Company / division: Tesla
Tesla On Track to Deliver First Model 3s by End of July, But Q2 Production Falls Short (Jul 3, 2017)
Update: following another release from Tesla on Monday, I’ve amended both the headline and content on this piece significantly from the first version published Monday morning.
Overnight, Tesla CEO Elon Musk had tweeted that Model 3 production would begin shortly, with the first deliveries happening by the end of July, with production ramping up slowly from there. Hitting the launch milestone is something of an achievement for a company that’s often missed its own self-imposed deadlines, but the real test is ramping production enormously above past levels, and that continues to be the achievement I’m far more skeptical of. The new numbers provided today suggest far lower total production than Tesla has promised in the past, at least in the second half of this year and first half of 2018. Later on Monday, the reason for getting that news out overnight became a little clearer, as Tesla released its production and delivery numbers for the June quarter, including a shortfall in both due to battery shortages. That’s bad news for Tesla, and more evidence of its inability to plan and execute on production in predictable ways, and therefore to meet the targets it sets itself. None of this gives me any more confidence in the longer term projections of Model 3 production.
Ex-Apple Engineer Chris Lattner Leaves Tesla After 5 Months (Jun 20, 2017)
This comparison leaked earlier in the week but Tesla has now made it official by posting it on its website (and Elon Musk pointed to it in a Tweet overnight). The only reason I’m including it is here is that it’s a great illustration of the hole Musk dug for himself with his puerile naming strategy for the Model 3 (he originally intended to name it the Model E, making the three current models the S, E, and X, but Ford objected so he flipped the E to a 3). That strategy has led many people to believe the Model 3 is the third iteration of the Tesla and therefore better than the other two models on offer, something Musk has been somewhat frustratedly trying to rectify for the last few months. This comparison, therefore, which is coming out months if not years ahead of the actual availability of the Model 3 to new buyers, seems almost entirely designed to clarify that confusion. Even the introduction makes the point Musk has been hammering home via Twitter recently: “Although it will be our newest vehicle, Model 3 is not “Version 3” or the most advanced Tesla”. All the specific side by side comparisons make clear that the Model 3 is indeed substantially inferior to the Model S – slower acceleration, shorter range, paid versus free supercharging, smaller passenger and cargo space, and so on. Again, this problem is entirely of Tesla’s own making, but also reflects an old problem in the tech industry: the Osborne effect, in which announcing a new version of a product while still trying to sell an earlier one reduces sales of the one currently available. This is just a unique spin on that particular problem given that the Model 3 isn’t actually a successor to the Model S.
I’m on record as being very skeptical that Tesla can achieve its production targets for the Model 3, given both its patchy track record on meeting such targets in the past and the massive ramp the Model 3 production schedule entails. This report from Reuters suggests that Tesla is banking in part on an unusual strategy for manufacturing, under which it will move straight to ordering and installing the final assembly line tooling, rather than testing the manufacturing process with “soft tooling”, which is easier and cheaper to replace if something’s not working. That skips a stage in the production ramp, which should accelerate things, but will only work if Tesla’s computer modeling is effective in helping it get the tools order right first time. So it’s definitely a gamble, and one which could either pay off in a big way and allow Tesla to get to its target production more quickly, or actually delay production or lead to defects in the cars. Even with this approach to manufacturing, it’s still not clear to me that Tesla can accelerate its output fast enough to meet its targets. So while there’s some upside in that it may get somewhat closer to meeting its goals, the downside is potentially much bigger if things go wrong. What’s crazy here, of course, is that all these challenging deadlines are entirely self-imposed – it’s Tesla that insists on promising so much and then underdelivering.
Elon Musk Tweets About Future Tesla Products Including Semi and Pickup Trucks and a Convertible (Apr 13, 2017)
Tesla is now worth more than Ford after delivering a record number of cars for the quarter – Recode (Apr 3, 2017)
There are two things here: firstly, Tesla’s Q1 delivery number, and secondly what’s happened to its share price since it was announced. Stock valuations are interesting, but far from definitive as indications of what companies are worth or who’s “winning” in any meaningful sense. Tesla’s stock price is all about trajectory, and an unusual (perhaps even unwarranted) amount of investor confidence and enthusiasm that the company which is currently very small and unprofitable compared to its legacy peers will quickly catch up on both fronts. That, in turn, requires believing in Tesla’s manufacturing projections, which require a massive increase in its growth rate, from 56% annual growth in the past year to something much faster to hit its 500k target for 2018, which would be a six-fold increase over its 2016 numbers. Long-term, it seems very likely Tesla will reach that kind of scale, but given its track record, there’s every reason to believe it will hit this and other related targets later than it has projected. On that basis, then, the valuation seems that much less justifiable on the basis of any near-to-medium-term results.
