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Reuters report: Suppliers question Tesla's goals for Model 3 output

Discussion in 'Model 3' started by Jason Bourne, May 20, 2016.

  1. Jason Bourne

    Jason Bourne Member

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    Exclusive: Suppliers question Tesla's goals for Model 3 output

    Reuters has a report that seems to imply that suppliers for the Model ≡ production are doubtful whether the deadline can be met. I think it was clear that Elon's 01JUL2017 goal was lofty, but even if just one supplier misses the deadline, the whole project is delayed. Maybe Tesla will take a lesson from the Model X, and realize that if a feature is too complex (like the falcon wing doors) they may change the design in order to stay on schedule.
     
  2. ModelNforNerd

    ModelNforNerd Active Member

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    I think they've already done that...he's said time and time again when talking about the 3 that they are going for "ease of manufacturing" this time out.

    And if you don't at least try to set a deadline, no one is going to take you seriously.

    Any suppliers saying they can't do it is just bad business.

    But this is possibly good for Tesla and by extension, us. I would like to thank those suppliers for telling Elon nice and early that they can't do it....now he has time to go out and find someone who can do it on time and on cost, or cheaper.
     
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  3. 182RG

    182RG Free The Service Manuals From Tyranny

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    No, it's not bad business. It's smart business. I'm going to guess that more than a few of these suppliers have been around the block a time or two. Tesla is an upstart company, currently losing large amounts of money, and most recently announced production ramp up plans for a new vehicle that has raised serious questions about whether or not it is even possible to approach the volumes forecast.

    Jumping in feet first with Tesla on the notion of 500,000 a year is a huge risk for these suppliers. It will likely take capital expansion, design and engineering upfront costs, expansion of labor to name just a few. All paid for in advance of Tesla delivering the first vehicle, based on the wild forecast of EM and team. The leaders of these suppliers have a responsibility to their owners/investors, boards, employees, communities, etc. They can't just drink the Kool-aid and start writing checks.

    These conversations and news items will continue to rise to the surface as money needs to be spent right now by more than just Tesla to be ready for the "500K".

    It's going to be difficult to go out and "find someone". It's not like quality, experienced suppliers are going to be lined up to take the risk......
     
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  4. ModelNforNerd

    ModelNforNerd Active Member

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    when there is a contract for at least 400,000 units on the line, your answer SHOULD be, "OK, see you July 1, 2017", not "no. can't be done."
     
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  5. Breezy

    Breezy Member

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    #5 Breezy, May 20, 2016
    Last edited: May 20, 2016
    I haven't seen a clear, logical explanation for why it's urgent to ramp up production so quickly. Can anybody offer one?

    Having stretch goals is one thing, but if you're actually disqualifying competent and experienced suppliers based on their inability to meet unreasonable goals, all you're left with are incompetent and inexperienced suppliers who are telling you what you want to hear.
     
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  6. EinSV

    EinSV Member

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    The headline is misleading -- the only Tesla suppliers quoted are for the increased ramp schedule, which is obviously old news. The other quotes are from industry analysts and suppliers who are not associated with Tesla. Similar predictions were made for the Model S and they were wrong.
     
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  7. Borgholio

    Borgholio Member

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    Tesla got nearly three times as many reservations as they expected. They need to ramp up production so that they can deliver cars to these extra people before they give up and ask for their money back.
     
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  8. Az_Rael

    Az_Rael Active Member

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    Ugh, reading stuff like this makes me worry a lot about initial quality on the 3. They set such aggressive goals, and if they are stretching to get production ramped up so fast, quality control might suffer. You can't usually have "cheaper, better and faster" all at once, you have to pick two.
     
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  9. 182RG

    182RG Free The Service Manuals From Tyranny

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    FIrst, supply chain contracts aren't what you think they are. It's not guaranteed revenue by a specific time. Not even close.

    Second, spending potentially millions of $$ in capital expansion, possibly passing up on other business to get in line for 400,000 refundable reservations held by a company hemorrhaging money. Not so much.
     
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  10. ecarfan

    ecarfan Well-Known Member

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    Yes. Product demand far exceeding the capacity to produce product means lost or delayed revenue.

    Based on very little information, over 370,000 people put down $1,000 for a car that they had not driven or even seen in person, and they are willing to wait 1 1/2 to over 2 years to take possession of. That is unprecedented. And once full information is revealed, and people can actually see the car and do a test drive in two or three years, orders are certain to increase by an order of magnitude.

