August 8, 2016

Tesla has only just unveiled the Model 3, but in a shareholders’ letter it has revealed that the production equipment is already in place. So the first affordable Teslas could roll off the production line before the end of the year.

That’s good, because the company needs to prove the concept and sell more cars after burning through $293 million in Q2 this year on a GAAP basis.

The model 3 will carry the company on its shoulders. It’s the entry-level model, with pricing starting at $35,000, and should bolster Tesla’s current production of 104,000 cars to close to 500,000 a year. That’s 10 times more than the 50, 580 cars it delivered in 2015 and a massive jump on this year, which should see more than 80,000 Teslas find new homes.

Biggest growth in recent times

We haven’t seen this kind of growth in the automotive industry since Henry Ford introduced mass production with the Model T. Questions still remain over whether the company can deliver on this epic promise, but we’re hopeful.

The dealer network is growing at a similarly staggering rate, with a new retail outlet set to open every four days in the remainder of Q3 an Q4.

Tesla has come a long way from producing 2000 cars a year on a pre-supplied Lotus Elise platform in 2008 to turning over 2000 cars a week right now. The Model 3, though, is mass production on a whole new level.

Pre-orders are flowing thick and fast

It has 350,000 pre-orders for the Model 3 and Tesla is revamping its facility in Fremont, California. Now it has to evolve into a fully-fledged car manufacturer, rather than a boutique company, and it is already hard at work.

The financial news isn’t so good. Tesla generated $1.6 billion in revenue, but has lost $1.06 per basic share. A recent round of funding means that the company is sitting on cash reserves of $3.25 billion, though, so there’s no cause for concern just yet.

Earlier this year Tesla outlined the $1.3 billion expansion of its Fremont factory for the Model 3 line and in this latest announcement it planned for $2.25 billion of capital expenditure in 2016. Launching this new model is a massive expense, but there is good news.

tesla model 3

Margins on each model are up

The company has boosted the gross margin to 23.1% on a GAAP basis from 21.9%, while orders in Q3 were up by 67% year-on-year. The Model 3 has also been met with massive enthusiasm and now Tesla just has to keep growing to keep up with demand.

Tesla will create a purpose-built Model 3 body and general assembly center, but has the basic line for stamping and painting the new cars in place already.

In truth the paint shop has been in the works for a long time and Elon Musk was already aiming at 500,000 cars a year at that point. So the company will break this facility in gently and it won’t be close to capacity until the Model 3 production hits full swing.

Lines in the paint

The paint shop comes with two separate lines. One handles the bodies, while the other is designed for color-coding smaller components like bumpers and mirrors.

German company Eisenmann was responsible for the facility and brought its E-Shuttle 300 conveyor system to California to provide pre-treatment, electrocoating and overspray removal systems for the Model S and Model X, as well as the Model 3.

Up to 300 prototypes

The company has ordered enough parts from outside suppliers to produce 300 Model 3 prototypes. It might not build all of them, but it’s a clear statement of intent.

The Model 3 is a brave new world for Tesla Motors and it’s good to see the company going at this rapid expansion with heart and soul. There have been doubters, cynics and critics every step of the way, but Elon Musk’s army are still going strong and growing faster than ever before.

Model 3 looked like mission impossible at one stage and some are still clinging to that. But as time goes on, it looks increasingly likely that Tesla is going to pull it off.

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