This article is based on a study by a company called Navigant Research, and it seems to be an evaluating of companies’ strategic assets rather than any actual capabilities today, so it’s worth noting that context for their rankings of companies here. Notably, they rank traditional carmakers in the first six spots, with Waymo apparently the first non-traditional / tech company in the rankings. That’s notable, because all the numbers suggest Waymo is out in front in testing of autonomous driving technology in California by a long way, and although we don’t have equivalent data for Michigan, where Ford does much of its testing, I’d be surprised if it had done many more miles. So this is mostly an evaluation of the benefits the big automakers derive from their existing massive scale and capabilities in building vehicles and bringing them to market, something none of the pure tech companies has (Tesla, of course, has some small-scale manufacturing capability and is looking to ramp fast, but comes in 12th in the rankings nonetheless). This jives with my perception that, even as these tech companies do increasingly well in developing their own technology, they’re very unlikely in most cases to build the cars, and as such the traditional car companies are still in a position of strength and potential leadership when it comes to actually building and deploying the technology.
via USA Today
China’s Tencent Buys 5% Stake in Tesla – WSJ (Mar 28, 2017)
Tencent has been one of the most active Chinese investors in the US tech industry, and here’s another investment. It already has stakes in both Uber and Lyft, and although Baidu has been making bigger direct investments in autonomous driving in the US, Tencent’s indirect investments in transportation in the US are growing. This is a nice vote of confidence in Tesla at a time when it’s trying to raise money to fund the Model 3 manufacturing ramp, and it also gives Tencent decent exposure to what has been a nice growth stock so far this year.
I think it’s safe to say that Tesla’s plans for Model 3 manufacturing represent the biggest test the company and Elon Musk have faced by a long way. The ramp contemplated is so rapid and takes the company so far beyond its historical production rate that it seems almost impossible for it to meet its targets. And yet here it is raising more money to fund what’s going to be a massive capital spend in the first half of the year to prepare for that production run that’s scheduled to begin in July. In the first half of last year, the company spent around half a billion dollars on capex, and it plans to spend $2-2.5 billion in the first half of 2017, which gives some sense of just how big the leap is from anything the company has done in the past. That’s going to cause a massive cash drain, hence the new funding. Musk continues to execute extremely well on his long-term plans eventually, but hitting short-term targets continues to be his big weakness, and it feels like the Model 3 is either going to be the worst example of that flaw or the biggest possible exception to the pattern. I’m betting it’s the former.
California and Michigan have to be the two states where the most testing of autonomous vehicle technology is being done, with the former home to most of the tech companies in the space and the latter the home of several legacy automakers. The FT is here citing data from the California DMV, which you can see in its raw form here. What’s fascinating is the mix of companies here, as I’ve said before – there are several traditional carmakers (VW, Mercedes, Nissan, BMW, Honda, Ford, and Subaru), several big names from the tech world (Waymo, Tesla, Uber, Baidu, Faraday Future, and Cruise [now part of GM]), and a variety of other smaller companies. But Waymo has by far the largest number of cars and miles driven (and most accidents). But the California DMV is certainly the source of some of the most interesting data on self-driving testing anywhere in the world right now.
via Financial Times
Pay-as-you-drive insurance isn’t a brand new concept – indeed, I remember a colleague writing a report on this about five years ago when I was at Ovum. The basic concept is that the insurance company finds a way to measure actual driving behavior and then offers lower rates to those drivers who drive most safely. There are a number of pilots and active programs underway already, and this Tesla program just takes it a step further by focusing on drivers who turn on the Autopilot feature. Outside of this program, Root measures actual driving behavior through an app, but with Autopilot-enabled Teslas, there’s apparently no such hurdle to overcome. That’s great validation for Tesla (especially given the recent worries over its latest software), and also for autonomous driving technology as a whole – a key argument made by essentially all of its proponents is that it will be safer than human drivers. I’ll be curious to see if this program eventually gets expanded to cover other ADAS systems (since Autopilot is technically ADAS rather than autonomous technology), and whether Root’s data backs up Tesla’s claims about safety over time.