Get Ready for the Next Surge in Tesla Motors Inc.'s Production

Source:  Tesla Motors

China is causing problems for Tesla (NASDAQ: TSLA  ) . By problems I mean the good kind of problems that just about any business would love to have. Virtually every car that Tesla produces is sold before it's even off the production line, and the upsurge in orders from China is doing nothing to alleviate this most welcomed shortfall. Tesla needs to jump-start its production -- and that's what it plans to do next month.

Questions answered
Going into Tesla's last earnings report and conference call, investors were looking for updates on production and demand. Some were concerned that the waiting list in the United States was merely a function of deliveries being siphoned off to China, and that the reality was that demand was already starting to cool off. Along that same theme, fans and critics wanted to hear if there was any update regarding advertising and its implications.

The earnings report and conference call reiterated Tesla's prior target of producing 1,000 vehicles per week on average by the end of the year. During the February call, CEO Elon Musk said that a "new final assembly line" would be completed by the end of the third quarter and that would push production over the top. I wondered, going into the most recent call, if that target time frame was still on schedule.

Musk stated, "We have a much more efficient production line that's going to come online in July, which has more automation and it's just set up in a better way and that's making the car with greater labor efficiency is the biggest single improvement." July is certainly better than the end of the third quarter. Perhaps the 1,000 cars per week mark will be coming early and Tesla will raise its full-year 2014 production guidance? 

But what about demand?
Jeffrey B. Straubel, Chief Technology Officer of Tesla, said in the May conference call, "The orders in North America were up 10%, not deliveries." This is an important distinction because there are many variables involved as to why deliveries may be up or down in North America in any particular period, but there is only one reason why orders would be up 10%, and that's increased demand.

During that call, Musk said:

In our case sales means deliveries. It's our measure of demand, it's a measure of how many cars we're actually able to get to customers. ... Deliveries and demand are not the same thing for Tesla. They are for other car companies but not Tesla.

For China, after much speculation and uncertainty, it's the same thing. Musk stated that the biggest issue the customers in China are having is that they are unhappy that they aren't getting their cars soon enough. The wait time, in some cases, is four to five months. In some cities Tesla is purposely delaying the deliveries as it builds out the Supercharger network.

If there is any doubt about how robust the demand is in China, Musk summed it up nicely: "I think we'll actually have to limit the amount of cars we send to China; otherwise it would starve the rest of the world production." In other words, the single country of China alone has enough eager customers that could likely buy up all of Tesla's production.

That's a lot of lithium needed for Tesla's lithium-ion batteries, no? Well not really. At least not as much as you may think. According to Brian Jaskula, a lithium specialist with the United States Geological Survey, lithium is only between 2%-3% of the content of a battery. Don't let the name of the battery fool you.

Foolish takeaway
While I'm still not crazy about the valuation of the stock behind the fantastic company that is Tesla, the company itself continually surprises and impresses in so many ways. I would not bet against Musk and his team, especially not now. When production gets a new boost next month, it's sure to stir up some excitement. It should be clear by now that all of Tesla's vehicles born this year will quickly find loving homes. It will be interesting to hear what new targets and plans Tesla has in store.

Even if you can afford a car from Tesla, you can't afford to miss this
"Made in China" -- an all too familiar phrase. But not for much longer: There's a radical new technology out there, one that's already being employed by the U.S. Air Force, BMW and even Nike. Respected publications like The Economist have compared this disruptive invention to the steam engine and the printing press; Business Insider calls it "the next trillion dollar industry." Watch The Motley Fool's shocking video presentation to learn about the next great wave of technological innovation, one that will bring an end to "Made In China" for good. Click here!

Read/Post Comments (4) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 25, 2014, at 1:09 PM, EquityBull wrote:

    Once enough are in the channel and demand subsides there is going to be a massive repricing of tesla stock. Be fearful when others are greedy

  • Report this Comment On June 25, 2014, at 2:16 PM, djplong wrote:

    I think the whole point of the article is that demand is going to continue to outstrip supply. There's the Model X coming out early next year which already has order slated for Fall *2015* delivery, there are so many in the queue. Two years after that, there's the Gen III car at $35,000 before tax breaks and that will open up a HUGE pool of prospective buyers (myself included).

  • Report this Comment On June 25, 2014, at 2:23 PM, drax7 wrote:

    Be fearful but not stupid to the guy before.

  • Report this Comment On June 25, 2014, at 4:49 PM, NCIC wrote:

    @EquityBull, so there is now way to increase demand??? Such as maybe, they could actually try advertising their vehicles??? My guess is less than 70% of the potential customers of Tesla still haven't even heard of them!

    What happens to demand if you run a 60 second spot during the Superbowl with Angelina Jolie charging her Model S in the safety of her garage??

    BTW, I've already paid for my Model S with the gains from my stock. This is definitely a long-term stock.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2994612, ~/Articles/ArticleHandler.aspx, 9/2/2015 1:22:15 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Nickey Friedman

Nickey is a select freelancer for the Fool. She writes about food & beverage, dry bulk shipping, and whatever else floats her boat. After selling four successful restaurants, she turned in her knives for a pen and now puts her passion for food, hospitality, and transportation in writing. You can send email to her at

Today's Market

updated Moments ago Sponsored by:
DOW 16,251.20 192.85 1.20%
S&P 500 1,933.58 19.73 1.03%
NASD 4,695.08 58.97 1.27%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/2/2015 1:04 PM
TSLA $243.12 Up +4.49 +1.88%
Tesla Motors CAPS Rating: **