While most Americans enjoyed their Thanksgiving weekend with friends and family, many Tesla employees (TSLA) were trapped in the factory. The electric vehicle manufacturer asked workers in the "mission critical areas" at Tesla's Gigafactory factory to spend the holidays working on the line in an effort to demonstrate a Model 3 sedan production ramp to 7,000 vehicles per week. .
The drive for Thanksgiving production seems to be a counterproductive effort that will probably cost the company.
Of course, we've seen these burst speed things before. On July 1, Tesla promoted its success in building 5,000 models 3 in a single week. The company has always implied that this is a sustainable rate, however, it has consistently failed to maintain this rate continuously. In fact, of the 5,000 models 3 built in the last week of June, more than 4,300, reportedly, required a return to work.
At first, it seemed as if Tesla had learned a valuable lesson from this experience, by redirecting his efforts to build 6,000 models 3 in a week until the end of August. Tesla lost the objective and simply went ahead.
Obviously, the lesson was not maintained, given the latest news that came out of the company. Evidently, CEO Elon Musk and his team believe that demonstrating a higher burst production rate will help raise the price of the shares as it has done in the past. But that seems unlikely at this point. The market has seen these explosions before and knows that they are not sustainable.
In the manufacture of automobiles, what really counts is a sustained production rate. Tricks and pop-up weeks can win headlines, but they can wreak havoc on efficient production. After most weeks of outbreak, companies have to re-mark production and reorganize. That has been the case with Tesla in his previous burst efforts. This last demonstration, successful or not, will do little to answer the fundamental question of the sustainability of production.
In mid-October, we published a research note explaining how the production rate of Tesla Model 3 had stagnated at less than 4,500 vehicles per week. The Bloomberg Model 3 Tracker had the company producing 4,228 vehicles per week as of October 15:
At that time, we had this to say about stagnant production:
"It is increasingly clear that Tesla lacks the production capacity needed at its Fremont, California, factory to achieve a sustained production rate of something like what was initially promised." Remember, this factory had to pump 10,000 Model 3 vehicles per week. He's doing less than half of that. "
As of November 25, the average production has hardly increased. Bloomberg now shows the production of Model 3 having increased slightly, to 4,406 per week:
One thing is now very clear: Tesla has reached a ceiling when it comes to production with its current factory capacity. It may be able to run the machines day and night to carry out the big week of bursts, but that is fundamentally unsustainable.
This matters for a very specific reason: Tesla's stratospheric valuation relies heavily on its ability to exponentially increase production. But production has stagnated well below where it was supposed to be. In addition to that, Tesla faces off. a "perfect storm" of theadwinds, including the imminent end of a $ 7,500 federal tax credit, growing competition, the reduction of margins as the accumulation of high-end products is depleted, and the increased concerns about product quality in winter conditions.
The price of Tesla shares is based on a tremendous projected growth trajectory. But any growth in sustainable production capacity will require billions of dollars in investment and years of delivery time. A single burst production of 7,000 per week will not reduce it.
Revelation: I am / we are short TSLA.
I wrote this article myself, and expressed my own opinions. I am not receiving compensation for it (except for part of Seeking Alpha). I have no business relationship with any company whose actions are mentioned in this article.