Production Constrained, Not Order Constrained

[OldSlowCuber]

Tesla seems to be nowhere near their eventual goal of 500,000 (delivered) cars per year. Given the fact that they are currently (no pun intended) located in one of the largest factories anywhere, could they not simply use some of that space to add as many production lines as are needed to keep up with the very high demand for their vehicles?

 

[cschock]

Not really. It does take money to do that of course, but the real gating factor is batteries. Until the Gigafactory (currently under construction in Nevada) is online and pumping out battery packs they could expand the Fremont factory all they wanted and not make that many more cars. That's because they are short on batteries, not space in the factory or robots, or all the other things they would need to make more cars.

 

[Benz]

Current theoretical maximum weekly production capacity at the Tesla factory in Fremont is 2,000 vehicles.

On February 10th we will get to know how many they actually did produce in Q4 2016 (15,000+?).

The question is how many vehicles they currently produce per week?

In the Shareholder Letter of the Q3 2015 Earnings Report they mentioned that they would reach a level of 1,600 to 1,800 vehicles per week in 2016.

I don't think that they have already reached that level yet (but I do think that they will reach that level in the second half of 2016 though).

All I want to say is that they are not at the peak of their production capacity yet.

So, I don't think that we could say that they are production constrained (but they will be in the near future).

More orders are required.

Looking forward to read what their guidance for 2016 will be.

 

[byan1232]

Current theoretical maximum weekly production capacity at the Tesla factory in Fremont is 2,000 vehicles.

On February 10th we will get to know how many they actually did produce in Q4 2016 (15,000+?).

The question is how many vehicles they currently produce per week?

In the Shareholder Letter of the Q3 2015 Earnings Report they mentioned that they would reach a level of 1,600 to 1,800 vehicles per week in 2016.

I don't think that they have already reached that level yet (but I do think that they will reach that level in the second half of 2016 though).

All I want to say is that they are not at the peak of their production capacity yet.

So, I don't think that we could say that they are production constrained (but they will be in the near future).

More orders are required.

Looking forward to read what their guidance for 2016 will be.

So in essence you are saying Tesla does not have enough orders to reach full capacity, even at the current Fremont factory right?

 

[Benz]

So in essence you are saying Tesla does not have enough orders to reach full capacity, even at the current Fremont factory right?

Not yet, but that will change in the second half of 2016 (I think).

12 x 1,800 = 21,600

I don't think that they will be producing that many vehicles in Q1 or in Q2, maybe not even in Q3, but most certainly in Q4.

 

[Sudre]

Not yet, but that will change in the second half of 2016 (I think).

So the Model X backlog doesn't count as orders?

IMO they are still having problems sourcing parts. Otherwise when someone needs a part to repair their car from an accident the wait wouldn't be so incredibly long.

 

[OldSlowCuber]

Good points. Plus they continue to reinvest in the company by rapidly building out charging infrastructure, Supercharging and destination. I imagine until Model 3 starts ramping up, Tesla Motors will be limited in what they can do with cash flow.

 

[Saghost]

Tesla seems to be nowhere near their eventual goal of 500,000 (delivered) cars per year. Given the fact that they are currently (no pun intended) located in one of the largest factories anywhere, could they not simply use some of that space to add as many production lines as are needed to keep up with the very high demand for their vehicles?

In theory, sure. But space is just one of the things you need to build more cars. You also need more equipment (expensive capital investment,) more people (and more training for the new people,) and more of all the parts.

Tesla has been more or less doubling their production rates every year, and plans to manage it again next year. That's amazing, and it doesn't happen easily or cheaply - and the 500k goal requires at least two more doublings beyond that.

As other people have pointed out, to make this continue to happen they need to expand the total battery supply on a global scale (the Gigafactory's planned 2019 output will be equal to the world's production in 2013...) and source more of a thousand and two other parts - from copper motor windings to turn signal levers.

Just one part that they can't get more of becomes a limitation on the production rate, and Tesla has adopted the modern approach of outsourcing most of the smaller parts (actually, there's some interviews with senior Tesla folks out there talking about becoming a startup Automotive company in the 21st century was only possible because they were able to tie into the global market of existing component suppliers.) That means they need to get all those suppliers in a position to keep doubling their part production, too.

The modern automotive production line is a miracle of logistical planning and industrial engineering design - and as long as they don't get sucked in too much by Just in Time and Lean Manufacturing, it'll stay that way.
Walter

 

[bh1783]

Current theoretical maximum weekly production capacity at the Tesla factory in Fremont is 2,000 vehicles.

On February 10th we will get to know how many they actually did produce in Q4 2016 (15,000+?).

The question is how many vehicles they currently produce per week?

In the Shareholder Letter of the Q3 2015 Earnings Report they mentioned that they would reach a level of 1,600 to 1,800 vehicles per week in 2016.

I don't think that they have already reached that level yet (but I do think that they will reach that level in the second half of 2016 though).

All I want to say is that they are not at the peak of their production capacity yet.

