2018 May Have Been Tesla's Toughest Year So Far, but 2019's No Cakewalk
Tesla is about to face a tough year of expansion. Fresh from two consecutive quarters of profit, the company has avoided analysts’ biggest fear: that the company would need to raise capital or more debt to fund Model 3 production. Still, CEO Elon Musk has said the company faced a “severe threat of death” during its toughest moments, and called 2018 Tesla’s “most challenging year” on the recent Q4 earnings call that the company held Wednesday.
It was an impressive turnaround for the troubled automaker. In July 2017, Tesla started producing its cheapest-ever electric car, the Model 3, with a goal to reach production rates of 5,000 cars per week by the end of the year. Tesla started 2018 well below that goal, averaging just 202 cars per week. Goldman Sachs predicted the firm would need to raise capital, and Musk retorted with April Fool’s messages about Tesla going “bankrupt.”
By July 2018, the situation on the ground in Fremont was starting to look more promising. The company had met its 5,000 per week goal, and it was well on the way to delivering on the many $1,000 reservations it had collected. In its fourth-quarter 2018 letter to investors, Tesla claimed that the Model 3 was the best-selling passenger car in the United States in terms of revenue for the second half of 2018. The company also made a $139.5 million profit in the last quarter, though it also caught some flak after laying off about seven percent of its full-time workforce days before the results.
Tesla’s letter starts by claiming that “last year was the most pivotal year in Tesla’s history,” but, looking ahead to the road map for 2019, there’s going to be plenty more where that came from.
The Tesla Model Y
Musk has gradually been teasing this compact SUV for a potential launch around March. He’s also claiming that the vehicle could see even more buyers than the Model 3, the latter of which he already predicts will reach a demand of 700,000 to 800,000 cars per year as it rolls out globally.
“As I understand it, the midsized SUV segment worldwide is the most popular type of vehicle,” Musk told investors. “So we’ll probably see a higher volume of Model Y than Model 3.”
Tesla will face a tough challenge ramping up production. Musk claims the company has offset this by sharing around 75 percent of its components with the Model 3, greatly reducing capital expenditure.
“It always takes time to ramp up any production system, and that’s difficult to predict the shape of that S-curve,” Musk said. “So we feel confident in saying there will be production volume of Model Y by the end of next year, but in between beginning of next year with low volume, it always starts with very low growth exponentially — from beginning of last year to end of next year, it’s difficult to break that ramp.”
Part of this ramp up will involve the Shanghai Gigafactory. Musk attended a ground-breaking ceremony earlier this month for the new facility, aimed at producing entry-level versions of Model 3 and Model Y for the Greater China market. The factory is projected to reach 500,000 cars per year at a maximum production rate.
“By the end of this year, we expect to be producing Model 3s using a complete vehicle production line,” Musk told investors. “That’s body paint, final assembly, general assembly, and module production. This will be extremely fast. I get like daily updates of the progress of the Shanghai Gigafactory, and those factories are going to go up like lightning.”
This could prove key if Tesla wants to make inroads in the mass market, though financing the massive facility, which is supposed to be achieved through loans from local Chinese banks, could prove a challenge.
Musk first promised in October 2016 that the company would roll out full self-driving by the end of 2017, powered by the Hardware 2 suite of sensors. The company missed this goal, but Musk has regularly stated that the firm is not far from granting owners the ability to sit in their car and have it take them home. During the company’s earnings call, Musk predicted that the semi-autonomous Autopilot mode would place it far ahead of challengers like Alphabet-owned Waymo.
“We have a massive, massive training fleet,” Musk said. “If you added everyone else up, combined, they’re probably 5 percent — I’m being generous — of the miles that Tesla has. This difference is increasing.”
As for when it may be ready to unveil full self-driving? Musk predicts a launch relatively soon.
"“When will think it’s safe, full self-driving? Probably toward the end of this year,” Musk said. “And then it’s up to regulators to decide when they want to approve that."
This year is also supposed to see unveilings or even launches of some of the other vehicles in Tesla’s product line. The Pickup Truck, with a “cyberpunk” design, is expected to reach its grand unveiling in the summer as the third mass market vehicle. The Tesla Semi electric truck is expected to be produced in limited quantities ahead of a broader production start in 2020. The second-generation Roadster, a beast capable of 0 to 60 mph in 1.9 seconds, is also set to enter production.
Far from Tesla settling down to the quiet life, 2019 could see the company could under more pressure than ever.