Motor City Blogman

Tesla Model Y to be Built in a Chinese Gigafactory

Musk: Profitability may be a couple of quarters away

Where to begin with CEO Elon Musk’s Wall Street analysts’ call following Tesla’s first quarter earning report revealing a record $709.6-million loss?

How about announcing the location of the Tesla Model Y production “maybe in the last quarter,” but not before the end of the year, Musk said, and in a new Chinese
Gigafactory to boot?

“In the future, all Gigafactories will include vehicle production,” he told the inquirer, CNBC’s Phil LeBeau, who pressed on Musk’s earlier comment that with the Model 3, Tesla’s Fremont, California assembly plant—one of the two largest in the world, along with the Sparks, Nevada Gigafactory—is at capacity.

Musk added that he “appreciates that the government of China will allow full ownership” of such factories, meaning there’s a deal afoot to allow Tesla full, 100-percent ownership. Other automakers, and in fact all non-Chinese companies making anything in China must find a local owner who takes 50-percent interest.

Helicopters and tunnels

A post shared by Elon Musk (@elonmusk) on

Tesla has learned from its “production hell,” the start-up problems that have held up full production of the upper-middle-priced Model 3 that Musk intends to revolutionize private transportation. For the Model Y, a simpler than Model X crossover about the size of the compact Model 3, Tesla will work out ideas for efficient production before production begins, Musk said.

“I think the Model Y is going to be a manufacturing revolution. We do not want to go down this path again.”

Musk spoke of the lesson in finding the right balance between manual and robotic manufacturing, an issue with which he went public in recent weeks. He said a “fluff”-material mat on top of the Model 3’s battery pack should have been attached by a human, not a robot, as was done initially in its production.

“Fluffbots continuously failed to pick up the fluff. That is one of the silliest things I found,” Musk said.

With bottlenecks in body and battery production since solved, Musk expects Tesla Model 3 production, which averaged above 2,000 units per week before the automaker’s planned mid-April shutdown, and topped out at 2,270 per week in the last of those weeks, to reach 3,000 per week within three months. Musk had promised about this time last year that Tesla would produce 5,000 Model 3s per week by the end of last year, on its way to a goal of 10,000 per week.

In its Q1 update, Tesla also claimed the Model 3 will soon have the highest market share in what the press release describes as the “premium mid-size” segment, though it compares the Model 3 with the compact-class Mercedes C-Class, Audi A4, and BMW 3 Series (nothing indicates the comparison includes the BMW 4 Series coupe-variants, which in most months outsell the 3 Series in the U.S.).

Model 3 production and sales, as well as Musk’s earlier comments that Tesla does not expect to raise additional capital from the markets in the third and fourth quarters, when many analysts expect the company to run out of money, dominated the early questions.

“You said you do not need to raise additional capital, but do you want to?” asked Morgan Stanley’s Adam Jonas.

“No, I specifically do not want to,” Musk replied.

Joseph Spak, of RBC Capital Markets tried to dig into the number of initial reservations for the Tesla Model 3 that haven’t been cancelled because of the production delays. The company stopped publicly counting Model 3 reservations at 400,000.

“What percentage of your reservations have taken the next step to configure” their Model 3s, Spak asked.

“We’re going to YouTube,” Musk replied, apparently referring to the nickname of a caller. “Sorry, these questions are so dull.”

After extended silence that sounded like one end of Spak’s call had hung up the phone, Musk took several questions from the new caller, who was not further identified. He asked about Tesla’s advances in autonomous technology.

“Thank you for your interesting question,” Musk replied, then described a “shared electric autonomy model … like a Robo-Lyft or Robo-Uber,” in which you can keep your Tesla, or you can use it to pick up shared-economy riders itself, or lend it out like an autonomous, automotive Airbnb. The Tesla apparently would drive itself for riders, or between Airbnb-style loans.

How soon? That’s a regulatory issue, not a technological one, Musk replied. If regulations were changed to allow it, the Robo-Lyft would be available by the end of 2019, he said.

With that, Musk went on to criticize journalists for reporting on two Tesla crashes involving the AutoPilot Level 2 autonomy already available in its vehicles. The technology saves lives, but will not reduce traffic fatalities to zero.

“Media shouldn’t be writing the story,” Musk said. “They should be writing the story of how autonomous technology is safe. That’s really outrageous.”

But then he upended his argument by saying the Tesla drivers who got into accidents by relying on AutoPilot are the Tesla drivers who best understand the technology, and became complacent using it in the vehicle.

This being a Musk-led Q&A with analysts on Tesla, there’s plenty more to report. Musk scoffed at the upcoming Porsche Mission E’s charger, saying “a 350-killowatt charger actually doesn’t make a heck of a lot of sense. You’re going to frag the pack if you do that.” He added that getting more range is far more important than shortening recharge times.

Musk said that Tesla has not done much to sell or market the electric semi truck, which he says will be capable of a 600-mile range using current battery technology, but that the automaker has reservations for about 3,000, so far.

Musk admitted that lack of profit is Tesla’s greatest failure, but remained confident that the automaker will turn that around in the third and fourth quarters as Model 3 production ramps up. Tesla reported a $709.6-million net loss for the third quarter of 2018, compared with a $675.4-million loss in the fourth quarter of ’17, and a $330.3-million loss in the first quarter of last year.

That loss came from $3.4 billion in gross revenues, which was $0.4 billion than analysts’ estimates before the closing bell of the New York Stock Exchange Wednesday, when Tesla finished the day up 1.23 points, or 0.41 percent, to $301.16 per share. Its market cap was $50.87-billion, again closing in on General Motors’ market cap of $51.02 billion.

Twitter @AM_Lassa

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