Production capacity improvement for Model S and Model X.

[lango]

Hi, new to the forums. Can't afford a Tesla yet but the cars are great :biggrin:.

I have done "extensive research" the last two weeks about TSLA and there is some missing pieces I wonder if anyone here knows about.

I have come to the conclusion that demand and production of Model S and Model X matters a whole lot for the free cash flow they can generate and hence for the risk of dilution and capital problems the coming two years. This might sound obvious but in general the focus on discussion from analysts and commentators are Gigafactory, Model 3, timelines, capital and cash burn and less about demand, margins and production of Model S and Model X.

Going forward I think ASP of close to $90k, decreasing battery cost and economy of scale means that Model S and Model X operating margins will be really good and it will perhaps even be enough for the capital requirements they have, or atleast can fund the large majority of it. Tesla has a high level of vertical integration, is selling directly to consumers so the S+X Fremont line will be increasing profitable. This is something I think is talked about too little among analysts and commentators. I have seen the target 90k-100k in total for Model S and Model X 2016, and to me it seems very likely the demand will be there to increase that and grow demand atleast 30% YoY to reach 125k 2017 and perhaps 150k 2018. If they can also produce these numbers it would mean the capital requirements for the Gigafactory (~$2B) and the model 3 line (~1B) as well as remaining development cost of Model 3 and SuperCharger expansion could come entirely from the S+X line and with some left to spare. It would also mean that Model 3 does not need to do 400k to reach the 500k target in 2020 (a target I don't think they will hit, but don't need to)

So, I wonder if anyone knows how "easy" it would be to expand the production of Model S+X to reach say 150k 2018? Afaik the current line has not capacity for it, or would it be as simple as doing another shift? If a new line is required, how easy/hard would it be to build that by for example duplicating the current line? Would be awesome to get some ideas about this :smile:.

Cheers,
Markus

 

[Benz]

Welcome to the Tesla Motors Club forum Markus.

"I have seen the target 90k-100k in total for Model S and Model X 2016, and to me it seems very likely the demand will be there to increase that and grow demand atleast 30% YoY to reach 125k 2017 and perhaps 150k 2018."

First of all, officially those numbers have not been revealed/announced by Tesla Motors (as far as I know).

I think that there will be an announcement for incremental investment in the expansion of the production capacity at the Fremont factory at some point during 2016.

Total Annual Global deliveries of Generation 2 EV's (Model S + Model X) in 2016 should be somewhere inbetween 80,000 - 100,000.

We shall see in February 2016 what the exact guidance for 2016 will be.

Have a nice day.

 

[ev-enthusiast]

Welcome!

As far as I know they are aiming for 50% annual growth.
If they deliver about 50 000 vehicles in 2015, that would translate to about 75 000 vehicles in 2016.
If they keep their curret pace, they will be bigger than e.g. Porsche in about three years (in 2013 Porsche sold 162,145 vehicles worldwide).
Be careful with growth rate and other numbers in the media, they are somtimes exaggerated or not quite correct.
A great start to get official numbers and relyable information is to simply dig through the reports on the Tesla Motors investor site here.

 

[DriverOne]

In the recent interview on NPR (? - it was linked to just a few days ago) Elon was saying something like demand for S+X would be 100-150K per year, Model 3 about 350K per year given gigafactory limits. I don't recall the exact numbers sorry - perhaps someone else does? I got the impression he didn't think S+X demand would go beyond those numbers.

 

[schonelucht]

I have seen the target 90k-100k in total for Model S and Model X 2016, and to me it seems very likely the demand will be there to increase that and grow demand atleast 30% YoY to reach 125k 2017 and perhaps 150k 2018.

Why do you think this is likely?

 

[lango]

Thanks for the welcome!

Well the reason is that demand usually continues to grow for a while. That Tesla would be a 30%+ growth company up to 2018 excluding Model 3 is very likely given how growth companies normally behaves. It is also likely this will continue into 2019 and 2020, too. There is of course the risk that they think the market will plateau but I doubt it.

In the Q2 call Elon said 1600-1800 week was the target on average for 2016, rounding down that would be about 80k. It was also said that max per week would be 2000, but it is unclear to me if that is the peak output of the line or just the max they expect to hit in 2016. I would guess it is the peak of the line considering the huge backlog they have of Model X and they have 15 months to reach that output.

I am aware of the 50% growth target and the 500k target in 2020, but they include Model 3 production.

- - - Updated - - -

DriverOne:
Yeah, but there is a big difference between 100k in 2018 for the X+S line and 200k for it. I think demand for both numbers can happen, so the question then is if and how they could scale S+X to the higher numbers if they see increased demand.

