This week, I listened live to Tesla’s latest earnings call and was gobsmacked at Elon Musk’s audacious new goal to build half a million cars per year by 2018.
“This is based off the tremendous demand received for the Model 3, which I think is actually a fraction of the ultimate demand, when people fully understand what the car’s capable of….Tesla is going to be hell-bent on becoming the best manufacturer on earth.” Elon Musk
But how on earth is Tesla going to perform this ambitious ramp up in production? It’s a 1000% increase in Tesla’s 2015 production level (approx. 50,000 Model S and Xs). Here’s one more clue from Elon Musk, at the end of the conference call:
“We believe that there’s more potential for innovation in manufacturing, than there is in the design of the car by a long shot.” Elon Musk
Tesla’s Alexis Georgeson took me inside the Tesla factory last week to share some insights as to how this “mission impossible” just might be done.
Here’s a transcript of my report on Tech Tent:
BBC Host, Rory Cellan-Jones: This week, the entrepreneur behind the Tesla cars made an extraordinary promise to his investors. He said his company would manufacture half a million cars a year by 2018. Given the fact that Tesla has missed much smaller production targets in the past this seemed, well, brave. But as Alison van Diggelen reports from Silicon Valley, Elon Musk is confident that this time, things will be different.
Alison van Diggelen: Tesla Motors astounded the auto industry last month when it received over 400,000 reservations (325,000 in the first week) for its new Model 3, an “affordable” all-electric car. In response, CEO Elon Musk just announced a production goal of half a million cars by 2018.
Elon Musk: My desk is at the end of the production line…I have a sleeping bag in the conference room… which I use quite frequently. The whole team is super focused on achieving rate and quality at the target cost, so I feel very confident in us achieving that goal.
Alison van Diggelen: I visited the Tesla factory in Silicon Valley to find out how they can deliver on time and in such huge numbers. Though beloved by fans, Tesla is also notorious for production delays.
Last year, the company spent over 1.5 Billion dollars in capital. Its cash burn-rate looks unsustainable. With General Motors coming out with a longer range electric car later this year and other competitors hot on their wheels, Tesla is under pressure to deliver, and fast.
Alexis Georgeson: There’s already been one major reorg since Model S production started in 2012. The original end of line used to be right here… we straightened out the line so we could expand and increase production.
Alison van Diggelen: That’s Alexis Georgeson, a Tesla spokesperson who explains in great detail the 7-day process that transforms a roll of aluminium into a shiny electric car. The two-week reorg and retooling in 2014 means that Tesla now has over 1000 state of the art robots, which helped ramp-up production by over 100% last year.
A separate production line for the Model 3 is planned and hard lessons from earlier models will help speed up their manufacture, especially more in-house capabilities and more thorough supplier validation. Musk says the new Model 3 will be designed to be easy to make.
Alexis Georgeson: We’re constantly learning and innovating. The great thing about Tesla is that so much is in-house and that we are so nimble.
Alison van Diggelen: I asked about the long delays in the Model X, largely caused by the flashy Falcon Wing doors.
What’s the trade off between hubris and caution at Tesla?
Alexis Georgeson: Our mission is not just to accelerate sustainable energy and transportation …You’re creating new features that haven’t been done before in the auto industry. With that comes natural growing pains…
Alison van Diggelen: So what about the cash flow issues?
Georgeson: The thing that’s missed there is the capital-intensive nature of the auto industry. Especially for a company like Tesla that’s ramping production so quickly…
Alison van Diggelen: Here’s Elon Musk…
Elon Musk: Tesla is hellbent on being the best in manufacturing… We believe that there is more potential for innovation in manufacturing than in design of the car, by a long shot.
Alison van Diggelen: Musk says the first Model 3 deliveries will start in late 2017. If he can prove naysayers wrong again, the majority of Model 3 reservation holders might see their cars coming off the production line in Silicon Valley within the next two years…
Read more Fresh Dialogues reports on Tesla here (scroll down for archives back to 2012)