
Deadlines, delays, and departures dog Tesla Model 3 - jzwinck
http://arstechnica.com/cars/2016/05/opinion-teslas-self-induced-jet-wash/
======
jrv
Having listened to the earnings call, this article makes me facepalm. When
explaining the internal July 1 target date, Elon repeatedly said he would
explain it at the risk of it being misinterpreted by the media, and then this
article misinterprets it. That date was never meant to _actually_ be the
production start date, only a date that they are aiming for with all suppliers
so that they can hold their feet to the fire when an inevitable few of the
thousands of needed parts have delays. Also, about the complexity of building
Tesla cars, he points out that the Model 3 is vastly easier to produce than
any of the other models, since it was designed expressly for being simple and
very easy to manufacture. Go listen to the actual earnings call.

~~~
forgetsusername
> _That date was never meant to actually be the production start date_

I listen to or read the transcripts of nearly all of them. They're full of
ambiguous information and half-truths, and I take them with a grain of salt.
This is a classic example; we have a deadline that's not really a deadline.
Tesla _wants_ this stuff to be news.

> _an inevitable few of the thousands of needed parts have delays._

Is this inevitable? Does it happen to other manufacturers, who, according to
critics, are building far more complex vehicles?

> _this article makes me facepalm._

You don't facepalm at gems like this:

UBS Analyst: "And any color when you think about the $190 per kilowatt hour,
how much like a CAGR of decline until the Gigafactory is open, another 30%
once that's on line?"

Elon Musk: "Yeah, next question."

So the guy wanted to know how Tesla plans on benefitting from the scale and
battery efficiency of the Gigafactory production (originally planned for 2020)
if they're moving up the production timetable. In other words, how much is
that going to affect the cost of Model 3 production? You don't think that's a
valid question?

~~~
thegranderson
Re: the UBS analyst question - I thought this was a totally fair response by
Elon. In his previous question, the UBS guy asked Elon where their battery
costs would be by the time the Model 3 launches, and Elon said he felt was
proprietary.

Then the guy basically asks the EXACT same thing, but rather than asking for
the final price, he asked for the pace of reduction (CAGR) in price, over a
given amount of time (until the Gigafactory is open, and once it is online)...
which would allow him to calculate cost/kwh when Model 3 launches.

Musk politely answered a whole series of questions from this and other
analysts, only cutting them off if they asked something stupid - like this
guy. You're not gonna trick Elon Musk into giving you more data by asking the
question a different way.

~~~
forgetsusername
> _the UBS guy asked Elon where their battery costs would be by the time the
> Model 3 launches, and Elon said he felt was proprietary._

What is "proprietary" about it? Previous plans and costing were based on the
Gigafactory being able to achieve scale by 2020. That production is being
bumped forward two years, so what effect will it have on costs? Why would we
assume they can suddenly get the same savings in less time? It's a good
question from an investor's perspective.

> _Musk politely answered a whole series of questions from this and other
> analysts_

Yeah, he loves answering Adam Jonas. Many of these guys are practically
shills. Some of their questions are embarrassing.

> _You 're not gonna trick Elon Musk into giving you more data by asking the
> question a different way._

Here's the thing HN doesn't seem to get: this is a _public_ company. People
have the right to ask questions. In fact, _more_ questions should be asked of
companies like this, that are losing vast sums of money yet have sky-high
valuations. That's the difference between genuinely curious people and those
who are willing to take what the CEO says at his word, for everything.

Watch for an equity offering soon, something else that we were told wouldn't
happen.

~~~
erikpukinskis
> this is a public company. People have the right to ask questions.

