Tesla’s much needed master plan trois…

Tesla Motors is the first company to bring around a disruption in the automotive industry since Ford started mass production of the Model T in the early 20th century. Tesla’s Model S proved that electric vehicles can be purchased without compromising. The Model S is regarded not just as the best electric car, but the best car, period. The competition in the electric vehicle segment is heating up with startups like Faraday Future, Karma automotive as well as established car makers like GM, Mercedes and BMW innovating every day to get the upper hand over Tesla.

Tesla, on the other hand, has a different set of plans that range from vehicles to batteries to solar power plants – all for a sustainable future. But, to succeed with its plans, the company needs to stay afloat and make money. A number of factors are putting the company under pressure including accidents possibly attributable to its Autopilot feature or the high priced acquisition of its cousin company Solar City. Elon Musk recently came out with the master plan part deux for the company highlighting the future road map for the company. The plan was a re-iteration and elaboration of the vision Musk first laid out for the company. Tesla also needs to make a plan on the most crucial of all things, the scale of manufacturing the company needs to achieve to fulfill its promises on time.

One thing that Tesla has always struggled with since its inception is to get product to market on time. The Model S was first announced and showcased by the company in 2008 and 2009, respectively, but the delivery only started in 2012. Similarly, the company planned to roll out Model X in early 2014 but delayed it 3 times due to several issues in manufacturing. The delayed delivery of Model X highlighted one of the major issues the company has in manufacturing i.e. the short number of suppliers it has, for its product needs. One of the reasons the Model X was delayed was because the suppliers of the famous falcon wing doors were not able to meet the production demand and quality highlighting the major flaw in the supply chain.

What could work for Tesla in terms of Model 3 is that, the company has learnt its lessons from Model X and has made the design of the car simple, making it easier to assemble in high volumes. Still, the woes do not end there.  There remain challenges in the supply chain for a timely delivery of Model 3. The company has received 373,000 pre-orders for its hugely popular mass market offering. Any delays in the delivery, which is expected to start in 2018, could harm the image of the company in the market and in the eyes of its investors. Tesla’s current manufacturing plant is located in Fremont, California.  It previously was a joint venture between GM and Toyota and was producing 300,000 cars per year at its peak with Toyota and GM’s combined experience in automotive manufacturing. Tesla has set out a plan of manufacturing 500,000 cars in 2017 and a million by 2020 to meet high demands.

Tesla announced its manufacturing target to be 19,000 units in Q1 2016 and 80,000-90,000 units for the year 2016. It failed to achieve its production targets for the first quarter. The graph below highlights the production needed by Tesla to achieve its targets for the coming quarters and 2017.

Tesla Manufacturinh

*Source company filings

Toyota, the number one automotive company in-terms of manufacturing has 52 facilities worldwide, of which 35 are assembling vehicles. The largest of these is pushing out 626,000 units per year while the average stands at around 285,000 units a year per facility for Toyota. This illustrates what a mammoth task  Tesla has to meet targets.

The competition from other manufacturers is also heating up. Faraday Future is already on the lookout for another manufacturing unit to achieve its goals. GM, Mercedes and others are launching electric vehicles much more aggressively today. The Chinese acquisition and revamping of another electric company Karma automotive should also be a cause of concern for Tesla as the company is getting aggressive and although a failed venture in the previous attempt, it carries a premium badge with it. All this in a difficult time, Tesla should also have to take in consideration whether consumers will wait for its cars to roll out or will start leaning towards the offerings from the competition.

Tesla needs to come up with master plan trois, concentrating mainly upon ways to ramp up the production of the existing models to deliver on its promises on time and gain consumer trust.  The company must stay focused and there is concern launching new models, such as a semi-truck, will hurt overall execution. As the competition is catching up in terms of technological advancement, delaying a product will harm the company in more ways than imagined…