While shareholders are grasping onto Elon Musk’s transformative strategic plan for the transportation industry, Tesla is facing more pressing issues with its day-to-day scheduling. Tesla announced in its quarterly financial report that is on track to reach a milestone of making 5,000 Model 3 sedans a week by the end of the second quarter (a twice postponed goal) and that it is addressing bottlenecks that have derailed production. Despite early bottleneck troubles while building the Model 3 sedan, Tesla expects to generate its first sustained operating profit sometime this year. Amid the ambitious predictions, Tesla cautioned shareholders that the company has encountered “difficulty of accurately forecasting specific production rates at specific points in time.” Last November, Tesla acknowledged it was struggling to ramp up the Model 3 due to the complexity of the battery-pack assembly and its automated manufacturing process. It has suffered from bottlenecks at the assembly plant in Fremont, Calif., and at the battery factory near Reno, Nev.
Just like Sara pointed out in her post last week, the overarching concern over Tesla’s quality is whether or not the company can handle the growing pains of transitioning from a boutique carmaker to a mass-production manufacturing business without forfeiting quality and falling into the trap of “building fast, fixing later.” Tesla already has highly rated quality assurance. The problem has shifted away from quality issues and towards production capacity. Tesla has received about 500,000 reservations to buy the Model 3, so the question is how quickly it can crank up production to meet the demand. The company’s website currently says it will take about 12 to 18 months to get a Model 3 delivered if reserved today. The delayed Model 3 sedan sales will eat into Tesla’s already depleting cash. Tesla will have to raise additional capital in order to meet the demand for the Model 3 sedan, but this additional capital will be expensive since Tesla still operates at a loss. Tesla’s lithium battery production is based out of a “gigafactory” out of which Panasonic also bases its production of electronics. The auto maker plans to add capacity at its assembly plant to be able to make 10,000 Model 3 sedans a week after reaching the 5,000-a-week milestone, but Panasonic’s cathode powder supply chain can’t support more than half of that volume.
Currently, Tesla’s car production is limited to its battery production, and its battery production is limited by the amount of cobalt. The location of Tesla’s lithium-ion battery cell and battery pack production is currently split to some degree. The company’s new 21700 form factor battery cells being produced at the Gigafactory while the 18650 form factor cells are produced elsewhere (mostly at Panasonic facilities). More importantly, expansion of integration between the Tesla/Panasonic supply chain would be a difficult task because its cathode powder supplier, Sumitomo Metal Mining already is using 100% of its cobalt production to satisfy Panasonic’s cathode powder requirements. Cobalt prices have skyrocketed because of the increased demand by the automobile industry. Tesla CEO Elon Musk has previously revealed that the company is planning to build a great many more Gigafactories over the coming years and decades with facilities spread around the world to meet local and regional demand in the areas where Tesla is located and has strong market demand, but this will come with the challenges of resource scarcity and investor confidence.