He did ask the question. You have the right to ask questions of a private
company too. And both private and public companies have the right not to
answer. Everything they're required to make public is already in the filings.
You seem to be indicating that they're required to say more, but they're not.

~~~
forgetsusername
> _Everything they 're required to make public is already in the filings_

We never really know that, ex ante. Everyone looks like they're reporting what
they need to, until we find out they aren't. That's the point of asking
questions.

But it isn't about requirements. It's a _valid_ question, that was sidestepped
by Musk (and here, apparently). Here it is for posterity: the pricing for the
Model 3 was based on achieving scale and efficiency in battery production from
the Gigafactory. With production bumped up two years, what effect will that
have on pricing? If it's none, how is that achieved?

------
ChuckMcM
I find articles like this, and the subsequent discussion about them,
interesting. Tesla is a very aggressive auto company, and they have made a lot
of huge bets. If more of their bets pay off than don't, they come out ahead.
That is very hard for investors to understand but some get it and some don't.

And the really interesting thing is that Elon speaks pretty clearly about the
things they are doing that they don't know how they will come out, and this
sets up an interesting cognitive dissonance in investors. When you tell
someone "this date is the one we put out to get alignment of our suppliers, we
assumed not all of them would be ready." Financial people's heads explode.
They struggle with management not knowing exactly what is going to happen with
events that are critical to the survival of the company. In their head a
little dialogue goes "well if they don't know that, how do they even know they
will _exist_ next year?" and I expect the truth is they don't. Operating
without a net is something Elon seems to be able to pull off when others
can't.

I do think the departures are a challenge though. Coming into an organization
at a senior level and learning the strengths and weaknesses of the team is a
hugely challenging thing to do. It takes time and if you don't have that time
it can be really stressful. You find yourself counting on teams to deliver
that you have no idea whether or not they have what it takes. So you are
hyperfocused on everything and keeping your baloney detector set to max
sensitivity to try quickly identify what is working and what isn't. It has to
make replacing people at that level very difficult indeed.

~~~
Someone
_" If more of their bets pay off than don't, they come out ahead. That is very
hard for investors to understand but some get it and some don't."_

If you are an investor and don't understand that, I strongly suggest you
change jobs. Investing isn't a lottery with guaranteed wins.

Also, the article hints that Tesla doesn't have enough money in its pockets to
withstand making few bad bets. They may have a strategy that is guaranteed to
move them ahead after 20 bets, but if they have money for only 3 bets, they
may run out of money before they can pay for those 20 bets.

But yes, from what I understand, the financial journalists aren't reporting
what kind of deadline was talked about. If you have a zillion suppliers, you
don't tell them "July 1, but if you don't make it, it is OK", but you also
know that, statistically, something will go wrong. A fire in a factory, a
strike, an earthquake, or a design change, all can lead to delays, and cannot
be avoided.

------
nawitus
"And those were very simple cars to manufacture. Teslas are... well... not."

Why are Tesla Model 3 cars not simple to manufacture? I would estimate that
they're simpler than regular gasoline-powered cars.

~~~
kgwgk
Is it really much simpler? This comment in a recent thread is interesting:
[https://news.ycombinator.com/item?id=11650966](https://news.ycombinator.com/item?id=11650966)

~~~
mikeyouse
I think the commenter in your post is right but is forgetting about the
outsourced complexity of the big autos.

Chassis assembly is only marginally simpler for an EV vs an ICE since the ICE
relies on third party suppliers sending the highly complex parts to the line.
The complexity of parts like the engine, transmission, exhaust system, fuel
system, etc. is abstracted to the suppliers so that GM or whoever can just
bolt it to the final car. Tesla has a big benefit here since if they were
designing a brand new ICE, they'd be responsible for all those parts too.

It's not that they get the simplicity benefit from not installing an engine,
it's that they don't have to wait for the most complex part of a car to be
designed, engineered, constructed and delivered.

------
sschueller
Why does Tesla not manufacture the doors themselves? I would think such a
special part unique to their cars would be first produced in house until all
the bugs are worked out.

~~~
jzwinck
Modern car doors are usually sheet metal with a large amount of forming to
give a shape (close to) what the designer wanted. It's difficult, large,
expensive, and the knowledge required already exists in outside suppliers.
Maybe someday they'll do it in house.

I recommend the book "Car"[1] about the redesign of the Ford Taurus twenty
years ago. One of the topics is how hard it was to actually manufacture the
(at the time) very complex curves of the exterior.

[1] [http://www.amazon.com/Car-American-Workplace-Mary-
Walton/dp/...](http://www.amazon.com/Car-American-Workplace-Mary-
Walton/dp/0393318613)

~~~
thevibesman
> Maybe someday they'll do it in house.

