The Model 3 May Be A Mess, But Don’t Short Tesla Yet – Tesla Motors (NASDAQ:TSLA)

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The Niedermeyer Blockbuster

Tesla’s (NASDAQ:TSLA) rollout of the Model 3 appears to be in trouble. The latest evidence comes in a blockbuster article published yesterday by Edward Niedermeyer at the Daily Kanban.

According to Niedermeyer’s story, Tesla’s Model 3 body line is still not complete and, indeed, is not even at its Fremont, California, factory. Rather, a Michigan-based supplier called Thai Summit America is developing a pilot body panel line for Tesla which, if all goes well, will be shipped to Fremont at some point in 2018 or early 2019.

Niedermeyer notes his story is consistent with a September 19, 2017 news report in a Thai language newspaper, to which he links and from which he quotes.

Before publishing his story, Niedermeyer invited Tesla to comment on it and gave them 24 hours to do so. Tesla declined to do so and, as of the time I am submitting this article for publication (Friday morning), still has not done so.

Niedermeyer believes that, for now, Tesla is most likely hand building Model 3 cars using prototype tooling. According to an auto analyst whom Niedermeyer consulted, the typical rate of production for hand-built vehicles is about 5-8 per day, or between 150 and 250 units per month. A number, obviously, that’s consistent with Tesla’s Q3 deliveries.

I have not independently attempted to verify the matters reported by Niedermeyer. I will be interested to learn whether Tesla responds either to the Niedermeyer article or to any other reporters who may inquire about it.

However, for the record, I regard the work done by Niedermeyer, most recently and over the past several years, as superb. It is true investigative journalism of the type very seldom seen any longer. Niedermeyer’s reporting is fact-dense, and when writing about Tesla, he always invites, welcomes, and publishes Tesla comment.

A Second Article: The Sales Tax Exemption Representation

In another article published two days before the blockbuster, Niedermeyer described how Tesla’s application for a California sales tax exemption, made last January, included Tesla’s representation that it would have the “capacity” to produce 226,563 Model 3 units over a five-year period.

That number, of course, is far lower than the number Tesla has furnished to the investing public.

Let’s recall that during the Q2 2017 conference call, Musk said Tesla was on course to produce 5,000 Model 3 cars by the end of this year (which works out to 250,000 Model 3 cars per year, allowing for two weeks of down time). And, he said this:

But what people should absolutely have zero concern about is that Tesla will achieve a 10,000 unit production week by the end of next year.

Also, the most recent Annual Report stated:

We plan to build 500,000 vehicles in 2018.

How is one to reconcile, on the one hand, Tesla’s SEC filings and Musk’s claim to the analysts and investors with, on the other hand, Tesla’s representation to the California taxing authorities?

Once again, Niedermeyer invited Tesla to comment on the story and, once again, Tesla declined.

Anyone wishing to criticize Niedermeyer, his articles, or the Daily Kanban in the comments section here is welcome to. However, the commenter might also explain why Tesla is being so tight-lipped about this matter when it could easily announce that the story is false.

The Equinox Example

What’s increasingly obvious is that “production” of the Model 3 did not truly begin in July of 2017, when Tesla celebrated the commencement of production with a highly publicized celebration at which it handed over the first 30 Model 3 cars.

At least not in the way “production” is typically understood in the auto industry, which is volume production from a complete and fully-tested production line.

Once again, CoverDrive, commenting on a highly amusing blog post from Illuminati Investments (you can read it here), nails it:

Good stuff, Illuminati.

This S-shaped exponential ramp-up is beyond ludicrous. Consider how everyone else launches a new product.

The Chevy Equinox is a good example. Like the Model 3, the Equinox line is designed to build about 5,000 per wk. Like the Model 3, the Equinox is vital to the business of the company.

Both are new from the ground up, with new chassis and new powertrains. Here’s what the Equinox monthly sales looks like this year:

Jan 17,574
Feb 22,464
Mar 22,671
Apr 20,655
May 20,908
Jun 29,172
Jul 23,524
Aug 28,245
Sep 27,512

Can you pick out where the line was shut down for two weeks, new tooling installed, robots reprogrammed, and workers retrained? Can you pick out where the “S-shaped exponential ramp-up” occurs?

It happened in May. So where is the six months of manufacturing hell? Apparently, GM decided to omit that step. It seems more prudent than omitting Beta testing.

(from Chevrolet.com)

And finally, can you pick out who in this story is the Novice and who is the Master? Disruptive, indeed!

Why It Matters

The slow rollout of the Model 3 matters in several important ways.

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