The Plant Problem

Near the end of 2020, Tesla announced plans to move production from California to Texas. For the Model 3 production line in California, Tesla had spent almost $4 billion for a production capacity of 250,000 Model 3s a year.

When Tesla built the Model 3 factory in Shanghai (China), it was reported that the setup cost for the company was less than half this amount. This suggests that capex in California is an expensive affair. On the other hand, leaked internal documents showcase the estimated cost of the Texas plant to be only $400 million.

This leads to one of two possible concerns for the company:

1. The estimated cost might be a little optimistic, which could snowball into additional expenses in the future.
2. The production capacity in Texas might be smaller and more focused.

On October 12, the company announced that it will boost output from its California plant (as well as its Nevada battery plant) by 50%. As deduced earlier, capex in California is an expensive affair and this expansion could come with significant costs in upcoming quarters. In the company’s Q3 update, it was confirmed that the Texas plant would manufacture Model Ys, followed by the Cybertruck, with an expansion of capacity in coming years.

The intentions stated with regard to Giga Berlin are rather enigmatic. The Q3 update indicates that the plant will build Model Ys and some reports expect them to be Europe-specific Model Y variants, with parts being megacast to reduce the number of parts and an updated battery pack. Interestingly, the company admits to buyer preferences shifting towards the lower end of the price segment, but is working on building up capacity in vehicles for the mid-price market segment.

Furthermore, VW has entered the fray in Tesla’s heartland by initiating production of the ID.4 BEV in its Tennessee plant, with further plans to expand EV manufacturing in China as well. A continued shortfall in meeting demand would no longer mean customers would wait patiently in line: there is a growing list of increasingly attractive alternatives available at all price points. Hence, more details on the flexibility of manufacturing in the new plants would be rather welcome.

Tesla’s long-delayed 4860 battery pack – which would effectively make the company’s cars lighter and give them longer range – continues to evade a concrete completion date. The battery packs are considered “necessary” for the success of Tesla’s envisioned Cybertruck, Roadster and Semi models. During the company’s annual meeting earlier this month, Musk said that Cybertruck would reach volume production in 2023, which seems to imply that the new battery pack won’t be ready until then.