Tesla has big plans for a factory in China — but its lofty ambitions could lead the company to make an old mistake

Tesla CEO Elon Musk.

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Tesla CEO Elon Musk.
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Rebecca Cook / Reuters

  • Tesla is building a factory in China, but the company hasn’t been clear on what the timeline for producing vehicles there will be.
  • This is nothing new for Tesla, but it’s a recurrent problem that highlights a tension between two key audiences that Tesla speaks to.
  • At this juncture, Tesla is big enough that it should address the problem and look to solve it.

As a company, Tesla speaks to three distinct audiences.

The first are true believers who have always been fans of CEO Elon Musk and his daring enterprise. For them, an enthusiasm for Tesla in the early 21st century is like an enthusiasm for Thomas Edison in the late 19th. It’s thrilling to be present when humanity presses forward into uncharted, innovative technological territory.

The second are people who know their way around the auto industry. This group can range from experienced executives to folks who are experts in everything from electric-vehicle technology to how automobiles are manufactured and sold. Members of this audience might be pro-Tesla, but they aren’t likely to be as enthusiastic as the true believers. Members might also be ultra-skeptical of Tesla (but they’ll rarely be rooting for Tesla’s demise – that’s reserved for an outlier audience that Tesla really speaks to, the prophets of doom.)

The third audience is the general public. This is the biggest audience, but also the least informed. All it really knows about Tesla is that the company makes electric cars. And for now, with electric-car sales still quite low, this audience has zero-to-little exposure to the company’s products and hasn’t really formed any firm opinions about the company.

The most challenging relationship

Tesla's California factory.

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Tesla’s California factory.
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Tesla

These audiences interact with each other, and by far the most challenging relationship is between the industry experts and the true believers. I consider myself to relatively positive on Tesla’s prospects, given how much customers love the company’s cars and how the finances have steadily improved as far as money coming in the front door (Tesla has been dramatically growing topline revenue for the past 12 months). But I also know the auto industry, and there’s little question that Tesla has struggled needlessly with manufacturing fundamentals.

The true believers have a tough time with this contradiction – wonderful product, abysmal execution – and tend to resolve it by getting too revved up over new news from the company. It’s more reinforcing of their boosterism to consider Tesla’s bright future rather than its plug-and-chug present.

Tesla’s new factory in China is an excellent example. The plant itself is interesting because it’s planned for Shanghai and will be the first new facility built by a Western automaker outside the joint-venture system that has ruled China’s auto industry’s since the 1990s. Under it, US, European, and Japanese carmakers have been required to set up JVs with Chinese manufacturers to assemble and sell vehicles in the Middle Kingdom.

Don’t assume that JVs are a bad deal – for many experienced carmakers, they’re ideal. Having a JV partner means dividing the risk. But Tesla doesn’t much like to share, and in any case, it’s likely to build a new type of factory in Shanghai, one that combines battery manufacturing with auto assembly, in a fully integrated fashion.

Based on comments from Tesla, the true believers think this will all be underway late next year, and that Teslas will be rolling off a shiny new assembly line and into Chinese driveways.

Picking up the pace in China

I asked Tesla about this, and without providing new commentary, the company referred me to its third-quarter 2018 shareholder letter, when it said, “In order to significantly increase the affordability of Model 3, we have decided to accelerate our manufacturing timeline in China,” adding that it was “aiming to bring portions of Model 3 production to China during 2019.”

In Tesla’s second-quarter letter, it said: “Initial capacity is expected to be roughly 250,000 vehicles and battery packs per year, and will grow to 500,000, with the first cars expected to roll off the production line in about three years. Vehicles produced at Gigafactory 3 will augment our existing capacity in order to meet growing local needs, which means our US manufacturing operations will not be affected. Construction is expected to start within the next few quarters, though our initial investment will not start in any significant way until 2019.”

That’s not really a clear roadmap, so anybody in the auto industry read it and concludes that, absent hiccups, Tesla could be doing some battery pack assembly in Shanghai by the end of next year. Could be. Given that modern auto assembly plants and their manufacturing systems, require years to build and configure, a more likely outcome would be that even though Tesla says it’s picking up the pace, there won’t be any cars until 2020, earliest.

This isn’t going to bug anybody in the industry. Multi-billion-dollar factories in foreign markets aren’t supposed to crank up to full speed in record time. The investment is calibrated on a timeline that stretches over decades. It might bug the true believers, however, who wish to attribute miraculous powers to Tesla.

Unfortunately, pragmatism (reading between the lines) and idealism (Tesla can’t be stopped!) in conflict means that if Tesla struggles to bring its Shanghai plant up to speed, the true believers will retrench as Tesla’s naysayers go on the attack. The realists will, as usual, be stuck trying to explain how this happens all the time. I’m already preparing myself for this arc.

So who’s fault is it? The true believers and Tesla sort of share responsibility, but as much as I hate to admit it, the auto industry experts tend to be a little too mellow about how things are going for Tesla. Musk and his team shouldn’t keep painting themselves into these corners. It was fine to overpromise and underdeliver when Tesla was only selling 50,000 cars a year. But it’s now talking about millions, on multiple continents. The time has come to match up expectations with reality.