Electric car icon and alternative energy manufacturer Tesla reported Q4-2017 automobile vehicle production and delivery performance this week with rather mixed messages as to overall operational and supply chain performance. That included disappointing news concerning the production ramp-up of the all-important, higher-volume Model 3 sedan.
Total production in Q4 was reported as 24,565 vehicles while actual deliveries amounted to 29,870 vehicles, an increase of slightly over 14 percent from Q3 vehicle delivery activity. For the full-year, the electric automaker delivered 101,312 vehicles which was noted as a 33 percent increase over 2016.
Tesla’s announcement contexed the quarter as the all-time best quarter for combined Model S and X deliveries but that message was far over shadowed by reported Model 3 operational performance.
In the quarter, Tesla produced a mere 2425 Model 3 sedans while delivering 1550 of the highly anticipated vehicle. That was an obvious disappointment to the original stated goal of reaching a production cadence of 5000 Model 3’s per week by the end of 2017, a milestone which was since been deferred. In its release, Tesla takes the effort to note the following:
“During Q4, we made major progress addressing Model 3 production bottlenecks, with our production rate increasing significantly towards the end of the quarter. In the last seven working days of the quarter, we made 793 Model 3’s, and in the last few days, we hit a production rate on each of our manufacturing lines that extrapolates to over 1,000 Model 3’s per week. As a result of the significant growth in our production rate, we made as many Model 3’s since December 9th as we did in the more than four months of Model 3 production up to that point. This is why we were not able to deliver many of these cars during the holiday season, just before the quarter ended. Model 3 deliveries to non-employee customers are now accelerating rapidly, and we’re confident our customers will love them.”
From our Supply Chain Matters lens, the above statement thou a noble attempt, no longer holds confidence as to ramp-up performance.
The simple fact that 35 percent, a reported 860 vehicles, of the total Model 3’s delivered in the quarter were noted as still in-transit to customers is the classic indicator of manufacturing and supply chain hockey-stick performance. Vehicle production during the quarter was obviously delayed by a host of issues and the “manufacturing hell” that CEO Elon Musk had previously described, and we speculate that it was the shear dedicated efforts of supply chain and production teams that once again made a difference.
Earlier this week, a Cowen equity analyst was quoted on business network CNBC as speculating in an investment note that Model 3 deliveries would likely be 2250 in the quarter. Other equity analyst firms had expected numbers in the 4000-6000 range with consensus estimate from FactSheet being 4100. Actual Model 3 production performance compared to such forecasts do not point to a controlled production ramp-up, nor to reliability of information.
For its part, Tesla indicates a “slightly more gradual ramp-up through Q1” with a revised goal for likely ending the quarter at a weekly production cadence of 2500 Model 3’s per week. The 5000 per-week goal is once again deferred, now to be anticipated by the end of Q2.
We noted in our November Tesla focused 2017 blog, a letter to shareholders where CEO Musk declared that the Model 3 was designed for manufacturability and was not difficult to build. Further stated was that the production process would be vastly more automated, perhaps the most of any other vehicle. That remains a noble goal, one that embraces the latest in advanced technologies. However, there are the realities of education and process maturity that many high-volume manufacturers have gained through sweat, setbacks, and successes. Tesla seems to be learning these lessons the hard way.
Concerns regarding Tesla’s needs for additional cash burn and added investment in production capability are now increasing. So, should the concerns from those hundreds of thousands of Model 3 customers that made their initial order deposits hoping to drive this long-anticipated vehicle in the 2018-19 period.
Tesla’s automotive competitors are obviously elated since they can take advantage of the Model 3 shortfall.
In the end, what remains is the ongoing takeaway is that supply chain network response and manufacturing capability do matter in the successful support of business outcomes.
Tesla’s teams performed admirably in Q4 given the challenges at-hand. Aggressive goal setting is admirable when risks are assessed, managed, and planned for. Not so when the sheer efforts of people must make the difference in overcoming process and advanced technology aggressiveness.
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