Is Tesla’s China Timeline Feasible?

Tesla

JUL 22 2018 BY VANJA KLJAIC 53

The timeline of Tesla’s Chinese factory got even the analysists wondering

James Albertine, Consumer Edge Research senior auto analyst, isn’t that confident that Tesla’s China factory is feasible in the timeframe Elon Musk is talking about. He told this in a recent interview for Bloomberg, raising his concerns over the production goal timeline.

Tesla has a goal to produce around 500,000 electric vehicles annually in 2-3 years. While there’s plenty of market appetite for that many of their vehicles, the question is whether the company can actually produce so many vehicles in a single year. With the delays in the expansion of their Fremont facility and the never-ending China facility story, that seems far-fetched according to analysts. To Albertine, a more realistic timeframe is around 5-7 years.

With Elon Musk, the Tesla CEO, there’s always a task list. And on top of that task list is a proprietary Chinese factory we’ve been hearing about for several years now. However, no particularly solid moves were made in that direction. According to reports, Tesla is rumored to have been pushed by the local Chinese government to enter a joint venture with a homegrown company, but Musk wants to have full control over the subsidiary in China. And that, according to Albertine, is their biggest problem.

Currently, their global production rate is not where it needs to be. Tesla is not where they need to be in China. And that 500,000 vehicles per year planned Chinese factory is what they’re missing to achieve their goal. They need a local partner, as a gateway to the market and to help ease the necessary political agendas prevailing over the matter. While the ownership and political aspect is one thing, the sheer funding needed to push a production facility in a foreign country might be Tesla’s biggest problem. The U.S based car maker ended Q1 with $2.7 billion in cash, down from $3.4 billion in cash at the beginning of the year. In turn, the company will have to, once again, raise capital to achieve their goals.

To Albertine, this will most probably be done, riding on the wave of improved production numbers and Model 3 sales. Certainly, the Bears in the market will say that Musk is dressing up the quarter due to the capital raise, but the fact remains, if Tesla can get the production right, they’ve got the market to support it.

Categories: China, Tesla

Tags:

Leave a Reply

53 Comments on "Is Tesla’s China Timeline Feasible?"

newest oldest most voted

If there is any place that a Musk-esque timeline is possible to achieve on time then it is China. As long as the government, both for the country and locally is on board and don’t intend on putting obstacles in the way then it should be possible.

SJC

The Chinese government can change it any time they want.

Nick

I would expect the timeline for the new factory to be reasonable, the challenge is putting a local supply chain in place with the appropriate capacity.

Robert Weekley

I would guess notices have already gone out to existing suppliers to see if they want to prepare to participate for this program! It Gives them about 20-30 Months to get ready, tested, and on track, as well!

antrik

I wonder whether they could start initial production with their existing world-wide suppliers, while Chinese suppliers are getting ready to meet Tesla’s expectations…

pjwood1

5k cars/week, at 20-25k gross profit, brings in about 700 million per quarter.

You mention Q1 18 taking capital down, from 3.4 to 2.7 billion. The line was still ramping up (some of it flying in from Germany). Tesla doesn’t do this every quarter, and it now has the cash machine that spending left behind.

Doggydogworld

I think you mean 20-25% gross profit, not 20-25k?

The issue with Tesla is whether SG&A grows as fast or faster than gross profit. That’s been their history, except once every few years when they restrain SG&A growth for a quarter. The big May layoff shows they’re serious about trying to get SG&A under control this time. We’ll see.

David Green

Tesla operational costs have been out of control… too many mouths to feed for the amount of cars thy build.

Pushmi-Pullyu

Standard anti-Tesla FUDster bull pucky, repeated for years.

If the FUDsters were right, Tesla would have gone bankrupt years ago.

Robert Weekley

The Thing with that Bull Pucky, is that it makes good fertile ground for lots of (Tesla) Plants to grow in! :0)

Robert Weekley

And – at 100,000 Cars a Year from Model S & X, they had to feed the Mouths of Model 3 Line Designers, Developers, Robot Makers, and More – just to set up the Line for Model 3. Now that the Model 3 Line is getting it’s act together, it will be starting to feed itself, from the Model 3 Production Line (Or Farm, as some seem to think it is)!

