Yesterday after market close, Tesla released a Form 8-k to clarify Elon Musk’s comments the day prior regarding needing to move equipment from Germany to reach production ramp goals. 

Tesla, Inc. is clarifying the following statement made by Elon Musk, Tesla’s Chief Executive Officer, during Tesla’s fourth quarter and full year 2017 financial results conference call held on February 7, 2018:

“[We] expect the new automated lines to arrive next month in March.  And then it’s already working in Germany so that’s going to be disassembled, brought out to the Gigafactory and reassembled and then go into operation at the Gigafactory.  It’s not a question whether it works or not.  It’s just a question of disassembly, transport and reassembly.  So we expect to alleviate that constraint.  With alleviating that constraint, that’s what gets us to the roughly 2,000 to 2,500 unit per week production rate.” 

The “2,000 to 2,500” units per week cited in this comment refers solely to the capacity of the additional automated battery module manufacturing equipment that is currently located in Germany, and not to Tesla’s total Model 3 production run rate or to the capacity of the automated battery module equipment that is already present at Gigafactory 1.  Tesla’s ability to meet its target of 2,500 per week by end of Q1 2018 is not dependent on the additional equipment that is currently located in Germany, as that equipment is expected to start ramping production during Q2 2018.  With respect to battery module production, Tesla’s ability to meet its target of 2,500 per week by end of Q1 2018 is dependent only on the equipment that is already present at Gigafactory 1, as well as the incremental capacity that is currently being added through the semi-automated lines that were also discussed during the conference call. 

As stated in Tesla’s Fourth Quarter and Full Year 2017 Update Letter:

“We continue to target weekly Model 3 production rates of 2,500 by the end of Q1 and 5,000 by the end of Q2.  It is important to note that while these are the levels we are focused on hitting and we have plans in place to achieve them, our prior experience on the Model 3 ramp has demonstrated the difficulty of accurately forecasting specific production rates at specific points in time.  What we can say with confidence is that we are taking many actions to systematically address bottlenecks and add capacity in places like the battery module line where we have experienced constraints, and these actions should result in our production rate significantly increasing during the rest of Q1 and through Q2.” 

Tesla claims that they don’t need the new automated line equipment from Germany to reach their 2,500 Model 3 cars/week production rate by end of Q1 2018.  However, at this point, Tesla has lost much of their credibility regarding Model 3 production ramp guidance. 

In order for Tesla to regain investor confidence, they need to do what they say they’re going to do.  This means, they need to reach 2,500 cars/week by end of Q1.  I, personally, think this is going to be difficult to achieve. 

In the Q1 earnings call, Elon mentioned that having to make a new automated battery module assembly line costed them 6-9 months of time.  So, if they original goal was 5000 cars/week by end of Q4 2017, then that goal is pushed off by a minimum of 6 months.  So it appears that Tesla is aiming for end of Q2 2018 as to when they can reach 2,500 cars/week.  But this is likely an aspirational goal, and perhaps not realistic.  But we will see in less than 2 months.  Tesla will release their Q1 delivery (and production) numbers at the beginning of April.  If Tesla does manage to reach 2,500 Model 3 cars/week by that period, they will dispel all doubt and disappointment regarding the Model 3 production ramp. 

Yesterday SpaceX made history again with a successful launch of the Falcon Heavy, which is basically three Falcon 9 rockets strapped together.mmIf you haven’t seen the launch, it’s a must-watch and I’ve included it at the end of this post.  Here’s what SpaceX had to say about the launch and what it means:

[Falcon Heavy is] the most powerful operational rocket in the world by a factor of two.  With the ability to lift into orbit nearly 64 metric tons (141,000 lb)—a mass greater than a 737 jetliner loaded with passengers, crew, luggage and fuel–Falcon Heavy can lift more than twice the payload of the next closest operational vehicle, the Delta IV Heavy, at one-third the cost.  Falcon Heavy draws upon the proven heritage and reliability of Falcon 9.  Its first stage is composed of three Falcon 9 nine-engine cores whose 27 Merlin engines together generate more than 5 million pounds of thrust at liftoff, equal to approximately eighteen 747 aircraft.  Only the Saturn V moon rocket, last flown in 1973, delivered more payload to orbit.  Falcon Heavy was designed from the outset to carry humans into space and restores the possibility of flying missions with crew to the Moon or Mars. 

Roughly two years ago SpaceX made history with the first landing of a orbital’s first stage on land.  This was the key piece to SpaceX’s ultimate mission to make humans a multi-planetary species.  What yesterday’s successful launch of Falcon Heavy showed was that SpaceX is on an inevitable path to send people to Mars.  Now more than ever it’s clear that SpaceX is on a roll and that momentum will lead to amazing space ventures that many thought was only for the imagination. 

