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Tesla Motors, Inc. CEO Elon Musk Talks Model 3 and Gigafactory

By Daniel Sparks - May 12, 2016 at 10:58AM

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Check out this new commentary on Model 3 production, supplier motivation, and Tesla's Gigafatory.

Electric-car maker Tesla Motors' (TSLA -0.57%) most recent quarterly earnings release was arguably its most interesting in history. Committing to double down on its production goals, there was a lot of information and commentary to digest. Tesla's earnings call, in particular, provided a useful window into management's ambitious plans.

Here are the most interesting quotes by Tesla CEO Elon Musk from the earnings call last week. 

Elon Musk. Image source: Tesla Motors.

Don't liken Model 3 production to Model X

The main reason Tesla decided to double down on its production goal was because of the enormous demand for its Model 3, or Tesla's most affordable electric car yet, scheduled for first deliveries to begin in late 2017. But it's tough for investors to take Tesla seriously in light of the company's product development and production issues with its Model X SUV -- issues which have persisted even into the first quarter.

Musk, however, says this is the wrong way to think about the Model 3 development and production ramp up.

It's always tempting for people to reason by analogy instead of first principles, and that would be a mistake: assuming that anything to do with X production has bearing on Model III. They are very different programs with fully different approaches. So, I would not try to extrapolate from that any more than it would have made sense to extrapolate from the Roadster when we were making 600 cars a year to 20,000 cars per year with Model S.

In the Roadster case, we went from making 600 cars per year in 2010, where Lotus made the body and chassis, we made the powertrain and we did final assembly, and it was a far simpler car than the Model S. We told people we were going get to a run rate of 20,000 cars a year with the Model S, despite it being a vastly more complicated car, and a car where we make the whole car -- not just the powertrain. If you were to extrapolate from the Roadster experience you would be completely wrong about the Model S outcome. And many people were. That's why I would say X is not relevant.

The Model 3, Tesla management explained during the call, was designed from the ground up for ease of manufacturing. Musk believes this emphasis on simplicity with the Model 3 will help the company ramp-up production at an unprecedented pace.

Model 3. Image source: Tesla Motors.

Suppliers are highly motivated

Tesla says suppliers are bending over backward to be a part of the Model 3 production program.

"Every supplier wants to be in this program," Musk said.

Suppliers' motivation to work with Tesla is illustrated in the level of oversight they are giving Musk personally.

I'm meeting personally with the team from that supplier who is going to execute on the task, so that I have not just the commitment of the CEO, or general manager of that supplier -- but the actual team that will execute on the product. And we want to confirm that we feel confident in the actual team. And, basically, we're asking for the A team from the A supplier, and a commitment from that A team -- that they work harder than they ever have on any other program.

Along the way, we will be assessing progress, and our confidence level that suppliers will meet the July 1 target, [or the date Tesla has deemed the deadline to finish the production version of Model 3]. If it looks like they will not, we will have a conversation with them. If our comfort level drops below a certain level, they will not be a supplier to Tesla.

Tesla's Gigafactory advantage

Tesla continues to view its Gigafactory, along with its growing sales of batteries for its vehicles and its energy storage products, as a competitive advantage.

Rendering of a complete version of Tesla's Gigafactory, which is currently under construction. Image source: Tesla Motors.

I think it's pretty obvious we will exceed anyone else in the world in scale economies with the Gigafactory. And we're very confident in Panasonic's ability to execute on that front. I just don't know anyone who, in terms of intrinsic costs, is going to be close to what the Gigafactory can produce on a cost per kilowatt hour basis.

The entire earnings call was packed with useful information. Other topics in the call include a look at how Musk relocates his desk to whatever area he deems to be a bottleneck for business, Model X production progress, a teaser on Model 3's battery, and much more. Investors can find a copy of the earnings call at the Investor Relations portion of Tesla's website.

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