Exclusive: Suppliers question Tesla's goals for Model 3 output

Fri May 20, 2016 5:53am EDT
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By Paul Lienert and Alexandria Sage

DETROIT/SAN FRANCISCO (Reuters) - Tesla Motors Inc has surprised parts makers with plans to move up the launch of high-volume production of its Model 3 to 2018, two years earlier than planned - an acceleration that supplier executives and industry consultants said would be difficult to achieve and potentially costly.

In the past three months, Tesla (TSLA.O: Quote) has told suppliers the company was doubling its original production projections to 100,000 Model 3s in 2017 and 400,000 in 2018, several supplier industry executives familiar with the plans told Reuters.

Details on Model 3 production projections have not been reported previously, and Tesla did not break out target volumes for the Model 3.

Tesla has taken 373,000 orders for the Model 3 - which has a starting price of $35,000, about half its Model S - and has said it would begin customer deliveries in late 2017. But it has made no promises, and, on earlier models, customers waited months for delivery.

Citing "tremendous demand," Chief Executive Elon Musk told analysts on an April call that the company planned to boost total production, including the existing Model S and Model X crossover, to 500,000 in 2018 - two years earlier than its original target and a 10-fold increase over the 50,000 vehicles it made in 2015.

Musk said Tesla told suppliers to prepare for Model 3 production tests in July 2017, a goal he acknowledged may be unrealistic for some. But he said the "aggressive" target was necessary to reach production goals.

"Now, will we actually be able to achieve volume production on July 1 next year? Of course not," he told analysts.

"The reason is that even if 99 percent of the internally produced items and supplier items are available on July 1, we still cannot produce the car because you cannot produce a car that is missing 1 percent of its components,” he said.   Continued...

A Tesla Model 3 sedan, its first car aimed at the mass market, is displayed during its launch in Hawthorne, California, March 31, 2016.  REUTERS/Joe White/File Photo