The Production Worries That Tesla Faces

 

Tesla Motors is arguably the most innovative car company in the world today, with many of the opinion that it is truly shaping the future of automobiles. With the recent unveiling of the Model 3, which is scheduled to be its first economically-priced vehicle at just MSRP $35,000 once it’s released, Tesla has continued momentum moving forward. However, Tesla is facing certain criticisms and worries, especially on Wall Street, as one of the main issues that it’s facing is in regards to production worries.


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Not Meeting Production Goals.

On April 4th, 2016, Tesla stated that they fell short of their first quarter 2016 sales goals. However, interestingly, the sales miss wasn’t due to a lack of demand. Instead, it was due to Tesla’s struggles with keeping up with production. During the first quarter, Tesla sold 14,860 vehicles, but its sales projections were 16,000.

The main culprit, according to Tesla, is that they experienced a parts shortage that affected their ability to manufacture the Model X. According to Tesla, their production problems that they experienced stemmed from having a significant amount of technology present within the Model X and, in their own words, “insufficient supplier capability validation, and Tesla not having broad enough internal capability to manufacture the parts in-house (See: http://www.marketwatch.com/story/tesla-deliveries-come-in-below-expectations-stock-drops-2016-04-04).”

Furthermore, Tesla claims that it was only 6 parts that they experienced shortages without of a total of more than 8,000 parts that are required to build the Model X. Tesla has stated that they have taken steps to rectify the issue that they faced in producing their Model X vehicles and are still on track to meet their sales goals for the year.

The Model 3 is the Real Test.

Many remain skeptical, despite Tesla’s reassurances, that the company will be able to put their production problems behind them. In fact, some believe that the recently-announced Model 3 will only exacerbate them due to demand that has exceeded everyone’s, including Tesla’s, expectations.Tesla has stated that they want to produce a combined total of 500,000 of their Model S, Model X, and Model 3 vehicles by the end of 2018. Considering that Tesla is only projecting the ability to manufacture 80,000 of its vehicles in 2016, this will be a large ramp up in production.

Tesla has stated that they want to produce a combined total of 500,000 of their Model S, Model X, and Model 3 vehicles by the end of 2018. Considering that Tesla is only projecting the ability to manufacture 80,000 of its vehicles in 2016, this will be a large ramp up in production.

To ensure that they’re able to meet the gargantuan demand for its Model 3, as well as the growing demand for its Model X and Model S vehicles, Tesla recently hired Peter Hochholdinger as their new Vice President of Vehicle Production. Hochholdinger held a similar position at Audi, where he was able to streamline and vastly improve that company’s production capabilities.

Regardless if Tesla is able to meet its lofty production goals in the future or not, it has the biggest battle already won, which is that its customer demand far exceeds its ability to keep up with it. It’s up to Tesla to be able to develop its production capabilities to match its innovation.

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