Exactly what I’ve been trying to say, and stated much better. (How could it be that a lawyer is better with words than an accountant! )
That becomes important from an investor’s point of view. This occasional hype of Tesla’s factories being the “secret sauce” to their profitability just doesn’t ring true. Thinking that it is can lead to bad investing decisions.
At best, their newer factories are one piece of the puzzle - but a piece that will fade away over time as Tesla’s factories age and their competitors build new production lines to make their own EVs.
Tesla’s factories are evolutionary, not revolutionary.
Tesla investor day is scheduled to begin at 4 pm ET
The majority of folks who will not be there in person can watch Tesla Investor Day (aka Master Plan 3 reveal) on the company’s Twitter page or YouTube.
Sure, we can’t conclude they have an advantage from their profit margins.
But what can we conclude from the statements from management at the two biggest car makers?
Very little, assuming you mean the two comments that were quoted in this thread - the one from VW talking about production time and the anonymous Toyota exec admiring the Model Y.
Neither comment, of course, directly addressed the efficiency of the Gigafactory. Reducing manufacturing time from start to finish, and having some innovative design aspects of your product, can certainly be positives - but not necessarily anything that speaks to the Gigafactories doing anything particularly innovative to reduce actual costs of production.
The time issue’s been discussed above. Faster doesn’t always mean cheaper, and fewer steps in the assembly process can result from pushing those steps outside the assembly plant. Plus, if BEV’s do in face have fewer parts than ICEs just by virtue of being BEV’s, then some of these savings aren’t the result of any choices or techniques that Tesla’s made - they’re going to be intrinsic to any plant or process that makes a BEV instead of an ICE.
As for the anonymous Toyota exec’s admiration of the Model Y, consider one of the (few) specific points raised in the article:
Even small things such as the powertrain cooling hose surprised Toyota, which Tesla shrunk from 3.5mm to 1.5mm while at the same time using a cheaper material to produce them.
That’s definitely a design improvement that Tesla made - but it’s not a Gigafactory improvement. Designing your car to use a smaller, cheaper part can indeed improve your gross margins on the car. But it doesn’t mean you’ve made some advancement in “the machines that build the machines” - that your assembly plant is any more efficient than the competitor using the more expensive 3.5mm hose.
Or was there another statement you were referring to?
I don’t think anyone is suggesting that they’re all unprofitable. Legacy automakers can produce a BEV that people want to buy. Problem is that the production cost is so high that they have to be priced in the luxury class to be profitable (see Mercedes EQS). That’s how Tesla started. Legacy companies can also build cheaper small BEVs using smaller batteries with reduced range and longer charge times, but these have limited appeal (see Renault Zoe).
Through its efficient gigafactories Tesla was able to reduce the production cost of its BEVs from $84K to $36K. This allowed Tesla to design and mass produce the model3 and modelY priced in the $40-60K range without sacrificing profit margins. Legacy car companies currently cannot do this.
The primary reason for this are batteries. Tesla has spent years learning how to design and produce batteries and they are using that expertise to create battery gigafactories that are integrated with their car making gigafactories. They learned what they could in partnership with Panasonic and are going it alone now just in time to take advantage of the new federal subsidies. GM, Ford, and VW have only relatively recently come to realize the advantages of producing one’s own batteries. That is why they are all announcing significant BEV profits will come in 2025-2026 when, hopefully, their battery facilities will come online.
A real time example of the advantages of the gigafactories occurred in 2022 when the supply shortage generally reduced car manufacturing. Tesla was the least impacted of the automakers because the unique design of its gigafactories allowed it to adapt rapidly to the crisis.
Perhaps I misunderstood you. Upthread, you stated:
I think the only reading of that is as a claim that all of their competing products are unprofitable. It seems like you’re saying that the legacy makers are still unable to make a consistently profitable BEV - that after billions in investment, they haven’t even managed to get a single profitable competing vehicle. That’s only true if they’re all unprofitable. If not, then the legacy makers are able to make at least some competing BEV’s profitably.
Maybe you don’t mean every vehicle, but EV’s as a whole? Even so, the global sales volumes are too high for this to be true. If legacy automaker EV’s overall were unprofitable (some profitable, some not, but on the whole unprofitable), it would start to show up in their financial statements. Or your suggestion that they have “limited appeal.” Tesla’s the dominant player in the U.S. - but in Europe (the other big legacy market), Tesla’s only got a modest share of the market. Only about 9%. Nearly all of the EV’s and BEV’s in Europe aren’t Teslas.
Of course they can. They do it all the time. BMW sells its 3-series for less than its 7-series. It’s almost always cheaper to make a smaller version of the same car. And not by a little - the 3-series is half the price of the 7-series. Almost every auto manufacturer with multiple models does that. That doesn’t mean they’ve made any significant strides - or even any strides - in the efficiency of their factories.