So, I don't think that we could say that they are production constrained (but they will be in the near future).

More orders are required.

Looking forward to read what their guidance for 2016 will be.

Tesla still hasn't fully developed a lot of international markets. This year they will be opening in Mexico and Korea so that should help with orders. Korea is a huge market for Tesla and should be one of the largest markets for Tesla(Mercedes sells more S-Classes in Korea than they do in Germany). Mercedes sold 10,000 S-Classes in Korea last year, Tesla could probably reach a similar number with the Model S once they enter that market(big EV incentives 15k per vehicle).

Also, Tesla still has a lot of room to increase demand in the states. Half of their orders come from a single state (California).
If they were demand limited they would probably open more stores in different markets. There are still markets in Europe they haven't opened up in yet (Spain, Southern Italy, and Russia). Furthermore, there are still major markets in the Middle East and Asia that Tesla can expand into.

In the Q&A from France: QA With Elon Musk in Paris - YouTube
Musk mentions that they are currently producing 1,000 Model S Sedans per week and sometime in the second quarter they will reach a similar level of production with the Model X.

In the Model X thread:
- Page 13
They mentioned that the factory is only producing cars 4 days a week now with 12 hour shifts --> so 48 hours in total, up from the 5 days, 8 hour, 40 hour weekly shifts.

 

[Benz]

So the Model X backlog doesn't count as orders?

IMO they are still having problems sourcing parts. Otherwise when someone needs a part to repair their car from an accident the wait wouldn't be so incredibly long.

The Model X backlog are reservations. A substantial part of those reservations have not yet been converted into orders. But that will happen further in 2016.

 

[Benz]

Tesla still hasn't fully developed a lot of international markets. This year they will be opening in Mexico and Korea so that should help with orders. Korea is a huge market for Tesla and should be one of the largest markets for Tesla(Mercedes sells more S-Classes in Korea than they do in Germany). Mercedes sold 10,000 S-Classes in Korea last year, Tesla could probably reach a similar number with the Model S once they enter that market(big EV incentives 15k per vehicle).

Also, Tesla still has a lot of room to increase demand in the states. Half of their orders come from a single state (California).
If they were demand limited they would probably open more stores in different markets. There are still markets in Europe they haven't opened up in yet (Spain, Southern Italy, and Russia). Furthermore, there are still major markets in the Middle East and Asia that Tesla can expand into.

In the Q&A from France: QA With Elon Musk in Paris - YouTube
Musk mentions that they are currently producing 1,000 Model S Sedans per week and sometime in the second quarter they will reach a similar level of production with the Model X.

In the Model X thread:
- Page 13
They mentioned that the factory is only producing cars 4 days a week now with 12 hour shifts --> so 48 hours in total, up from the 5 days, 8 hour, 40 hour weekly shifts.

So, when do you think that Tesla Motors will increase their weekly maximum production capacity at the Fremont factory (currently that's 2,000 vehicles per week)?

 

[OldSlowCuber]

My original intent for this thread was to explore Elon Musk's frequent quote of Tesla being "production constrained, not order constrained". Some of you have suggested that the company is limited by things like battery supply, parts supply, or cost of equipment. Others seem convinced that Tesla doesn't have enough orders in their existing markets, that new markets being opened will increase orders. Yet, according to Elon, Tesla isn't order constrained meaning it's not a matter of too few markets or orders in existing markets.

I have considered a limitation of financial resources to invest in equipment as a possible reason due to these same resources being used to build both charging infrastructure and the Gigafactory at the same time as they are trying to build cars. If this is not the case and cash is not an issue, the matter of expanding resources to keep pace with demand shouldn't be what's limiting production.

If the limiting factor is primarily battery availability, the importance of the Gigafactory becomes paramount. If this is not the case and battery availability is not an issue, other factors need to be examined.

The problem is likely a combination of factors and can't be solved by any one thing. However, if Elon is correct that Tesla is not "order constrained", the problem must be due to either an inability to keep up or a lack of component resources like batteries or other parts from suppliers.

Given the size of the Fremont factory, I can't imagine the problem is a lack of space. Therefore if the space in the factory isn't being utilized, one or more of the above issues must be the limiting factor.

 

[CarlK]

Auto making is a capital intensive business. Any idling equipments will add manufacturing cost since they will depreciate no matter if they are been used or not. So adding more equipments is not as simple as you would have imagined.

 

[wdolson]

An argument could be made that availability of parts could be called "production constrained". Production can only move ahead at the rate of the lowest produced part. It is likely battery supply, but it could be anything like the supply of servo motors for the door handles or 17 inch touchscreens or quite possibly some part buried deep in the guts of the car. Tesla started making the middle row seats for the Model X themselves because the supplier couldn't deliver enough on time.

I don't think it's the capacity of the production lines in Fremont. They have two set up now and they have yet to hit the theoretical max production on either for any extended stretch of time. Adding more lines in Fremont would be a waste of money if the problem is with a parts supplier.