On this blog, in the context of Tesla, I have been arguing that solving operational problems takes time, and operational improvements are gradual but steadily accumulating. In fact, this idea is taught as the Kaizen principle — the principle of continuous improvement.
In my last article discussing Scaling Tesla Production in November 2017, I wrote
I believe that the numbers are improving — this is good for Tesla, and in general, good for sales of electric cars. Personally, as an Operations academic, I would not focus my worries on the external deadlines on production targets Musk seems to be setting (and often missing).
and concluded that,
In my view, it is best to judge Tesla by the production numbers trajectory and not solely on whether they meet “deadlines” before a quarter, although there is an aspect of messaging and market relationship that constrains Tesla finances.
In fact, let’s take a look after the last quarter — there is some staggeringly good observation on scaling from Bloomberg.
In the final weeks of 2018, Tesla sold its 500,000th car. That milestone took 10 years to achieve. The next half-million car deliveries will take about 15 months, if the company maintains its current pace, which would make Tesla both the first automaker in the world to sell 1 million electric vehicles and the first major American carmaker to emerge in nearly a century.
Elon Musk has an outsized personality that American press, depending on their disposition, tends to revere or ridicule. To understand Tesla operations, I have been stressing on the need to evaluate Musk and Tesla separately with a dispassionate eye. So, here is some interesting data on Tesla from the same Bloomberg article.
Tesla’s production numbers are definitely on the upswing. Note below as the top-end models X and S are flattening out, the sales of the cheaper Model 3 are growing steadily. The demand for Model 3 is substantially higher. This has two advantages: the sales volume is high enough to accrue revenue growth, and the high sales volume keeps utilization high in the factories. This sales uplift is also timely, as the tax subsidies are ending.
This has to do with a good operations process. The promotion of Jerome Guillen to the president of Automotive Operations has been a significantly positive move at Tesla. Tesla’s cash flow is getting healthier (Q3 shows about 774M in positive cash), as the production scale is chugging at a steady clip (nearly 5000 units a week). I don‘t think the 2018 Q3 cash flow data is a quarterly anomaly. Looking at the last three quarters, the cash flow trajectory has been positive.
Tesla’s biggest competitors in the electric car market are all in China, which is also a big consumer market for electric cars. Luxury car brands Mercedes, BMW, Jaguar, and Porche are entering the electric car market. In the long-term, I would not rule out Toyota as one of the biggest electric car firms. One thing is definitely true: Tesla has changed the approach of automakers towards electric cars.
China will continue to be an interesting market to look at based on supply chains, especially based on the recent outlook on China from Apple.