How important the Shanghai plant is to Tesla from the point of capacity curve

In its third-quarter results, electric car maker Tesla disclosed that its Super factory in Shanghai had begun trial production of the Model 3, although it did not disclose a specific trial date, but Tesla said it was earlier than expected. The Shanghai Super Plant began trial production of model 3, which means that after ten months of construction, the plant is ready for production in Shanghai, ready for production, waiting for production.

从产能曲线看上海工厂对特斯拉有多重要

From ground breaking to trial production, Tesla’s Shanghai super plant in the Port-bound industrial zone has not really taken long. Construction of the plant officially began on January 7 this year, when Tesla CEO Elon Musk personally attended the opening ceremony. Less than 3 months after the ground breaking, the pile foundation construction was successfully completed, and the construction of the plant steel structure began. The relevant production equipment began to enter the plant in the second quarter, in preparation for the first phase of mass production. In mid-October, the first line of the 220 kV power supporting project, which supplies electricity to the plant’s production and operation, was officially delivered, and the construction of the plant entered a sprint phase.

从产能曲线看上海工厂对特斯拉有多重要

Tesla’s Shanghai Super plant opening ceremony

Tesla’s Shanghai Super Plant is the largest foreign-funded manufacturing project in Shanghai to date, with an estimated total investment of about 50 billion yuan and an annual production capacity of 250,000 pure electric vehicles, all of which will have an annual production capacity of 500,000 vehicles.

Before the Shanghai Superplant was built, Tesla’s global assembly plant, only in Fremont, California, was the one where Tesla is selling electric cars such as the Model 3 and Model S.

As Tesla’s second vehicle assembly plant in the world and its first superplant outside the U.S., the Shanghai Super plant is of self-evident importance to Tesla, and in terms of capacity, the plant has a significant impact on Tesla in many ways.

Tesla Electric Vehicle Capacity Features and Status

From the start of production and delivery of the Model S in the second quarter of 2012 (Tesla’s first electric car was the Roadster, an electric sports car introduced in 2008, but production was low, not considered), and by the end of the third quarter, Tesla had 27 quarters of mass production of electric vehicles, in those 27 quarters, Tesla has increased its production of electric vehicles to three, and its quarterly production has increased to nearly 100,000.

从产能曲线看上海工厂对特斯拉有多重要

Tesla Electric Vehicle Capacity Curve

Based on the capacity graph from the data released by Tesla (Tesla did not disclose production in the first quarter of 2016 and previous quarters, only delivery, and data in the capacity curve was temporarily replaced by delivery), in the 27 quarters since Model S began production. Tesla’s electric vehicle capacity presents two very obvious features.

The first feature is that capacity is generally on the rise, but in some quarters production has declined month-on-month.

Tesla began mass production and delivery of model S in the second quarter of 2012, delivering 321 vehicles in the third quarter of that year, increasing to 2,400 in the fourth quarter, increasing to 6,892 in the fourth quarter of 2013, and more than 10,000 units in the fourth quarter of 2014, reaching 11,627. Delivery increased to 17,400 units in the fourth quarter of 2015, compared with 24,882 units in the fourth quarter of 2016, exceeding 80,000 units for the first time in the fourth quarter of 2018, and to 96,155 units in the third quarter of this year.

While Production capacity for Tesla’s electric vehicles is on the rise overall, it has also fallen in some quarters. From the second quarter of 2012 to the third quarter of this year, Tesla’s electric vehicle production was significantly higher year-on-year, but declined in five quarters, although in addition to the decline of more than 9,000 vehicles in the fourth quarter of this year, the decline in production in the other four quarters was not obvious year-on-year.

Second feature slower growth rate after new car production increases significantly

Starting with the Model S in 2012, Tesla has followed two more new cars, the Model X in the third quarter of 2013 and the Model 3 in the third quarter of 2017.

In terms of capacity, tesla’s production of electric cars will increase in the quarters after each new model goes into production, as production of new models increases, as well as in the quarters following Tesla’s current three electric vehicles, even if the Model 3 experienced an initial production bottleneck. Production fell short of expectations for the third consecutive quarter and the weekly production target of 5,000 vehicles was delayed twice, but production of the model is still steadily rising and Tesla electric car production has increased in those four quarters.

But as the production time increases, the increase in capacity of each electric vehicle will slow, and the overall capacity growth of Tesla’s electric vehicles will slow. Just two quarters after Model S went into production, its capacity growth began to slow. Model X’s addition, in addition to slowing production capacity growth, has been hovering around 25,000 tesla electric vehicles in the third quarter of 2016 and the third quarter of 2017, with production declining in the fourth quarter of 2016. Model 3 production has been nine quarters, and after five consecutive quarters of rapid growth in the initial production, production growth began to slow in the fourth quarter of last year.

The Importance of Shanghai Superfactory to Tesla

After analyzing the production characteristics of Tesla’s electric vehicles based on the capacity curve, combined with the production goals of Tesla’s Shanghai Super plant and Tesla’s positioning of the Chinese market, we can see the importance of the Shanghai Super plant to Tesla.

