http://business.financialpost.com/news/transportation/wall-street-tours-tesla-factory-and-loves-what-it-sees-as-company-poised-to-release-its-first-mass-market-car Wall Street tours Tesla factory — and loves what it sees — as company poised to release its first mass-market car March 14, 2016 Tom Randall
[image http://wpmedia.business.financialpost.com/2016/03/model-x.png?w=620&h=465 ] Wall Street analysts have been touring Tesla’s massive factory in Fremont, Calif., and they’re returning with the same conclusion: Elon Musk’s electric-vehicle company is getting ready for something big. In a sign of this enthusiasm, Robert W. Baird & Co. upgraded its Tesla rating on Monday morning following a factory tour. Tesla spent some US$1.6 billion on major upgrades last year as it prepares to launch its first attempt at a mass-market car — the Model 3 — on March 31. The transformation is striking, according to auto analysts at Stifel Financial Corp, Credit Suisse Group AG, and Baird. The firms are telling investors that Tesla is learning from the mistakes that delayed its previous launches and is on track to make the shift from producing tens of thousands of US$80,000 cars to hundreds of thousands of US$35,000 cars — assuming the Model 3 proves a success with drivers. Related PDAC 2016: How lithium has become a rare winner amid the commodity slaughter Tesla Motors Inc posts 11th straight quarterly loss, but expects to become profitable in 2016 Peter Tertzakian: Will electric cars unplug oil prices? Here are some of the changes the analysts witnessed on Teslas factory floor and in discussions with Tesla’s new chief financial officer, Jason Wheeler. ‘Stunning progress’ Last week, Stifel analysts returned from their fourth visit in four years to Tesla’s flagship factory in Fremont. “In roughly one year since our last visit,” wrote analyst James Albertine, “the progress witnessed is truly stunning.” Tesla shares have jumped 45 per cent in the last month as Musk, the chief executive, sought to reassure investors that the company is still on track after the challenging and much-delayed launch of the Model X luxury SUV. New aluminum stamping press Stifel and Credit Suisse both noted Tesla’s new aluminum stamping press, which Credit Suisse’s Galves says has 10 to 20 times the output of Tesla’s older machine. The bodies of the Model S and Model X are both made of aluminum, which costs twice as much as steel but weighs less. Tesla hasn’t yet disclosed the composition of the Model 3. Keeping the weight down on electric vehicles helps achieve the maximum range from the battery, but maintaining a balance between cost and performance is crucial for a mass-market plug-in car. Paint shop Tesla has built a new state-of-the-art paint shop that’s capable of scaling up to 500,000 cars a year. That happens to be Tesla’s production forecast for 2020, a ten-fold increase from last year’s sales. If Tesla is to achieve that lofty goal, paint jobs won’t be a holdup. Faster assembly lines Tesla’s assembly lines are faster and more automated than those observed during a tour 18 months ago, according to Credit Suisse’s Galves. The body assembly line is now rated to produce about 175,000 cars a year, with final assembly capability of more than 100,000 cars. ‘Dimensional design studio’ This new area of the factory is a place where Tesla engineers can “stress test vehicle design features in a controlled environment on-site,” said Albertine. More Robots “Robotics systems are customized, production processes are revolutionary, and attention-to-detail/supply chain management is improving by the minute,” wrote Stifel’s Albertine. “We do not believe this production process is one competitors can easily recreate.” Tesla’s manufacturing skills will help the company reach its target of more than 25 per cent gross profit margins on the Model X, according to Baird’s Kallo. More humans Tesla expanded its workforce by 29 per cent last year, to 13,058, according to company filings. That’s up from fewer than 900 employees in 2010. The workers have been consolidated within the Fremont facility, with “several football-field sized areas spanning the entry to the facility with desks, computers and seemingly invigorated staff,” Albertine said. “There was an energy and buzz within the facility that is hard to imagine as an outsider.” Batteries Tesla is already shifting battery production work to its massive “gigafactory” under construction in Nevada. After the factory tour in Fremont, Baird’s Kallo came back convinced that battery costs are already just half of the industry average and are falling more quickly than most estimates. “This should allow Tesla to produce the Model 3 with healthy margins, and to invest in vehicle aesthetics and performance, placing it above competing vehicles,” he wrote in a note to investors on March 14. He upgraded his rating on the stock to “outperform” and raised his price target to US$300. The stock rose 3.8 per cent today to US$215.47 on Monday morning. Harold Cunningham/Getty Images A Tesla Model X is displayed during the Geneva Motor Show 2016 on March 1, 2016. Harold Cunningham/Getty Images A Tesla Model X is displayed during the Geneva Motor Show 2016 on March 1, 2016. Lessons From the Model X Tesla’s luxury SUV, the Model X, has seen long delays and a slow roll-out due to several engineering choices, including complex vertically opening “falcon wing” doors, mono-post rear seats, and the largest piece of windshield glass in the industry. All three analysts noted seeing the Model X in production lines, but still at a relatively slow rate compared with the Model S. Albertine counted roughly five or six Model S sedans in production for every Model X. Wheeler, Tesla’s new CFO, assured the analysts that lessons had been learned. It appears, wrote Galves, that the engineers at Telsa led the planning meetings for the Model X, with insufficient input from the financing, manufacturing, and purchasing departments. Now those groups appear to have an equal voice. “Model 3 launch timing and ease of mass production is significantly more important than it was for the Model X,” Galves wrote. “On the Model 3, management indicated that there is a clear focus on ease of build, on-time launch, and cost.” Tesla’s capital expenditures figure from 2015 includes work on its battery factory in Nevada and its rapidly expanding network of charging stations. It doesn’t include hundreds of millions in research and development, much of which is going toward the Model 3 ... 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