As you pointed out in another context, it’s comparing apples to oranges. Tesla’s cost of producing cars is different in 2022 than 2017 because they’re producing different cars (almost entirely). For example, it’s certainly to Tesla’s credit that they realized that it’s cheaper to produce a mid-size SUV with ordinary doors (Model Y) instead of falcon-wing doors (Model X) - but that lower production cost isn’t the result of a better factory process.
It’s worth noting that neither the S or X is any cheaper today than they were back in 2017. In fact, they’re a bit more expensive. If the main driver of lower production costs were batteries - rather than, say, producing different cars than they did in 2017 - you might expect that this would be reflected in the price of the only two vehicles that remained constant between the two time periods.
The key words in my quote are “mass produce” and “comparable”. Legacy companies at the moment cannot mass produce a Model3 equivalent and make a profit.
They first have to produce some equivalent of a Tesla gigafactory for at least their batteries, if not the entire car. That is why GM, Ford, and VW are in the process of building gigafactory equivalents. They recognize the production/supply advantages.
In 2022, the VW group sold 7.6M vehicles of which about 0.5M were BEVs. Given how the shortage allow VW to raise prices its not clear to me that the poor performance of their BEVs would be obvious on the financial statements.
They were only able to produce different cars because they were able to reduce the production of cost of making a BEV. Tesla deeply wanted to mass produce a profitable $40K BEV in 2017 but they couldn’t do it with the available production facilities. Now they can with their gigafactories that provide an improve manufacturing process. VW wants to make a profitable $40K BEV. That is why it is building its own version of a gigafactory. Good luck to them.
VW sold 572K BEV’s in 2022. They’re mass-producing BEV’s. That’s bigger than Tesla was in 2020 (when Tesla"only" produced 500K BEV’s). They’re now only about 20 months behind Tesla in terms of sales volume. To say nothing of the fact that they produced a bunch of other EV’s as well.
It was closer to 0.6M. If 7% of your vehicles go from making a gross profit in line with company averages to actually losing money, that will cause a big hit to profits. A hit that other companies that weren’t producing money-losing BEV’s (like Toyota) wouldn’t experience. Yet we don’t see that with VW - they had the same consistency in their profits as other major automakers, even during the “weird” 2022. They didn’t show signs of carrying a massive shift from profitable to unprofitable cars.
True, but it doesn’t at all support your point. BMW is only able to make the 3-series because they are able to produce it at a lower price point than the 7-series. That doesn’t mean that the way they were able to reduce the production cost of making a BMW sedan was through having better 3-Series factories than the 7-Series factories. It just means that they designed a cheaper car.
The Model Y is cheaper to produce than the Model X was in 2017. Is that because the Gigafactories are vastly more efficient? Or is it because the Model Y is smaller, doesn’t have falcon doors, has smaller batteries (the Y only has 75 kwh, while the 2017 X ranged from 75 to 100), etc.? If Tesla’s improved the efficiency of its battery production by so much, why is the Model X still so expensive?
Every ICE automaker has huge price differences between their larger offerings and their entry-level offerings. If BMW shifted from only producing 7-series to only producing 3-series cars, or Mercedes shifted from only producing S-Class to only producing C-Class cars, their production costs would also be slashed - and probably by more than half as well. But no-one would think that was because they had developed some hitherto-unutilized manufacturing efficiency - it would be obvious that the reduction in production costs was because they switched to making different cars.
What do you think production time is?
The comment from VW CEO Diess was about the labor time to make a car. I’m assuming this is the assembly line time and not the cumulative time to make batteries, motors, seats and all the other components, etc. He said (paraphrasing) Tesla = 10 hrs and VW = 30 hours.
We know this isn’t the wall clock time a car takes from start to finish on the assembly line because another link I posted reported this, long ago, at the Fremont factory as 90 minutes.
If this isn’t a major factor contributing to why Tesla’s margins are the best in the industry I don’t know what it could be. Isn’t fewer labor hours per unit the definition of better efficiency?
No - it’s the definition of the productivity of labor.
“Efficiency” is a general terms, and can refer to the effectiveness of a manufacturing process in terms of any input. A process can be more efficient if it uses less time, less space, less energy, fewer worker hours, fewer input resources - what have you. Or if it generates fewer negative outputs - a process that generates less waste or less pollution is more efficient as well.
In talking about *margins, the relevant efficiency is cost efficiency. Increasing mechanization can, of course, result in greater cost efficiencies alongside of worker productivity gains - but not necessarily. Because at some point, the marginal cost of increased mechanization will exceed the marginal savings from the reduced labor costs. If you go past that point, you’re actually costing yourself money even as worker productivity rises. Hi again, Fluffbot!
