With Model 3, Tesla Will Approach Manufacturing In A New Way

That's two years ahead of the previous target of 2020. Since Tesla only plans to build and deliver 50,000 vehicles in the second half of 2016, the 2018 target represents a wee bit of an increase. And then there was Tesla CEO Elon Musk's almost off-hand comment during the call that Tesla could be making close to a million vehicles a year by 2020.

How does Tesla get from here to there in such a short time? We have some insight into an answer, since most of Musk's comments yesterday were focused on the company's future manufacturing efforts. To be fair, he was simply answering what many of the analysts were asking about. News had just broken about the departure of two manufacturing executives, and a month ago, Tesla issued a press release describing some of the manufacturing problems with the Model X.

They were due to "Tesla's hubris in adding far too much new technology to the Model X in version 1, insufficient supplier capability validation, and Tesla not having broad enough internal capability to manufacture the parts in-house." In yesterday's phone call, you could hear Musk trying to wrest the narrative back into a more positive direction, but only after admitting another problem with the Model X. Musk said it had a lot of bells and whistles that "were not necessary" for a first-gen vehicle. For the Model 3, those snazzy features are being stripped away, and the feedback loop with the suppliers is being tightened. Tesla engineers are already talking to suppliers about the building process. "This is fundamentally different from the S and X," he said. "The Model 3 is the first car that Tesla is creating to be easy to make."

That doesn't mean it will be a cake walk. Musk said he isn't relying on the word of supplier company executives and is personally meeting with teams at those companies that will be making parts for the Model 3. Musk said he wants the supplier employees to, "work harder than they ever have," and if they're not willing to do that, then Tesla won't work with that team. We think the Model X recall over seats supplied by Futuris are informing this approach to the Model 3.

"We take manufacturing very seriously at Tesla," Musk said. "Tesla is hell-bent on being the world's best manufacturer." As we noted yesterday, Musk has a desk and a sleeping bag on the factory floor in Fremont these days, keeping a constant eye on things. It wasn't until 3 am Friday, he said, that the team achieved its first "flawless" production of a Model X, which means one that did not need any second passes or fixes. They have since gotten "several in a row" like that, Musk said, so he may be able to stop sleeping there soon.

The 500,000-cars-a-year target was changed, Musk said, once Tesla realized just how strong demand was for the Model 3, with 325,000 deposits placed in the first week. Even with that high number, the current demand is just "a fraction" of what Musk expects to see once people understand what the car is capable of and start to take test drives. That's why Musk said Tesla will likely need to build plants in Europe and China, and maybe a second plant somewhere in North America. For a $35,000 car, it doesn't make a lot of sense to build it in one location and ship it everywhere when you could just build it in the locations where you sell it. Ever confident, Musk said that the far-out 2020 goal of a million vehicles a year could be achieved by using only the current Fremont location and an operational Gigafactory. "Whether that is wise is another question," he said.