Get Real

LMAO, Tesla is the first new auto OEM in the US to reach true mass production in over 100 years!

They had to build-up the foundation of their success employee by employee and machine by machine and that fact drove the costs behind their VERY rapid growth rate now in auto’s produced.

Now with Model 3 being produced and sold in the thousands per week those costs getting their will be spread over more and more units produced which is something the laggard, legacy auto OEMs have thus far refused to do with their electric car programs for fear of eating into their LICE sales.

Competitive advantage to Tesla.

David Green

What do you call mass production? Tesla is struggling to maintain 6K cars per week across 3 models…

Taylor Marks

Model 3 was the 75th top selling vehicle in the US in June, selling only 6K copies. It beat such cars the VW Golf (3K), BMW 3 Series (3.5K), Mazda 3 (5.5K).

If those later 3 cars are mass produced, then I think it’s quite safe to say the Tesla Model 3 is also mass produced. If not, then I guess we’ll have to argue that BMW and Mazda don’t mass produce cars either.

MaartenV

6k was last week, this week it is 7k, next month it is 8k.

Doggydogworld

They’ve averaged about 5k/week total S/X/3 so far in July.

Nix

David “green” — What do YOU call mass production? Give us a number so we can mock you with a long list of cars that wouldn’t meet your arbitrary made-up standard for what you think is mass production.

Nix

David “green” — What you are unwittingly doing is repeating the same old $100k per GM Volt bogus cost meme. Where they came up with silly numbers by dividing all costs to date by an arbitrary small number of Volts produced at the time. As if none of those costs would be amortized into a single future unit built.

Did you really expect the number of cars they were building to go up BEFORE they spent the money on building the assembly line and ramping up production? Of course they had to spend money to get production going before the number of cars sold would support those costs. In the automotive industry those costs are calculated on the lifespan of the vehicle or component. Usually 5-10 years.

This is how every manufactured product in the world works. There is never enough of the product sold BEFORE ramp-up is complete to cover all the costs required to get to full ramp-up. Every manufactured product has a time period where spending to date divided by widgets built to date don’t balance.

John

But.. that gets in the way of the narrative..

MaartenV

R&D and SG&A are both discretionary spending. Most of it is for future revenue streams. The historic growth of both at the same speed as the revenue growth was a management decision, there is no causal link between revenue and these costs.
Tesla intends to let these costs grow slower than the revenue stream from Model 3, creating a positive bottom line.

Robb Stark

BMW has just been given permission to take majority control over its JV.
Tesla has been given permission to go it alone. IF the Chinese government did not want Tesla to proceed without a Chinese partner they would not have given Tesla the go ahead. It is just that simple.

Tesla can and does hire local talent and law firms to help navigate local rules. Like every multinational everywhere.

tftf

Every EV maker can go alone in China in 2018+y

Regulations changed.

CDAVIS

From article: “…And on top of that task list is a proprietary Chinese factory we’ve been hearing about for several years now…”
————-

No such thing as a “proprietary factory” built in China… no matter how the deal is written up on paper.

Only reason China allows any foreign interest in factories built in China is for easier direct access to the partner’s IP which China will copy and inject in China’s own state sponsored (China, Inc. – Red Army Spirit) auto industry intended to downstream directly compete with the partner’s automotive business including directly competing with the subject JV business line. Very often the Chinese have found a creative way to gain influence of the target partner’s top executive(s) through lucrative off-ledger personal side deals to encourage those executives to sign on the dotted line… perhaps explains BMW’s recent China deals?

Non of this is tin-foil hat… is common knowledge.

In the case of Tesla, there is no off-ledger deals and Tesla insists on keeping machines-that-make-machines proprietary… hence to long deal dance. But in the end it won’t matter… Chinese will take all the Tesla IP… Tesla building a factory in China simply allows the Chinese to do that more efficiently.

