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May 21, 2016

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Tesla trims 2 years off production deadlines

TESLA Motors Inc has surprised parts makers with plans to move up the launch of high-volume production of its Model 3 to 2018, two years earlier than planned — an acceleration that supplier executives and industry consultants said would be difficult to achieve and potentially costly.

In the past three months, Tesla has told suppliers the company was doubling its original production projections to 100,000 Model 3s in 2017 and 400,000 in 2018, several supplier industry executives familiar with the plans said.

Details on Model 3 production projections have not been reported previously, and Tesla did not break out target volumes for the Model 3.

Tesla has taken 373,000 orders for the Model 3 — which has a starting price of US$35,000, about half its Model S — and has said it would begin customer deliveries in late 2017. But it has made no promises, and, on earlier models, customers waited months for delivery.

Citing “tremendous demand,” Chief Executive Elon Musk told analysts on an April call that the company planned to boost total production, including the existing Model S and Model X crossover, to 500,000 in 2018 — two years earlier than its original target and a 10-fold increase over the 50,000 vehicles it produced last year.

Musk said Tesla told suppliers to prepare for Model 3 production tests in July 2017, a goal he acknowledged might be unrealistic for some. But he said the “aggressive” target was necessary to reach production goals.

“Now, will we actually be able to achieve volume production on July 1, next year? Of course not,” he told analysts.

“The reason is that even if 99 percent of the internally produced items and supplier items are available on July 1, we still cannot produce the car because you cannot produce a car that is missing 1 percent of its components,” he said.

Musk said the Model 3’s simpler design, new production hires and enthusiastic suppliers would help the company make its goals. He said Tesla would drop suppliers that could not meet deadlines and would bring more parts production in-house than traditional automakers typically do. He did not specify how much or which parts.

“It’s very important for us to have the ability to produce almost any part on the car at will because it alleviates risk with suppliers,” Musk told analysts.

Industry experts said Tesla’s new goals were extraordinary and raised doubts it could meet them. The handful of North American auto plants capable of building 500,000 vehicles a year are all run by automakers with decades of experience, they said.

Tesla continues to have delivery delays for its Model X SUV. Its Model S also missed delivery targets when launched.

One complication is that Tesla has not finalized the Model 3 design and specifications, said automaking consultants and supply executives who asked not to be identified because Tesla prohibits them from disclosing contract details.

Musk has said the Model 3 design and engineering would be complete in June, 13 months ahead of the planned production startup.

Under ideal conditions, automakers have launched new assembly lines in 18 months, but they typically take two to three years after the first tooling and supply contracts are signed, several manufacturing consultants said.




 

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