One is to drive capacity increases to achieve greater delivery targets. Before the Shanghai superplant went into production, Tesla had only one assembly plant in Fremont, California, and its capacity alone, producing 254,500 electric vehicles of all models last year, delivering 244,900 to users. This year Tesla aims to deliver between 360,000 and 400,000 electric vehicles, with 260,000 units in production and 255,200 delivered in the first three quarters, with full-year delivery targets almost complete.

On January 7th construction at the Shanghai Superplant began, Tesla said its plan was to produce about 3,000 Model 3s a week during the initial phase of the plant, with annual production expected to climb to 500,000 electric vehicles when fully operational, meaning that both plants will be produced at the same time after the Shanghai plant is put into operation. Tesla will have more capacity to produce more electric cars and meet its higher delivery targets, and tesla’s delivery target for next year is likely to be significantly increased from this year’s level.

The second is to ease the pressure on the Model 3 capacity of the California plant. The Model 3 is currently Tesla’s lowest-priced model, but it is also the largest and most sold model, with a significant increase in production capacity in the second half of last year, and has accounted for 80% of Tesla’s total electric vehicle production since the first quarter of this year. Delivery in the Chinese and European markets began at the beginning of the year, but delivery was limited.

In its third-quarter results, Tesla said China is currently the world’s largest market for midsize luxury cars, and that the Model 3 is currently priced at the same price as medium-fuel luxury cars, and has a bigger advantage in terms of operating costs, which they believe China will be the model 3’s largest market.

从产能曲线看上海工厂对特斯拉有多重要

Tesla Model 3 Production

But now that the current capacity growth rate at Tesla’s Fremont, California, plant has begun to slow, there is a tendency to push the limit, if the Chinese market sales of model 3, also all produced in California, the Long-term production capacity pressure of the Fremont plant will face greater capacity pressure. But the pressure on the Capacity of the Fremont plant’s Model 3 will ease after the Shanghai Super plant starts production and starts production of the Model 3.

The third is to create the conditions for new cars to start production in California. In addition to the model 3, Model S and Model X, which are currently mass-produced, Tesla now has two very important electric vehicles awaiting mass production: the Electric Truck Semi, launched in November 2017, and the model Y, a cross-border sport utility vehicle launched in March. The former was scheduled to start production this year and then postponed until 2020, with Model Y announcing at the launch that mass production would begin by the end of next year.

But with only one assembly plant in California, Model Y and electric truck Semi face a lot of difficulty because of the limited space available at the Fremont, California, plant, and Tesla’s difficulty making enough space for new car lines. At the end of May, employees revealed that Tesla was making adjustments to its Fremont plant, integrating the Model S and Model X production lines, which make up a lot of space in the plant, into one production line to make room for the Model Y production line, suggesting that Tesla’s California plant is not full of space. Joining a new production line requires adjustments to the original production line. In addition, Tesla, a U.S.-based electric car manufacturer, will naturally prioritize production in the U.S., which can only be in Fremont, California, if there are no other vehicle assembly plants to choose from.

The Shanghai Super plant, which is planned to produce model 3 and future models, starts with Tesla’s most demanded, largest production and most capacity pressure Model 3, which will ease capacity at the California plant and facilitate Tesla’s adjustment of the plant so that new models can be put into production. In the short term, the Model Y and the electric truck Semi will be more models in the future as Tesla develops.

At last

Tesla’s super plant in Shanghai is important to Tesla not just in terms of increasing capacity for electric vehicles. The increase in production, which in turn will boost financial metrics such as revenue and net profit, could also boost share prices and market value, with Musk’s $78 billion 10-year compensation package, which was approved last March, tied to market capitalization, revenue and profits, expected in part to be boosted by the plant.

In addition, the Shanghai Superplant has many benefits in terms of cost reduction, financing and even sales, such as in financing, as Tesla China disclosed in a filing with the Securities and Exchange Commission earlier this month. The agreement includes unsecured 12-month revolving loans of up to Rmb5bn. In addition, Shanghai as one of China’s important automobile base, is the location of SAIC, including SAIC-Volkswagen (Anting Automobile Factory, Two Plants and Three Factories) in a number of automobile manufacturers, there are a large number of skilled automotive production workers, supporting industries are also relatively mature, conducive to the smooth production of automobiles.

Of course, for Tesla to become the world’s top car maker, more electric car models will need to be introduced, and the pressure on capacity will not be eased by a superfactory in Shanghai, and more will be needed.

Tesla also has plans to build more superfactors, and at its 2018 annual general meeting, Musk revealed that Tesla plans to eventually build 10 to 12 superplants around the world, with one confirmed in China and Europe, and that Tesla’s next superplant will be Europe if shanghai is finalized. In its third-quarter results, Tesla also revealed that the European Super plant is in its final stages and that it will be announced soon and ready for production in 2021, with initial plans to produce model 3 and Model Y.

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