Wake turbulence can ruin your day. Large aircraft deposit a strong ground-bound vortex that can cause huge altitude losses for other aircraft following them.
In the jet wash of a gob-smacking 325,000 pre-orders—at $1,000 each—for the upcoming Model 3 in just one week, Tesla CEO Elon Musk had bad news for his investors on Thursday. He told them the July 1, 2017 start date for production "is not a date that will actually be met." While this would be the fourth production delay for the Model 3 since the concept was first floated several years ago, the news doesn't stop there. New, more aggressive production goals have been set, even though Tesla is losing primary executive staff responsible for achieving them. The financial performance of the company has also worsened.
Tesla is already struggling to meet production deadlines for its current Model S and Model X units.
Quality glitches with the Model X's "falcon wings" and seat latches have led not just to production delays, but apprehension about the X's positive initial reception. Tesla is actually suing its supplier for the doors.
The upcoming Model 3 will be far less complex than the Model X and Model S, yet any interruption in the flow of development and integration of parts from outside suppliers will put the production schedule at risk. Even the most stellar manufacturing companies make plans for such interruptions, but Tesla thinks it's immune. In fact, Musk indicated that Tesla could make those parts by itself at its Fremont factory, an absurd assertion.
Stunningly, in the very same earnings call on May 4, Tesla announced that an even more aggressive total production ramp-up will be achieved. Musk is now stating 500,000 vehicles will be produced each year by 2018. This would be two years ahead of the company’s previous goal and would sit squarely on the shoulders of the delayed Model 3.
That’s not all. Tesla expects to reach 1 million cars by 2020. This goal would require an additional manufacturing facility, something the company has no plans for and has not addressed. When Tesla’s Fremont, California, plant was owned by both GM and Toyota, maximum production capacity was 400,000 units. And those were very simple cars to manufacture. Teslas are... well... not.
Listeners to Tesla’s conference call on Wednesday also learned that Musk has a desk at the end of the production line. He has a sleeping bag in a conference room there, too. Clearly, this man is devoted. With this laser-like focus on production issues, Musk should have a plan on how to get from making 100,000 cars to making a million cars in just 3.5 years. But it's not clear that he does.
Meanwhile, clouds gather over the Tesla staff, too. Production VP Greg Reichow and Manufacturing VP Josh Ensign have both announced they are leaving the company. Even more than powertrain, chassis engineering, or any other of the multiple disciplines involved in the design and building of cars, production and manufacturing are the absolute keys to reaching Tesla’s stated goals. The timing here is threatening. In 2016 alone, five senior executives left Tesla.
Feeling the (Cash) Burn
Last year, CEO Elon Musk assured investors and others that they’d no longer suffer losses by the first quarter of 2016. However, Tesla posted a sizable loss of $283 million for the first quarter, making it Tesla’s 12th consecutive quarterly loss. The share price fluctuates wildly as well, making additional potential investors skittish.
Before the recent earnings release, investors had anticipated a full-year cash burn of about $820 million. Yet, if one counts Tesla's various proposed but re-evaluated capital expenditures, losses could total $1.6 billion.
Looking at Tesla’s macro finance picture, its cash balance through the end of last quarter stood at $1.4 billion. Add in the impressive $400 million-to-date deposits for the Model 3 pre-orders and you get $1.8 billion in cash reserves. Consider the cash burn-through of $1.6 billion—Tesla retains just $200 million, or about $800 million shy of what it once considered a comfortable level to run the company. Acquiring external financing looks inevitable, but Tesla’s already saddled with serious debt. Adding more loans and interest payments and losing more profitability would not be advisable and historically has proven to be the start of so many death spirals in tech, autos, and business.
Unless, of course, Musk is a miracle worker. Many feel he is. He has certainly upended the auto industry in ways not seen since Tucker or Ralph Nader.
Watch this space.
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