So while it’s certainly possible - if not likely - that having fewer worker hours per car would correlate to some cost efficiency, it’s not at all clear that those cost savings are especially significant contributors to Tesla’s profit margins. At least, perhaps not in the same way as a selling them a $15,000 software package is……
I haven’t watched the entire thing, but some of the parts I heard while driving mentioned how the plant operations, car designers, and process engineers all work together to further efficiency. I think I even heard something to the effect of “the factory and the car are designed together FOR each other”.
You keep saying this but ignore the fact that the VW group in 2022 sold about 600,000 fewer vehicles than in the previous year. Don’t you think the compensating factors that allowed VW to weather a 7% reduction in sales and still post normal levels of profits and margins can also hide the much more minor impact of 0 profit from their BEVs?
Is this a serious question? The 2023 Model X is a far better car than the original 2015 version, yet both have about the same base price. Let’s look at the defining feature of BEVs, range. The 2015 Model X had a 250 mile range compared to 350 miles in the 2023 version. That’s a big increase in range at no additional cost.
In 2018 the cheapest Model X (75D) listed for $85K and had a 235 mile range. The base 2023 Model Y has a 330 mile range for $56K. The Model Y is a better BEV than the 2018 ModelX 75D and is about $30K cheaper. That is made possible by the decline in production costs that occurred in just the past five years.
The investor day presentation was amazing. And it was mostly about how Tesla has been achieving otherworldly efficiency. At one point they state that the 2023 Model 3 production cost is 30% less than the 2018 Model 3 production cost.
Tesla’s stellar margins obviously come mostly from reduced costs. Despite the disingenuous arguments of the reality deniers.
Watch the presentation. Here’s head of Tesla Investor Relations Martin Viecha’s summary:
Tesla hopes to reduce production cost by 50%. This statement is most intriguing:
“With no stamping needed or paint for the panels, the manufacturing footprint to build the Cybertruck is smaller, Tesla said.” There is also mention of “casting.”
If you have been through an auto assembly plant, you know that much of the space is taken up by metal stamping machines, robots that weld it together, large baths to clean the metal, then primer tanks, robots that spray paint it, often twice, and often twice through ovens to cure the paint. This is the largest section of the plant and rarely seen by visitors. You see only the assembly line where parts are added to the body.
If Musk can eliminate this department he can indeed reduce much of the cost of manufacture. But how will he do that? Stainless steel body? Like Delorean? Or plastic body in the style of Corvette? Molded in the correct color with perfection not to require painting.
If you visit an appliance assembly plant (as I have) they will tell you the paint department causes the most trouble. If the line stops, items stuck in the oven too long can over bake and discolor. Paint is smelly and its the dirtiest and least popular job in the plant. So they have gone to coil coating where the metal is painted before cutting and bending. Notice those white plastic connectors on the corners of your refrigerator. Or why do you suppose stainless steel appliances are so popular?
Tesla seems to have big plans for new autobody technology. Stay tuned.
That is correct. If I’m not mistaken that’s part of the Agile philosophy, get a small team together to solve problems. You can’t be agile if you have to work with suppliers miles away that work at different time scales. At another point they said that Tesla engineers are embedded at suppliers to make sure they are operating at the same level, in other words, exporting the Agile philosophy up the supply chain.
I watched the whole presentation. At the same time both very interesting and disappointing.
Interesting in that it highlighted Tesla’s management style. After being in ‘management’ in one form or another during most of my career, I can say with confidence I have never seen anything even approaching Tesla’s management efficiency, a term one does not hear because management seldom is efficient. There is too much ladder climbing, CYA job retention, empire building, and other impediments to efficiency. It takes an extraordinary personality to overcome these human foibles.
Disappointing because they did not give any details about the Next Generation Platform except to hint that it will be a mass market car. By a curious coincidence the ‘last’ question during the Q&A was about the $25K model. Musk declined to answer. Here is the Q & Non-A:
Mr. Market was also disappointed, TSLA down 5.3% pre market.
“the factory and the car are designed together FOR each other”.
Mark’s quote is very interesting. I do believe that the timing of the Mexico GigaFactory announcement was no coincidence. Build a new factory designed the new way to build the new generation EV in the North American low cost country to take advantage of the IRA EV handout through 2032.
The Captain
would not like to be a bird when Elon is throwing stones! LOL
While it is entirely true, that management is often an impediment, unless we are inside Tesla, we can’t know for sure how things operate. I suspect it is likely, but not necessarily true across the board.
I agree with this completely. This is the big disappointment. The only thing we can hope for is that Elon wants to have a “surprise” at some point and simply place the new “model 2” or whatever on their website for ordering. Or have a surprise announcement of some sort at a future venue. Or just drive 100 of them out of the factory with media videoing the whole spectacle.
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