Robert Weekley

Well, I have not yet read of, or heard of, a Chinese Companies Tesla Tear Down Story. Have they kept a Lid on that? Because they have been in China long enough to have the Chinese Crack open those Tesla Eggs, Drain the Yolk, and Make Artificial Eggs base on Tesla’s – if they wanted to! 🙂

Pushmi-Pullyu

We have seen what happens when China tries to “clone” the Model S. It’s not pretty.

Tesla doesn’t have anything to worry about.

From Green Car Reports: “Youxia Electric Tesla Clone From China: So Bad It Makes Us Laugh”

https://www.greencarreports.com/news/1099332_youxia-electric-tesla-clone-from-china-so-bad-it-makes-us-laugh

Taylor Marks

The way to beat China is to change faster than they can copy. This is how Apple manages to continue doing so well despite manufacturing in China. Yes, China copies, but inevitably, the minute they start having a good doppelganger, Apple has rolled out something new and different enough that sets it apart.

That’s part of why Apple waits until they’re within 2 months (and sometimes hours) of shipping a new generation of a product – it gives Apple several months of lead time until the Chinese copycats show up.

I think Tesla is actually going to do better at this game than Apple. A lot of Tesla’s success comes from software – their battery management software, motor software, autopilot, etc. Software is a majorly weak point for China – they seem to have a much harder time copying it. Software also means you can instantly beam it to customers. Your software doesn’t even need to go to the factory – you can wait until the customer is on the way to pick up their car to install the software.

yo
Frankly EVs are simplistic compared to ICE but even so there is noting overly proprietary in the auto industry as every auto maker reverse engineers every other makers autos… And did Tesla not open up all of their patients or so they say?? And if you have the money the same company that came out and said the Model 3 is highly profitable will sell you there report telling you exactly how and why that it… VW went into China in the 80s and is now the number 1 selling auto brand in China often more than doubling the monthly auto sales of the number 2 auto brand in China which is now Geely… Geely is not state owned in anyway and got their tech from saving Volvo from bankruptcy when they bought them from Ford who was to incompetent to manage them profitably which Geely has easily done… If China was going to reverse engineer foreign auto company’s work they and take over the auto would have already… But they will be coming eventually with BEVs and they dont need any tech from Tesla to do that as last year the number one and number two plugin in sales… Read more »
theflew

“While there’s plenty of market appetite for that many of their vehicles”

Is there? That’s the billion dollar question. Once Tesla gets through the reservation list what will be their yearly sales? I seriously doubt it will outsell the Civic that cost half as much.

Robert Weekley
Model S had a Reservation list of Only 12,000 at Launch in July, 2012, and the same things were said about that, that Tesla would not sell more than those 12,000 Pre-Reservations! Now – they make that many cars on their line, in about 12 weeks, every 12 weeks! Model X had a Reservation list of only 20,000 at Launch, and they had a LOT of Delays to get that up to speed, when Folks said – they will fill that Reservation List and that would be it! Today that is only about 20 Weeks worth of Production on their line! Between these two products, the Model X is Catching up and starting to Pass the Model S for Demand! Can you show me that this is not just another sour grapes analysis, by people who know not what people who never did reserve a Model 3, will want? I was at a Toyota Dealer yesterday, asking some questions on their inventory of Prius Primes. and while they had 2 of them, even their Sales person was GAGA over Tesla! In 1984, I had an RX7 Turbo Sports Car, that cost me then about $670/Mo + Fuel of $250/Mo., with… Read more »
Pushmi-Pullyu

How terrible of you to use actual facts and Truth to refute anti-Tesla FUD! The trolls will put you on their hit list! 😉

Tesla is only planning for ~500k sales per year of the Model 3. That means that about half the Civics sales in the US will be needed, you think they can handle that? 😉

Anyway… the Civic has competition too, the Model 3 has none.

David Green

Tesla has a long to do list, and the China factory is just a distraction. At this point Tesla has no land in China, and no money to build a factory. Once they have land and money it will take 3 years minimum to build a factory and start production. Tesla has not been able to start any of their production lines on schedule, and balancing manufacturing is not a core competence of the company. WSJ recently visited Fremont where the writer who gave a great review to model 3P said the factory is the Kobe beef of lean manufacturing. Thats a pretty insulting statement, and should not be taken lightly. More factories will not help a company that is already light on management ability, and not able to perfect efficient manufacturing.