I don't remember where I read it, so I can't provide a source, but I thought I
read somewhere that after this issue with the doors it is a goal at Tesla to
try to manufacture as many components as possible in-house as their resources
grow.

~~~
manicdee
And as their resources grow, they will likely move more of the production in-
house.

I wouldn't be surprised to find that this involves acquisitions in some cases,
rather than tooling up at Fremont.

Not an nvestor, but wishing I was rich enough to be one.

------
tristanj
Re: the part where Tesla only has $1.8B cash and needs more, Tesla recently
announced a $500 million stock offering to help finance Model 3 production.

[http://ir.teslamotors.com/releasedetail.cfm?releaseid=927533](http://ir.teslamotors.com/releasedetail.cfm?releaseid=927533)

~~~
kgwgk
Even if we consider August 2015 as "recently", this money is already included
in the $1.8bn (they actually raised $740mn in August 2015).

~~~
dragontamer
And 400million ish with the preorders.

Then they lost 280 million this most recent quarter. They have 1.4 billion in
assets and 1.4 billion in short term liabilities. They need more cash for sure

~~~
mikeyouse
From an accounting standpoint, all of that preorder cash is likely restricted
and won't be available to fund general operations.

~~~
dragontamer
It's actually counted as a 'liability' on the balance sheet. So the money is
already spent.

Read the terms. The funds are NOT held in Escrow

~~~
mikeyouse
That's only one side of the transaction.. The cash is also held as an asset as
cash on the balance sheet -- likely restricted cash. My only point is that
their cash position to build out their production line is probably overstated
if you only look at the cash/marketable securities line item.

~~~
dragontamer
I read the 8k published on May 4th.

[http://ir.teslamotors.com/secfiling.cfm?filingID=1193125-16-...](http://ir.teslamotors.com/secfiling.cfm?filingID=1193125-16-577582&CIK=1318605)

Restricted cash is only $47 Mil.

I think they're actually accounting the pre-order money as straight up Cash on
hand.

> My only point is that their cash position to build out their production line
> is probably overstated if you only look at the cash/marketable securities
> line item.

I agree with this. I'm just surprised at how they're accounting for this. I'm
fairly certain they consider the pre-order money to be 'cash / cash-
equivalents', the $1.4 Billion line item.

------
chinathrow
Why is there a sudden surge of articles pointing out delays, possible hickups
for ramping up production etc recently? Is there an orchestration behind it?
Sure, this is just an opinion piece, but still.

Genuinely interested.

~~~
imakesnowflakes
No one notices when things go as planned/expected. Make media say you cannot
do it, then do it.

You bet it will be noticed.

I am not saying that it is what is happening now. But just a thought.

I mean, if the guy is smart enough to do all the things he has done, isn't it
too hard to imagine he will have a trick or two when it comes to PR?

I mean, every time, one of this article show up, it gets up voted to top, and
people are talking and talking and talking, about it. For a couple of days,
you see Tesla or SpaceX every where..It is like walking through a
neighbourhood filled with Tesla/SpaceX billboards.

Point is, there articles are generating a lot of conversation involving these
companies, which makes them very endearing to people involved. So after a
while, people will take it as a personal insult, if you criticise these
companies...

You know, all of those are good for the company, right?

~~~
ctulek
+1

This negative press followed by positive press happened to Tesla so many
times, I can't help but think that it is just some guys found a way to make a
couple extra bucks.

------
x5n1
There is no point here. Yes this will be an issue, a totally new company is
selling more units than the incumbents, obviously they are going to have
problems. The point is that there is a huge demand for their vehicles, and
they'll figure out a way to meet that demand. One way or another. In the end
consumers will benefit from all this competition in 20 years we will be
driving electric autonomous cars, all of us. Great news!

