Tesla Temporarily Suspends Model 3 Production (Legit?)

[psumarkopolo]

That’s what I’m talking about:

https://techcrunch.com/2018/04/17/leaked-tesla-email-says-model-3-will-go-to-24-7-production/amp

Why on earth is going to 24x7 shifts a great thing? He was supposed to be able to do 10k / week with the current equipment at 2 5X8 shifts. this is terrifying. quality will plummet as well as margin.

 

[bro1999]

Why on earth is going to 24x7 shifts a great thing? He was supposed to be able to do 10k / week with the current equipment at 2 5X8 shifts. this is terrifying. quality will plummet as well as margin.

24/7 ops, thousands of new line workers, lots of people likely pulling overtime. What could go wrong?

 

[mongo]

Why on earth is going to 24x7 shifts a great thing? He was supposed to be able to do 10k / week with the current equipment at 2 5X8 shifts. this is terrifying. quality will plummet as well as margin.

No. It was always planned to need more equipment/ CapEx for 10k.
Do you have any reference for only running 5 days a week?

 

[psumarkopolo]

They are doing 80 hrs of production per week. now moving to 168 was my point.

 

[diamond.g]

Why on earth is going to 24x7 shifts a great thing? He was supposed to be able to do 10k / week with the current equipment at 2 5X8 shifts. this is terrifying. quality will plummet as well as margin.

Are you able to point out where they ever said the number of shifts needed to reach a run rate (until now)?

 

[psumarkopolo]

Freemont shift schedule. How many, weekends etc.

 

[psumarkopolo]

what looks to be 9X5 and 7X5 (which is probably Time and half) also allows for smooth transition.

 

[adaptabl]

Why on earth is going to 24x7 shifts a great thing? He was supposed to be able to do 10k / week with the current equipment at 2 5X8 shifts. this is terrifying. quality will plummet as well as margin.

Margins will take a big hit. All the models were based on heavy machine assembly. That looks like it is out the window. It will be interesting what if any margin will be left on a $35,000 model 3.

Also it looks like the model 3 is taking away high margin model S and X sales.

 

[psumarkopolo]

There won't be any margin on 35000 unless they redo the factory. This is just an effort to try to get rid of negative operating leverage. BUt making a 0 margin car while taking away S and X is not the way the consultant in me would do it.

What i think deepak is going for.

Build as many cars as you can for 6 months, hope SEC investigations are finish, do a HUGE capital raise ($12-15Bn) to get you significant runway to execute on Y. Pickup trucks have a higher price point than bargain sedans. Also pickups benefit by instantaneous torque etc.

Then build a BRAND new factory based on the Y in like Alabama or whatever. The model Y should be ~40-70K depending on options and you can squeek a margin on that. Likely you take your valuation to traditional manufactureres though. This scenario likely collapses stock price to ~$75 range.

 

[kengchang]

S/X were doing 3 shifts for a long time, nothing new

 

[mongo]

Margins will take a big hit. All the models were based on heavy machine assembly. That looks like it is out the window. It will be interesting what if any margin will be left on a $35,000 model 3.

Also it looks like the model 3 is taking away high margin model S and X sales.

S/X production is right where is has been. Deliveries were abnormally high in Q4 due to inventory draw down.
Boosting total production offsets the cost of additional labor. 3 shifts using the same plant is higher margin that 2 shifts with idle time (for the same hourly build rate)

Fremont has done 3 on 4 off, 4 on 3 off dual 12 hour shifts previously. For a while it was 12hr shifts 6 days a week.. Going to 3 8 hour shifts is a better option in terms of build rate and quality.

 

[adaptabl]

S/X production is right where is has been. Deliveries were abnormally high in Q4 due to inventory draw down.
Boosting total production offsets the cost of additional labor. 3 shifts using the same plant is higher margin that 2 shifts with idle time (for the same hourly build rate)

Fremont has done 3 on 4 off, 4 on 3 off dual 12 hour shifts previously. For a while it was 12hr shifts 6 days a week.. Going to 3 8 hour shifts is a better option in terms of build rate and quality.

Compared to the Q1 2017 the numbers are down on the S and X.

 

[mongo]

Compared to the Q1 2017 the numbers are down on the S and X.