    Therefore, Tesla's original goal of being able to produce half a million cars a year by 2020 would mean lost or delayed revenue compared to achieving that goal two years earlier. But meeting the goal in 2018 requires a lot of capital. Hence the upcoming stock offering.

    The other auto manufacturers can only dream of having such pent up demand. They have to spend vast sums every year on marketing just to maintain demand. Tesla is spending essentially nothing on marketing.
     
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  11. gregincal

    gregincal Active Member

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    I do like this quote: 'Automaking consultant Ron Harbour of Oliver Wyman said increasing production at the Fremont plant to 500,000 vehicles in 2018 would require more stamping, welding and assembly machinery that "could take up to 18 months to order and install."'

    Wow, up to 18 months to order and install, and they only have 20 months until the beginning of 2018.
     
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  12. MorrisonHiker

    MorrisonHiker Beta Tester

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    Another reason is that the $7500 federal tax credit will start to be phased out once Tesla has sold 200,000 cars in the US. If they ramp up slowly, most Model 3 buyers wouldn't get the $7500 tax credit. If they ramp up quickly, then many more cars can be delivered in the months after they hit 200,000 sales. These cars would be eligible for the $7500 tax credit (or $3750 tax credit when it is first cut in half).
     
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  13. Johan

    Johan Took a TSLA bear test. Came back negative.

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    Why the hatred?

    Supplier who feel this way should stay away from Tesla. Suppliers who don't will be happy to work with them.

    Hemorrhage is a drastic term, very suggestive. Fortunately they got a nice $1.5 Bn blood transfusion just this week that hopefully will keep them alive for a few more months...
     
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  14. Breezy

    Breezy Member

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    Their revenue comes forward, but their costs increase. The compressed schedule increases unit production costs for equipment, parts, and labour. It increases warranty costs, which defers a larger portion of revenue from each car sold. The compressed schedule greatly increases the risk of these expensive investments sitting idle while they sort out those unexpected problems that always appear.
     
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  15. Yggdrasill

    Yggdrasill Active Member

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    Tesla should definitely put in firm orders for initial deliveres in mid-2017 for all they things they don't control themselves. (And continually follow up to ensure the suppliers will meet that deadline.)

    If we assume these parts constitute 10k USD per car, an initial order for 50k units mid-2017 would mean 0.5 billion USD might end up sitting in warehouses for a few months, but that beats the alternative of not receiving the parts at the right time.
     
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  16. 182RG

    182RG Free The Service Manuals From Tyranny

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    First, it's not hatred. It's being a realist, based on C level manufacturing / supply chain experience.

    Second, suppliers base capital investment and business strategy / direction on realistic forecasts and they mitigate risk. Suppliers are starting to see this as a risk. Why do you think the articles are starting to surface? Gearing up for EM's forecast is a risk. Like it or not. They need to spend real money, right now and make tactical and strategic commitments.

    Third, they haven't raised the blood transfusion yet. They simply filed intent.

    Look, I hope Tesla survives and is wildly successful. I really do. I would rather they be more realistic, and focus on quality over quantity. I deliberately waited to reserve for 1 month. I don't want to be first in line. I want to see what quality of car they are producing and delivering before I drop $60K - $70K on a car. A car for the masses is going to have to compete with some very high quality competition, because frankly there are far fewer "early adopters" in the list of 400,000 who are going to be willing to look the other way simply because they have an EV.
     
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  17. wallet.dat

    wallet.dat Member

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    The thing is largely built by precision robots, not hungover United Auto Workers :)
     
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  18. Az_Rael

    Az_Rael Active Member

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    Be careful what you wish for. UAW wants union for Tesla factory
     
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  19. trils0n

    trils0n 2013 P85

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    These same type of industry expert reports came out around the Model S. There was an influential report stating that Tesla was only going to make 2500 Model S per year, based on "industry experts" projections from Roadster sales. Tesla was saying 20,000 and industry experts were saying 2500. This report influenced a few of Tesla's suppliers to miss their ramp targets, in spite of Tesla's projections. They didn't believe Tesla and trusted the industry veterans. Hopefully we won't see a repeat of this story.
     
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  20. EinSV

    EinSV Member

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    A repeat of the Model S ramp-up wouldn't be so bad. Tesla predicted a run rate of 20,000 per year, and by the end of the first full year of production -- 2013 -- was already producing almost 40% more than that (6,982 in Q4 2013). Tesla Model S - Wikipedia, the free encyclopedia

    That would be the equivalent of Tesla producing at a rate of 700,000 cars per year at the end of 2018 (S/X/3). Not saying that will happen, but if it did that would be ok in my book. ;)
     

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