Pushmi-Pullyu

The Usual Suspects (like this one) will keep whining that Tesla doesn’t have the money to build a China factory just like they kept whining that Tesla didn’t have the money to put the Model 3 into production.

There are actually three falsehoods in this Usual Suspect’s comment:

1. It takes two years, not three, to get a new factory built and fine-tuned for mass production. (Tesla put the Fremont assembly plant into production in only 18 months, but they had a head start because they bought the old NUMMI assembly plant, with a lot of equipment still there.)

2. Tesla is easily capable of raising funding whenever it needs to. That’s been true ever since Tesla’s stock price skyrocketed. It’s a sign of just how weak their anti-Tesla arguments are that they they keep going back to the same failed FUD.

3. The claim that Tesla does not have “lean” manufacturing is a bit of FUD repeated by FUDsters for years. Tesla does more in-house manufacturing than other auto makers, which gives them a much higher employee-per-car ratio. If you included the workers at the suppliers for other auto makers of “premium” cars, you’d see that Tesla isn’t out of the ordinary here.

David Green

Just facts… No Land, and No money… If Tesla could raise money anytime they wanted, they would have already raised money for the China factory, and would already be moving forward… but they haven’t, and don’t. It sounds like they are having trouble convincing Wall Street banks to underwrite a capital raise.

Tesla started making additions to Fremont in early 2016 for the Model 3, and it took them over 2 years just to set up the line and start seriously ramp production, having to design and build an entirely new building in a foreign country will be much harder for an already very stretched management team.

BTW the Model 3 does not seem to have stabilized at 5K per week, it looks to be much lower over he last 30 days, and the last week is around 4K.

Nix

Comparing the Model 3 US production delays to the time it will take to duplicate the same factory in another location is a bogus comparison.

The first US production line was a Design/Build project, where the delays were triggered primarily by REDESIGN issues, and not BUILD issues. Grohmann can build out the assembly line and test it before they even buy factory space. because all the design issues have already been solved.

Tesla does not have to re-design the assembly line in order to duplicate it elsewhere. China will not be a Design/Build project, it will just be a build project, and the location is actually BETTER for a fast build-out. That has traditionally been one of the benefits of China manufacturing, quick times to market.

CDAVIS

@David Green said: “…the Kobe beef of lean manufacturing. Thats a pretty insulting statement…”
————-

Mooooo

Tesla seems to be doing well going Kobe beef or more likely the WSJ reporter knows little about evaluating a car production line.

Get Real

Well a Tesla is definitely premium like Kobe beef unlike the much inferior ground chuck made by the LICE companies.

David Green

You obviously know nothing about Kobe beef, its over 50% fat, and thats what the writer was getting at. I can easily see it is a mess from the drone videos, Tesla sucks at logistics and mass production.

Get Real

I will eat my Kobe beef while you chew on your shoe leather beef.

MaartenV

All the car factories the WSJ reporter visited, were lean manufacturing plants. Fremont is not a lean manufacturing plant, it is a vertically integrated plant.
It like saying a woman looks ugly because she does not look like a man.

But he was right about it being Kobe beef, a delicacy considered the best beef there is. It is just not lean.

Nix

Of course they aren’t lean during ramp-up. In any manufacturing industry, when you first bring production of a new product on-line you INTENTIONALLY make choices that error on the side of successful ramp-up instead of maximizing lean operation.

For example, you make sure you have WAY more parts on hand from suppliers than you will need after ramp-up, in case the reject rate for parts due to things like damage in shipping is higher than expected. And you hire way more people than you will eventually need post-rampup.

Heck, even something as simple as a restaurant opening does the same thing, with more employees and food inventory for the soft-open than you would have after the restaurant has been open for a while.

You are either horribly uninformed about how companies operate, or you are willfully parroting whatever negative meme you pick up on the internet without thought. Which is it?

