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.
Yes. They went ring-around-the-rosy with General Motors and Chrysler when they both went bankrupt. Gee, I wonder what that may portend for the future of Detroit.
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.
Oh, really? Where are the creditors complaining of late payment, bounced checks, or default terms for Tesla Motors...? Do the employees at Fremont, Palo Alto, Hawthorne, et al have to roll the dice to hope their paychecks clear...? C'mon,
MAN! Either a potential Supplier believes Tesla Motors, or they don't. The ones that don't, won't even answer Elon Musk's phone calls.
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.
I'm pretty sure that all anyone would have to do is tell Elon Musk that Tesla Motors is making a
'wild forecast' to positively ensure that they will
NEVER get a contract of any significance or longevity from them. And does no one use NET 30, NET 60, NET 90, or NET 120 terms any longer?
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......
Actually, according to Elon Musk...? They are lined up. Everyone wants to participate in the Model ☰ program. The question is how soon they will be able to do so, and at what level of commitment. Whomever can do so the soonest, with the best results, and highest quantities will find themselves in very good shape come July 2017.
I haven't seen a clear, logical explanation for why it's urgent to ramp up production so quickly. Can anybody offer one?
My personal favorite is the ability to tell Naysayers that have claimed that Tesla Motors would
'never' release a car for $35,000 or that
'no one' would get their car at all until 2019 to simply [SIERRA TANGO FOXTROT UNIFORM], and stuff. That would be very satisfying. Typically, I suggest that if they are so certain that Tesla Motors is destined to be late, they should wait until January 2019 to put in a Reservation themselves.
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.
The goals are not unreasonable. The goal is to be ready --
to be ready -- by a certain date. That is, no one has to deliver 500,000 widgets to Fremont on July 1, 2017. They just have to be ready to deliver anywhere from 4,000 to 16,000 high quality widgets per month starting September 1, 2017. Those would be used for building cars that would begin Deliveries on/about October 1, 2017. And, if enough Suppliers are ahead of the curve, then maybe that starting build date could be moved to August 1, 2017 instead, and Tesla Motors' own internal crew would take up the slack on the rest until outside vendors were ready and up to speed.
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.
Well, Tesla Motors never uses the term
'cheap' to begin with... Electric cars are better than everything else anyway... So all they need to take care of is the
'faster' bit -- which is OK, because they would have needed to reach that level of Production at acceptable Quality levels anyway. Don't worry about it. Tesla won't give you the electric equivalent of a 1990 Chevrolet Cavalier or 1986 Chrysler K-Car.
FIrst, supply chain contracts aren't what you think they are. It's not guaranteed revenue by a specific time. Not even close.
At this point, I rather doubt they are what you believe they are either.
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.
For the record, it's not
'Tax and Spend'... It's actually
'Tax and Pay Your [DANG OL'] Bills'. Similarly, it isn't
'Losing Money' when your bills are paid on time.
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.
Wait... Hunh? What?!? Uhm... No. Your unit production costs go up with FEWER units produced over a given period of time. And in any case, equipment and parts costs are spread out over the entire intended production run. Tesla Motors will likely have an eight year product cycle for the Model ☰. If they end up building and selling what they projected as eight years worth of cars in only four years...? That is a GOOD thing. Doom and gloom would be appropriate if they only managed to move one year's worth of cars over the course of four years. They'd have to go back to the drawing board and design another completely new car several years earlier than expected. Gee, I wonder how Cadillac ELR sales are doing right now...
First, it's not hatred. It's being a realist, based on C level manufacturing / supply chain experience.
No. That isn't realism. It's pessimism.
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.
Panasonic once sought to
'mitigate risk' with Tesla Motors. They have figured out that isn't necessary. When Tesla Motors went from around 2,500 units of Model S in 2012 to over 30,000 units in 2014 that sort of helped them to realize this isn't a dog and pony show.
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.
The articles appear because they are clickbait. The biggest risk for anyone at this point is to miss this boat when it sails. An actual risk for suppliers would be if Tesla Motors had opened up for Reservations and got, like, 15,000 of them the first day, and 80% of those were from employees. Guess what? Tesla doesn't have anywhere near 300,000 employees. They have a lot of demand.
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.
If you want to see what it will be like when Tesla Motors has been building cars as long as
'everyone else' you are welcome to wait another 110 years or so before buying one.
Interesting article. Below are some of my replies to key points it made.
"The 5.3 million-square-foot Fremont, Calif. factory is the only U.S. assembly plant owned by an American automaker that is not represented by a union."
That's because Elon Musk was once told that the number one reason for having union representation was so that employees wouldn't have to deal with [ICEHOLES] in management. Elon immediately instituted a
'NO [ICEHOLES]' hiring policy, right on the spot. The result is that Tesla Motors employees are happy.
By the way...? The UAW specifically demanded that General Motors shut down the Saturn brand during labor negotiations following the auto industry bailout -- because its Spring Hill TN facility was a successful example of a non-unionized automobile plant in the US. They have no such leverage over Tesla Motors. Let's hope they never get it.
"He said the union long respected Tesla's status as a start-up company."
[BOLSHEVIK]. They've
'respected' nothing. The UAW has been trying to unionize Tesla Motors' Fremont plant since 2010 -- the instant it was announced they were acquiring the NUMMI location from Toyota -- before they were even building cars there. Tesla management has done nothing to hinder unionization there. They even gave the union an office at Fremont. Employees are simply not interested in having a union.
"But the automaker's production ambitions would make Tesla the ninth largest seller of new vehicles in the U.S. — just behind Volkswagen but ahead of BMW and Mercedes-Benz, as measured by 2018 figures."
So what? Volkswagen, BMW, and Mercedes-Benz latest factories in North America are in Mexico. Their combined manufacturing capacity in this continent will vastly outnumber the maximum output of Fremont. And Tesla Motors' sales in the US will likely be only 50% of their Production at Fremont going forward. That places them much further back in the pack compared to other manufacturers' sales than this quote suggests. If the UAW would like to increase its membership, perhaps it should attempt to unionize those plants in Mexico.
No union. No dealers. No advertising. That is a recipe for success that I can get behind all the way. The complete elimination of money hungry middlemen.
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
I remember Elon saying in interviews that they hoped for 15,000 units per year, and 20,000 on the outside during 2013, including Model X. They ended up building over 22,000 units of Model S in 2013... And at least 18,000 reached US Customers.
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.
That would be perfectly in line with a chart that JB Straubel showed during a presentation at Stanford in September 2013. It showed they hoped to reach a 700,000 unit Capacity at Fremont by/during 2019.