Q1 '16 production: 15,510 deliveries: 12,420
Q2 '16 production: 18,345 deliveries: 14,370
Q3 '16 production: 25,185 deliveries: 24,500
Q4 '16 production: 24,884 deliveries: 22,200
Q1 '17 production: 25,418 deliveries: 25,000
Q2 '17 production: 25,708 deliveries: 22,000
Q3 '17 production: 25,076 deliveries: 25,930
Q4 '17 production: 22,140 deliveries: 28,320
Q1 '18 production: 24,728 deliveries: 21,800

Production YoY changed -2.8% 690 units, less than 2 days production, and Q1 '18 deliveries were affected by Q4 '17's high delivery number
So I'll stick which my statement that S/X production is right in the range where it has been.

Reading back, I though the Q2 '16 report very familiar:

Tesla produced 18,345 vehicles in Q2, an increase of 20% from Q1, and exited the quarter consistently producing just under 2,000 vehicles per week. Due to the steep production ramp, almost half of the quarter's production occurred in the final four weeks.

With continued productivity improvements, Tesla expects output to reach 2,200 vehicles per week in Q3 and 2,400 vehicles per week in Q4. Current order rate trends and backlog support production at those levels. In total, Tesla expects to produce and deliver about 50,000 vehicles during the second half of 2016, approximately equal to all of 2015.

 

[adaptabl]

Q1 '16 production: 15,510 deliveries: 12,420
Q2 '16 production: 18,345 deliveries: 14,370
Q3 '16 production: 25,185 deliveries: 24,500
Q4 '16 production: 24,884 deliveries: 22,200
Q1 '17 production: 25,418 deliveries: 25,000
Q2 '17 production: 25,708 deliveries: 22,000
Q3 '17 production: 25,076 deliveries: 25,930
Q4 '17 production: 22,140 deliveries: 28,320
Q1 '18 production: 24,728 deliveries: 21,800

Production YoY changed -2.8% 690 units, less than 2 days production, and Q1 '18 deliveries were affected by Q4 '17's high delivery number
So I'll stick which my statement that S/X production is right in the range where it has been.

Reading back, I though the Q2 '16 report very familiar:

The number show a different story. The lowest since Q2 2016. Q2 2018 numbers will show if there is a real problem for model S and X sales that have a larger gross profit margin.

 

[mongo]

The number show a different story. The lowest since Q2 2016. Q2 2018 numbers will show if there is a real problem for model S and X sales that have a larger gross profit margin.

The numbers show deviation during Q4 '17, Q1 '18. If you are talking reduction in demand, then it should depress the average sales/ build rate. Build rate is still high.

On the delivery side: Q4+Q1 = 50,120 for an average quarterly delivery rate of 25,060. This lines up with the other ~25k quarters of Q3 '16, Q1 '17, and Q3 '17.
Q1 '18 lines up with Q4 '16 and Q2 '17 at/ near 22,000. So the large deviation is Q4 '17 (which was higher than average).
If Q4 '17 followed the normal pattern of 22k, then Q1 '18 would have been >27k. So I'm not seeing an issue, in fact, the Q4 '17/Q1 '18 pair is higher than any other 6 month period. Given the 3 came out Q3 '17, really not seeing a problem.

Of course, more data could change things.

 

[psumarkopolo]

Now the "planned production" shutdown appears to not be planned, or it was planned because of OSHA violations. Be interesting to see how this plays out.

 

[adaptabl]

Now the "planned production" shutdown appears to not be planned, or it was planned because of OSHA violations. Be interesting to see how this plays out.

Oh the web we weave

 

[psumarkopolo]

Oh the web we weave

Why do these planned production shut downs never get announced say 3-4 weeks out? Why is it disgruntled employees who have to take vacation or unpaid time off?

Why would he not have said on CBS, "yea things are going great here, so good in fact, i found 3 areas that were lagging, but we have conceptual fixes, so we are going to shut down for 3 days in order to test and implement solution, that will get us to a sustained 2k/week, which will allow for 24x7 OPS"?

 

[kengchang]

Why does Elon Musk/Tesla has to do what you think they should do?

 

[diamond.g]

Freemont shift schedule. How many, weekends etc.

That was the current schedule for 2016, so Model S and X only and wouldn't apply to the Model 3. Especially since they planned on making more 3's than S&X. It would only make sense that they would either have to increase automation a bunch (which apparently isn't working out) or hire more people (which would make adding a shift make more sense). Then again if automation was working great they still would likely have to add a shift as someone has to oversee the machines working, and it would make no sense to not have the machines work 24x7.