Tesla Achieved “World Class Result” With Model 3 Production, Says Analyst
While the result is world-class, the path was nothing short of a production-hell-avoiding pool of misery.
Certainly, you may think the above line is simple over-exaggeration. However, all the things that Tesla, its management, workers and customers went through with the Model 3 production and market launch, couldn’t be described better. After all, when the company rolled off the first 30 production Model 3s off the line back in July 2017, Elon Musk bigheartedly welcomed Tesla’s employees to “production hell.”
While many considered (and still do) Tesla as one of those companies that will either fail miserably or be the next best thing since sliced bread, the truth is – as always – somewhere in the middle. The two years following Musk’s announcement were just that – production hell – but it made the company grow out of its infancy stage, helping it become one of the most prominent carmakers in the world. And mind you, we’re not talking about “just” electric vehicle makers. And evidently, this is most true when you consider last Recode Decode podcast, where Musk revealed how that Tesla is now at a point where it is no big deal for the company to produce 5,000 Model 3 per week.
However, Musk noted how Tesla’s employees had to put out “an excruciating effort” to both refine and improve the Model 3 production, in order for the ramp up to achieve the desired goals and help the company produce the vehicle at the numbers it is doing so today. And the result of this effort didn’t go unnoticed. In a recent visit to the Tesla Fremont factory, one Wall Street analyst was seemingly left really impressed.
Pierre Ferragu of New Street Research can be considered as one of Tesla’s most prominent supporters in Wall Street. He holds a $530 price target on Tesla stock, making him a firm believer in the electric car maker and its future.
Last Tuesday, Ferragu noted how the California based carmaker made a lot of mistakes in the early stages of the Model 3 ramp up. He even went as far as describing Tesla’s Fremont factory as a “crowded mess” in its current state, all due to the facility’s complexities. One example is the intricate conveyor belt system that was eventually scrapped and replaced with human workers. In turn, this resulted in the process being 30% less productive than what the company first anticipated.
However, Tesla pushed through all of these problems, resulting in a company that’s more accustomed to mass production of vehicles. The Wall Street analyst notes how Tesla’s production processes are only bound to get better from this point, particularly as the company is in a constant state of improvement. Furthermore, he thinks that the lessons learned from the Tesla Model 3 “production hell” are likely going to result in some new production facilities – such as the Shanghai-based Gigafactory 3 – being built right from the getgo, with all the optimizations and lessons learned implemented right away. In turn, this will allow Tesla to produce vehicles a lot faster and more efficiently.
“All these (mistakes) feed a lot of (the) bear argument on the company. We see it the exact opposite way. Failure is where one learns the most. By shooting way too high, Tesla failed on its original plan, but achieved a world-class result. The next production sites will be much more efficient, and will ramp very rapidly.”
Overall, the analyst summarizes Model 3 ramp: “Tesla failed on its original plan, but achieved a world-class result.” Furthermore, Tesla is only at the half-way point for the Model 3 production numbers. The carmaker eventually aims to produce 10,000 Model 3s per week, as the vehicle is slated to start getting delivered to customers in Europe and Asia.
Tesla eventually aims to manufacture 10,000 Model 3 per week, particularly as the vehicle starts getting delivered to territories such as Europe and Asia. In this light, Ferragu stated in his note that Tesla’s Model 3 ramp to 10,000 per week would likely be a far less painful process for the company.
“The road to 7,000 units per week seems easy, and limited capital expenditures will be required (in the low tens of millions) to get to 10,000,” the analyst wrote.
Tesla is still in a very delicate state. But as things move along, the fear that some had (including me) for the company’s future, are slowly being replaced by optimism all across the board. Let’s not forget, Tesla is a young company. They didn’t have the backing of an already-in-place industrial system that would ensure things go smoothly. And even so, with the recent example of Porsche announcing their own “production hell,” it seems that bringing a completely new vehicle and technology to the market is never an easy process. But, with Tesla doing so good and the legacy carmakers joining in on the fun, an electric future seems less and less doubtful, and a lot more certain.
And that, by all measurement, could very well mean our grandkids don’t have to float on a raft somewhere in the middle of the ocean, fighting modern-day pirates once the sea levels go up and the climate change kicks all of our butts in the only way mother nature can: hard and without any regret.