 

[electracity]

I think considering dilution a potential problem for a company like Tesla is a mistake. As long as their real cost of capital is low they don't even need good margins on their vehicles at this point, IMO.

 

[ZachShahan]

Thanks for the welcome!
t was also said that max per week would be 2000, but it is unclear to me if that is the peak output of the line or just the max they expect to hit in 2016. I would guess it is the peak of the line considering the huge backlog they have of Model X and they have 15 months to reach that output.

I took that to mean the peak of the line. Thought it was pretty clear, but maybe I missed something. Thought he basically said that was the max they could theoretically produce, but reality wouldn't allow it.

And to reiterate what someone else said, he seemed to indicate in a recent intervie that he guessed S + X demand would level out at somewhere between 100K and 150K/year. We'll see.

 

[dc_h]

Growth model

Great thread. We often hear that short term results don't matter, but pushing growth back a quarter can have big impacts on net present value models. If Tesla hits sales goals in 4th quarter, models for a 9bn 2016 are more logical, and make a 13.5bn 2017 more reasonable. With longer term growth at 50%, missing a year now can change Tesla's expected 2020 sales projection from. A 500 million miss in 2015 is 10bn in revenue assuming a 50% growth model by 2020. That is just a model and not reality, but short term will impact long term growth perceptions, if not long term growth reality.
I'm bullish long term and now medium term bullish. I believe breakout at this point depends on Model X production going live and rising above 100 a week.

 

[dakh]

I think the original question is quite important but also I haven't seen any data whatsoever to have a clue on what the answer is. Global demand for high-end electric cars will probably grow enough to handily overwhelm the 2K peak capacity in Fremont in the next few years. Just looking at regulatory changes and sentiment change in China I think is enough for that. But what is the on the ground technical growth path to the current production line to increase capacity, we have no idea.

 

[Benz]

If the orders start flowing in at such a high rate that even the current maximum capacity simply can't produce enough cars in a reasonable timeframe, then obviously new investments will have to be made to increase production capacity, I think.

 

[dakh]

I guess there's another aspect to this which is battery supply. It could be that until GF is contributing there just isn't enough juice for more than 2K/week production rate.

 

[Fallenone]

While I don't think the demand for S has reached its peak, I highly doubt it will continue on the pace of 50% yoy. 20% or less is more likely. Two of the biggest regions (CA and Norway) are not seeing great growth for the past few Qs. Before the 3, X will have to pick up to drive over all deliveries 50% yoy, or even higher.

On another note, we shouldn't underestimate the capex for model 3. 1B is vastly underestimating it in my opinion, those robots ain't cheap. It would be on the scale of a GF. Also, it is very likely TSLA needs more capex to build a 2nd or 3rd GF sometime after the launch of model 3.

 

[RobStark]

e.g. Porsche in about three years (in 2013 Porsche sold 162,145 vehicles worldwide).

Porsche is on track to cross 200k units this year.

 

[electracity]

They obviously did the initial MX configuration for China. (How many soccer moms were asking for the world's best second row seating and bio-defense mode?). An indicator of how well Tesla knows its customers will shown in China sales later next year. If they are wrong on China, then they are just guessing like the rest of us. If they are just guessing, production forecasts are just goals.

I'm not sure if the MX is genius, or an eccentric rich guy design that allows the comfortable transport of five kids.

But I see no reason that Tesla can't outsell Porsche.

 

[ecarfan]

Porsche is on track to cross 200k units this year.

Porsche is going to have trouble beating their 2015 sales numbers next year when they start losing Cayenne sales to the Model X.

 

[RobStark]

Porsche is going to have trouble beating their 2015 sales numbers next year when they start losing Cayenne sales to the Model X.

Well, Porsche can kiss 90% of their Cayenne PHEV sales goodbye.

And maybe 10% of their Cayenne ICE sales.

 

[replicant]

Wouldn't it make sense for Tesla to build a car factory in Europe/Asia before reaching the 500K cars produced in Fremont? How many years does it take to prepare all the logistics for one big car factory in another country? Would they consider building one battery+car gigafactory at once before 2020?

 

[Benz]

Wouldn't it make sense for Tesla to build a car factory in Europe/Asia before reaching the 500K cars produced in Fremont? How many years does it take to prepare all the logistics for one big car factory in another country? Would they consider building one battery+car gigafactory at once before 2020?

They most certainly already are in the process of making a strategic decision regarding the location (country) where they would prefer to realise their car factory and battery factory in Europe. We might already hear something about it in 2016/2017.

 

[RobStark]

Musk said a region must have at least 150k sales per year to justify a new factory.

And two newspapers in Slovakia said Tesla officials have already had discussions with local officials about a factory in their country.