What makes SpaceX special is the combination of a ridiculously ambitious goal (making humans multi-planetary) and the practical means and methods to achieve that goal.  SpaceX believes that if they harness the intelligence of the brightest engineers and commit to ruthless iteration and constant improvement, then the end result will be achieving what many people think is impossible. 

In the same way, Tesla shares the SpaceX ethos.  Tesla has set a ridiculously ambitious goal of transitioning the world to sustainable transport and energy, and they’ve committed to making that happen by bringing together the best engineers they can find and working ruthless toward constant iteration and improvement. 

Sometimes this constant iteration and improvement isn’t linear because there are step changes with new projects.  For example, while engineers are constantly working and iterating improvements, SpaceX experienced step changes in technology with Falcon 1, Falcon 9, ability to land and reuse boosters, and now with Falcon Heavy. 

In a similar way, Tesla has experienced massive step changes with the original Roadster, the Model S, and now the Model 3. 

With Tesla it appears that every 5 years or so they are able to achieve a true step change in technology and product.  And the Model 3 is so far Tesla’s greatest achievement, yet it is only the beginning.  In another 5 years, Tesla is bound to have made massive progress in manufacturing, battery technology, design, and other fields; and all of that put together will allow them to make another product that they just weren’t able to do right now. 

I think in 5 years or so, Tesla will be able to release a generation 4 vehicle that addresses an even larger market than the Model 3.  The Gen4 vehicle will be cheaper than the Model S and will target the economy class of vehicles.  It simply will be a vehicle that is more affordable than the Model 3 and is the best economy car, ever. 

Later today Tesla will announce their Q4 earnings.  And while Tesla will give important updates as to how the Model 3 production ramp is going, how much cash balance they have, and their goals for this year, in many ways I think what’s more important is that Tesla has already made a stellar car in the Model 3 and they are trekking toward their next goals and are not staying still.  Sure, Tesla has their work cut out for them in terms of ramping Model 3 production.  But in my opinion this is a solved problem.  In other words, ramping production has been done by every major auto manufacturer on the planet, and Tesla will be able to do it as well.  It might take a bit longer than expected, but they’ll get there. 

But for some reason many investors and analysts are so short-term focused, so all eyes will be on what Tesla will be doing over the next quarter or two. 

The bigger picture is Tesla is marching on toward their ridiculously ambitious goals.  The bulk of their engineering team has long moved on to other projects like the Model Y, Tesla Semi, and new Roadster.  And after those projects, they will move on to the Tesla pickup truck and to other mind-blowing vehicles and projects. 

What the Falcon Heavy launched yesterday showed us is a glimpse into the power of the ethos behind SpaceX, and also Tesla.  And it’s no coincidence they’re run by the same person, Elon. 

In many ways you can say the original iPhone that debuted in 2007 was a major hit.  But there’s another side to the story.  Most people dismissed the iPhone as an overpriced gadget and couldn’t imagine themselves ever owning one. 

I remember standing in line on the first day to get the original iPhone.  It reminded me of standing in line to reserve the Tesla Model 3 almost 2 years ago.  The excitement in the air was similar.  Everybody standing in line knew they were wanting to get their hands on something revolutionary and spectacular.  There was a hope and faith in the air. 

After standing in line for several hours and finally holding the original iPhone, it was a magical moment.  It was even better than what Steve Jobs had promised.  The touch interface, the scrolling, the built-in apps… everything was just amazing. 

However, when I showed my iPhone to my friends almost all of them dismissed it as an overpriced toy.  I was quite shocked. 

I remember I was at a friend’s party shortly after getting my iPhone in 2007 and I was showing it to some people, but there was little interest in it.  There must have been 30 people at the party and not a single person wanted to play with it.  I remember playing a game, Taboo, with folks and using my iPhone as the timer.  It was awesome, at least to me, but nobody cared. 

Several days later I was eating dinner at a restaurant with a few friends and I had my iPhone out on the table, and one friend told me to put it away because she was embarrassed by it because it “costed so much” and she didn’t understand why anybody would want one.  She said she was happy with her Blackberry and had no interest in ever owning an iPhone. 

I could go on with stories of disinterested people with the iPhone back in 2007.  The reality was while there was a small minority of people who were infatuated with the iPhone and understood its significance, the vast majority of people completely dismissed it. 

Steve Balmer, the then Microsoft CEO, remarked, “There’s no chance that the iPhone is going to get any significant market share.” 

He was just so sure the iPhone was a fluke, a gadget, a toy.  In retrospect, the original iPhone was truly a historical and momentous moment, one that would forever change how people consumed information. 

In similar ways, the vast majority of people are completely missing out on the transformation and historical moment of the Tesla Model 3.  On the surface, it’s easy to judge it as a “gadget” or “toy”, and something that only Tesla fanatics are in to. 

However, what people are missing is they don’t understand the essence of the Model 3, just like the didn’t understand the essence of the original iPhone.