concerns that the Model S ramp would be slower than expected. Tesla: Morgan Stanley Turns Bearish On Slower EV Adoption

    But Jonas' negative outlook on production (admittedly not as pessimistic as in his current report) turned out to be incorrect and in September 2012, once Model S production was up and running, AJ upgraded again based on Tesla beating market expectations on production. So on Model S, AJ's prediction turned out to be conservative, but wrong. Which is fine -- I think as an analyst being conservative probably means you get to keep your job longer.

    Bottom line, on Model S initial delivery date and production targets, Tesla's forecasts as a public company were both accurate, and more accurate than Jonas'.

    OK, but Model S is not Model 3 as Elon himself has said. It is a lowish-cost, high volume vehicle, which Tesla as a company has no experience with. IMO Tesla has taken steps over the last year or so that lead me to conclude it is likely that Model 3 will launch "on time" (which I define as by about September/October 2017) and that within about six months will be at something close to full production, allowing Tesla to deliver a total of about 500,000 vehicles in 2018.

    Many of the relevant factors have been identified in the posts above, but I would highlight:
    • Gigafactory cell production ramp will be happening shortly if it hasn't started already. There should be ample time to validate and ramp pack and drive train production at the Gigafactory to support Model 3 production. This does not appear to be a critical path item.
    • Pencils down last summer, corroborated by reports of ordering test parts sufficient for 300 vehicles last summer.
    • Great new hires with experience in high volume production -- Hochholdinger's experience with Audi A4/Q5 should be especially valuable for launch of Model 3 (and Y)
    • Tesla has cash in the bank and the ability to generate cash through cash flow from vehicles/TE and defer expenditures through favorable deals with suppliers. (I also don't see a cap raise as a big deal if it turns out to be desirable or necessary -- at current (low) valuation $1B is only 3% dilution.)
    • Model S on-time launch post-IPO shows that Tesla is fully capable of realistic planning with a relatively well-defined problem/target.
      • Although Model 3 presents new challenges (high volume, low cost), unlike in June 2010, Tesla owns the factories, and has far more experience with production and supply chain.
    • Model X was a great wake-up call on the need to defer some innovation for the sake of getting the first year of production out on time. Tesla appears to have taken this to heart and is deferring introduction of innovations in production (Alien Dreadnought 1.0, 2.0 etc.), appears serious about pencils down, and has the ability to use S/X to validate new features (AP2, glass roof) where it just can't resist.
    So bottom line, I think Tesla will launch the Model 3 on time (by Sept/Oct 2017), perhaps ramp a little more slowly than expected initially (25-75K in 2017) and be going full tilt by spring 2018, when attention will likely turn to Model Y.:)
     
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  8. ggr

    ggr Roadster R80 537, SigS P85 29

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    Typo here. As you point out a few lines later, it was 2012. 2010 was the goal well before the IPO.
     
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  9. EinSV

    EinSV Active Member

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    Typo fixed, thanks.:)
     
  10. JRP3

    JRP3 Hyperactive Member

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    A bit of time traveling going on there? ;)

    Bah, too slow, I need to time travel and delete this post :oops:
     
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  11. EinSV

    EinSV Active Member

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    @ggr already called me out on the typos, which are now fixed. Tough crowd. :)
     
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  12. eye.surgeon

    eye.surgeon Member

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    HIghly sceptical that we will see anything other than a dozen token deliveries in 2017 just to say they did it. I wouldn't expect ramped up volume production until last half of 2018. Frankly I wouldn't want to own one of the first 10,000 or so built. I may delay my early reservation to get a later build.
     
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  13. JRP3

    JRP3 Hyperactive Member

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    I'll be happy with around 5-10K in Q3 and 20K+ in Q4. I'd actually be fine with any cars in Q3 and a few thousand in Q4 but think they can do better than that.
     
  14. dc_h

    dc_h Member

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    The first ~30,000 go to employees. If they finish employee orders in 2017, they should enter 2018 at a pace of 2000+ per week. That's 350,000 annual with S/X sales. Is market valuing TSLA with 2017 sales over 10billion and 2018 over 20 billion?
    Interested in predictions of GF opening on Jan 4: will they reveal new beta cars with 2170 battery? We've seen the original two test cars in public. No one is aware of the next 300 test cars being seen or verified testing. With drive train and battery assembly moving to Nevada, seems like the next 300 test cars could be assembled at GF.
    Another question: if drive train and battery moves to GF, does that open entire second floor for model 3? Report of paint shop for m3 on second floor implies new line, except stamping, could be second floor. Recall Elon calling to use more empty space in plant.
     
  15. Fallenone

    Fallenone Active Member

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    #15 Fallenone, Dec 20, 2016
    Last edited: Dec 20, 2016
    Right on time for this:

    Tesla Model 3 on track for H2 2017, Model X production ‘inconsistent’, says TSLA analyst after meeting with management

    Personally I would expect all of employee reservations would be delivered (10-15k) but little customer deliveries. Employee serve as beta tester before really ramping up production in 2018.

    Oh yes the rationale. My biggest concerns are two: 1) the still empty spaces in Fremont. Big equipment are not smartphones that you turn on and work. It needs time to set up, fine tune, trouble fix, test production, re-calibrate, etc. 2) no prototypes, alpha or beta, were seen other than the ones on Mar 31. You just can't skip real world testing before you launch a car for sale.

    Therefore I believe they might use employee as beta testers in 2017 and try to push out much better quality cars (compared to X launch) to the general public in 2018. In this way they can get less complaints, lower returns/costly fixes that helps initial gross margins, easy on the delivery team/service centers that are still being built, and still claim they did it in 2017.
     
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  16. JRP3

    JRP3 Hyperactive Member

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    I'd think maybe half that. Not every employee is getting a car and since the early units are going to be higher end more fully optioned models that will also eliminate many employees from being early in line.
     
  17. dc_h

    dc_h Member

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    Includes SpaceX and Solar city employees. 30k may be high, but I think it will be closer to 20,000 then 10,000.
    They are delivering to employees first, not high margin customers. They plan on capturing issues and resolving production issues faster and before public rollout. After employees you probably have a year of high margin sales to fill.
     
  18. JRP3

    JRP3 Hyperactive Member

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    My interpretation has been that employees get first crack at early production but that doesn't mean early production is going to include base models.
     
  19. ggr

    ggr Roadster R80 537, SigS P85 29

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    I still believe that, with ease of manufacture being a primary goal (as opposed to "proof of concept", "World's best car", or "world's neatest SUV"), the 3 will be nearly on time and ramp fast.
     
  20. dennis

    dennis P85D

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    Here are my thoughts, estimates follow.

    1) Tesla will want as many cars as possible in employee hands so they will first deliver all employee cars, regardless of configuration. This will start in the latter part of Q3.

    2) the first year of production will be a more streamlined version of current S/X production. The large number of reservations will allow Tesla to more easily batch cars and spread delivery throughout the quarter rather then the current geographic batching used to maximize quarterly deliveries.

    3) The new manufacturing VP's specialty is logistics. That will be key to improving throughput not just on the supply chain side but also optimizing the shipping of the finished product.

    4) There should be a big increase in production in the second half of 2018 when AD 1.0 is switched on.

    My predictions (Model 3 only):

    3Q17 - 4,000
    4Q17 - 20,000

    1Q18 - 35,000
    2Q18 - 45,000
    3Q18 - 80,000
    4Q18 - 100,000
     

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