clock menu more-arrow no yes mobile

Filed under:

Tesla faces a critical year, but Elon Musk is obsessed with the future

New, 30 comments

On the company’s first earnings call of 2018, the CEO mostly focused on the horizon

Photo: Tesla

Elon Musk was upbeat during a Wednesday conference call about Tesla’s financial performance in 2017, a roller-coaster year in which the company lost over $2 billion but also launched the Model 3 and revealed a Semi truck and new Roadster. Musk was obviously buoyed by the success of the first ever flight of the Falcon Heavy rocket, which happened just over 24 hours before the call. The billionaire CEO even received congratulations from financial analysts participating in the call, with one participant calling the synchronized rocket booster landing the “sickest thing” he’s ever seen in his life.

From the onset, the mood contrasted the dour November earnings call. Musk took that call from the Gigafactory, the site of the Model 3’s current production Achilles’ heel. His tone was, at times, combative, as he told analysts to “consider your assumptions for the future and whether they’re valid or perhaps pessimistic.” He also shamed journalists for reporting on claims of racial discrimination, anti-union behavior, poor workplace safety, and sexual harassment, which allegedly took place inside Tesla’s factories.

But Tesla is a study in highs and lows. In contrast, for the first call of 2018, he was effusive, and returned to making bold predictions: Tesla might produce 100,000 of its all-electric semi trucks per year in just four years, and the big rig may even exceed the technical specs already shared; Tesla will manufacture 1 million vehicles per year by 2020; Tesla may produce the upcoming Model Y crossover SUV for half the cost of its Model 3 program.

The few projections Musk made about the year ahead were less bold and reinforced modest goals that were set in late 2017, after the Model 3 delays were known. He restated intentions for the company to make 2,500 Model 3s per week by the end of March, and 5,000 per week by the end of the second quarter. According to the claim Musk made in July 2017, Tesla was supposed to hit these numbers by December. But the “production hell” that Musk warned of at last July’s production Model 3 unveiling wound up being worse than the CEO publicly anticipated.

“We were in a deeper level of hell than we expected, a few levels deeper than we’d like to be. But [we’re] swiftly exiting, I think,” Musk said on the call. “If we can send a Roadster to the asteroid belt we can probably solve Model 3 production,” he joked a little later. (Overnight, it was discovered that the Tesla Roadster that Musk sent to space aboard the Falcon Heavy is not actually heading to the asteroid belt.)

Believing the company is escaping that hell, Musk took a moment to thank Tesla employees, who he said should “be very proud of the work they’ve done.” He also thanked Tesla’s suppliers. He said they have “shared the very difficult struggle we’ve had in ramping up production” of the Model 3. “They’ve really burned the midnight oil, spent weekends and taken a lot of risks and suffered alongside us in the challenges associated with the ramp,” Musk said.

Musk thanked Model 3 reservation holders, too, for their patience. “You’re going to love your cars, and we’re working to get them to you as quickly as we possibly can,” he said.

Those reservation holders, especially those who have a $1,000 ticket for the cheapest, base-level Model 3 with the “standard” battery pack, are going to need that patience going forward. It was discovered after the call that customers who placed their reservations for the $35,000 version of the Model 3 on the first possible day (March 31st, 2016) will now have to wait until “late 2018” for their cars to be delivered. Others who placed their reservations after that March 31st date might have to wait until “early 2019.”

That this delay wasn’t mentioned on the conference call was emblematic of how the congratulatory atmosphere allowed key issues at Tesla to go undiscussed. When Musk did talk about what’s ahead in 2018 for Tesla, he still spoke in broad terms. For example, he said the company will finally attempt its coast-to-coast self-driving stunt in the next three to six months, and that it will roll out updates to its Autopilot software that he says should let customers do the same thing — though he made the same promise a year ago.

Musk did not address the company’s hope to open a dozen or more Gigafactories, something he spoke about a few times last summer. He didn’t once mention China, the world’s biggest market for cars, and a market that Tesla is actively trying to crack. Energy products like the Tesla Solar Roof and home battery were left out, too, though they were addressed in the corresponding letter that went out to shareholders. Musk instead kept his focus on the horizon, reassuring the analysts that Tesla expects good financial returns from its current car business in 2018. It’s “likely to be a very big year for us,” he said.

Renewed by what he believes is a turning point in the narrative of the Model 3, he also took time to criticize his competition. Companies that are attempting to make self-driving cars using LIDAR technology are painting themselves into a corner, he said, calling the technology a “crutch.” Beyond that, he said that while the car industry is “quite good at manufacturing,” the companies that make it up don’t realize how much better they can be.

“It sounds like some of the fastest car factories produce a car maybe every 25 seconds,” Musk said, before some impromptu math. “If you think of a 5-meter-long car, including gap, and a 4.5-meter car with a half-meter gap or something, that’s only 0.2 meters per second. Like, grandma with a walker can exceed the speed of the fastest production line we’re in, so really not that fast. Walking speed is one meter per second, so five times faster than the fastest production line on Earth... Why shouldn’t it at least be jogging speed?”

In the past, Musk has claimed that he wants Tesla’s factories to produce so fast that air friction becomes a problem to overcome, a point he reiterated on the Wednesday call. But Tesla is still a long ways from dealing with that problem, as it still isn’t operating at the pace he criticized his competitors for. It’s still trying to introduce more automation into the battery module lines at the Gigafactory, he said, and in the meantime it’s using semi-automatic (read: a mix of robots and humans) lines instead.

That bold goal — to create an assembly line so fast that air resistance is an obstacle — fits into Musk’s view that Tesla’s factories will be the company’s best chance of survival going forward. “The competitive strength of Tesla long-term is not going to be the car, it’s going to be the factory,” he said. “We’re going to productize the factory.”

That was the strategy of Henry Ford, Musk claimed on this week’s call. He argued Ford Motor Company’s dominance in the early 1900s wasn’t because of the Model T, rather it was attributable to the automaker’s River Rouge production facility. “Anybody could have made [the Model T], but not anyone could make River Rouge, and that’s really what will be Tesla’s long-term competitive advantage.”

What Musk failed to mention is that River Rouge, as well as Ford’s other famous plants, were built to those heights on the backs of workers who were often cajoled, harassed, and abused into making the factory operate as well as it did in those early days.

Tesla operates the only nonunion American-owned automotive factory in the country, and despite Musk’s shaming of the media late last year, the company is going to have to spend 2018 responding to reports and allegations of mistreatment by its own former workers. And it’s going to have to find a way to do that while increasing production, both at its vehicle assembly plant and at the Gigafactory, in order to meet its own ambitious goals. It’s no secret that there is value in Musk’s bold vision, but those two things will be hard to balance in 2018. And that crucial balance is the key to unlocking any of his big ideas that lie in wait for the company. Perhaps that’s why Musk spent most of yesterday’s call looking beyond the year ahead.