Pushmi-Pullyu

“James Albertine… isn’t that confident that Tesla’s China factory is feasible in the timeframe Elon Musk is talking about.”

Someone needs to explain to him the concept of “Elon time”. I’m sure that Elon’s plan for production in less than two years, despite having not even broken ground on a new factory yet, is entirely reasonable in Elon time. It’s just not reasonable in real-world time. 😉

Robert Weekley

Or, In China Time, which American’s Can’t Comprehend, Elon’s Time Might Sync Up! 🙂

David Green

Private construction is slow compared to in the USA, it is only civil, and record projects financed by the government that go fast. I repeat, Tesla owns no land in China, and has no money, solve those 2 problems, and then we can get to the complexities of building and ramping a factory.

Nix

You can stop your repeated blathering. Repeating yourself on multiple green car websites despite being debunked every time does not make your statements more valid.

Fast time to market for production has always been a benefit of choosing to build factories in China.

You greatly over-estimate the early costs at this stage of starting a new production location. At this stage cash outlay is low compared to in final stages. Model 3 revenues at 5k-10k units per week will change Tesla financials compared to heavy ramp-up spending prior to building TM3’s by the thousands each week.

Ron M

I’m sure Tesla has the plans for the factory already, they’ll use the existing Fremont and Gigafactory as there preliminary design and incorporated the improvements. Assembly lines and manufacturing equipment will be supplied by the vendors, they have for currently used equipment. The building itself will be built entirely with Chinese contractors and materials. The number of high rise buildings China has built in the past couple decades shows they have a skilled work force that completes projects in record time. Other than the manufacturing equipment everything else should be considerably less costs building it there. I also wouldn’t be surprised if Tesla has Chinese solar panels installed on the roof. I suspect they will also borrow money from China banks to build the Factory.

Kimmo57

The chinese build at incredible speed. They’ll have a factory up in months.

David Green

haha! Ever been to China? Only government projects go fast, private projects are slow…

Taylor Marks
I feel like someone wrote this article a few months ago, forgot about it, then decided to publish it now without any updates. “Tesla has a goal to produce around 500,000 electric vehicles annually in 2-3 years. While there’s plenty of market appetite for that many of their vehicles, the question is whether the company can actually produce so many vehicles in a single year. […] To Albertine, a more realistic timeframe is around 5-7 years.” – 500K/year = 10K/week. Tesla already managed 7K in a single week 3 weeks ago, and said they want to hit 8K in a single week within 2 months and 10K in a single week in less than a year. A year with 500K isn’t 5-7 years away – it’s not even 3 years away. It’s quite likely they’ll manage it next year, and certain that they’ll exceed it in 2 years. Back several months ago when Tesla’s best week ever was 3K produced, yeah, there was reason to be concerned that maybe 10K/week was still years away. But after seeing them jump from 3K to 7K in just a few months, making a further jump to 10K is pretty easy to imagine being… Read more »
antrik

I’m pretty sure the production numbers they talk about refer to the Chinese factory only. The timeline mentioned is wrong though: Tesla said they want to start production in two years, and reach 500,000 two or three years after that; i.e. in four or five years. Doesn’t sound overly ambitious to me.

MaartenV

It is laughable to write a story about how realistic the timeline is without looking at WHAT the timeline is.
1 – start of building the factory on a future date X when all the paperwork and preparations are done.
2 – start of production 2 years after that date X.
3 – reaching full 500,000 per year production 2-3 years after start of production, 4-5 years after date X.

That put start of production a little after start of Model Y production in the United States, when the semi production is in full swing and Model 3 has reached 10,000/week.
When CAPEX spending is spread over 5 years, there is no model I look at in which there is a need to raise capital from outside sources.

Peter

Has a Tesla timeline ever been feasible?

windbourne

Tesla would be better to build their next GF in Europe, rather than China. Tesla will be cheaper than the standard European cars, so, it will be up to them to compete.
OTOH, once tesla builds a factory in CHina, Chinese gov will steal as much technology as possible and then subsidize other chinese companies to have cheaper than Tesla cars but with tesla technology.