Wall Street tours Tesla factory — and loves what it sees — as company poised to release its first mass-market car

Wall Street analysts have been touring Tesla’s massive factory in Fremont, Calif., and they’re returning with the same conclusion: Elon Musk’s electric-vehicle company is getting ready for something big. Inside a sign of this enthusiasm, Robert W. Baird & Co. upgraded its Tesla rating on Monday morning carrying out a factory tour. 

Tesla spent some US$1.6 billion on major upgrades this past year because it prepares to launch its first attempt at a mass-market car – the Model 3 – on March 31. The transformation is striking, based on auto analysts at Stifel Financial Corp, Credit Suisse Group AG, and Baird. The firms are telling investors that Tesla is learning from the mistakes that delayed its previous launches and it is on track to make the shift from producing tens of thousands of US$80,000 cars to hundreds of thousands of US$35,000 cars – assuming the Model 3 proves a success with drivers.

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Here are the changes the analysts witnessed on Teslas factory floor and in discussions with Tesla’s new chief financial officer, Jason Wheeler.

‘Stunning progress’

Last week, Stifel analysts returned from their fourth visit in four years to Tesla’s flagship factory in Fremont. “In roughly twelve months since our last visit,” wrote analyst James Albertine, “the progress witnessed is really stunning.”  Tesla shares have jumped 45 percent in the last month as Musk, the chief executive, sought to reassure investors the company is still on track following the challenging and much-delayed launch of the Model X luxury SUV.

New aluminum stamping press

Stifel and Credit Suisse both noted Tesla’s new aluminum stamping press, which Credit Suisse’s Galves says has 10-20 times the creation of  Tesla’s older machine. The bodies from the Model S and Model X are generally made of aluminum, which costs double the amount as steel but weighs less. Tesla hasn’t yet disclosed the composition from the Model 3. Keeping the load down on electric vehicles helps achieve the utmost are the battery, but maintaining an account balance between cost and performance is crucial for a mass-market plug-in car.

Paint shop

Tesla has generated a new state-of-the-art paint shop that’s capable of scaling up to 500,000 cars annually. Which are usually Tesla’s production forecast for 2020, a ten-fold increase from last year’s sales. If Tesla is to achieve that lofty goal, paint jobs won’t be a holdup.

Faster assembly lines

Tesla’s assembly line is faster and more automated compared to those observed during a tour 18 months ago, based on Credit Suisse’s Galves. The body assembly lines are now rated to produce about 175,000 cars a year, with final assembly capacity for more than 100,000 cars. 


‘Dimensional design studio’



This new area of the factory is a place where Tesla engineers can “stress test vehicle design features in a controlled environment on-site,” said Albertine.  

More Robots 

“Robotics systems are customized, production processes are revolutionary, and attention-to-detail/supply chain management is improving by the minute,” wrote Stifel’s Albertine. “We do not believe this production process is one competitors can certainly recreate.” Tesla’s manufacturing skills can help the company reach its target in excess of 25 % gross profit margins on the Model X, based on Baird’s Kallo. 

More humans

Tesla expanded its workforce by 29 per cent last year, to 13,058, based on company filings. That’s up from fewer than 900 employees in 2010. The workers happen to be consolidated within the Fremont facility, with “several football-field sized areas spanning the entry to the ability with desks, computers and seemingly invigorated staff,” Albertine said. “There is a power and buzz within the facility that’s hard to imagine being an outsider.”

Batteries

Tesla has already been shifting battery production try to its massive “gigafactory” being built in Nevada. Following the factory tour in Fremont, Baird’s Kallo came back convinced that battery cost is already just 1 / 2 of the industry average and therefore are falling more quickly than most estimates. “This should allow Tesla to create the Model 3 with healthy margins, and also to invest in vehicle aesthetics and performance, placing it above competing vehicles,” he wrote in a note to investors on March 14. He upgraded his rating on the stock to “outperform” his price target to US$300. The stock rose 3.8 per cent right now to US$215.47 on Monday morning. 



Lessons In the Model X

Tesla’s luxury SUV, the Model X, has witnessed long delays and a slow roll-out due to several engineering choices, including complex vertically opening “falcon wing” doors, mono-post rear seats, and the biggest piece of windshield glass in the market. All three analysts noted seeing the Model X in production lines, but still in a relatively slow rate compared with the Model S. Albertine counted roughly five or six Model S sedans in production for every Model X.

Wheeler, Tesla’s new CFO, assured the analysts that lessons had been learned. It seems, wrote Galves, the engineers at Telsa led the planning meetings for that Model X, with insufficient input in the financing, manufacturing, and purchasing departments. Now those groups have the symptoms of the same voice. “Model 3 launch timing and easy mass production is significantly more essential than it was for the Model X,” Galves wrote. “On the Model 3, management established that there’s a clear focus on ease of build, on-time launch, and cost.”  

Tesla’s capital expenditures figure from 2015 includes work on its battery factory in Nevada and it is rapidly expanding network of charging stations. It doesn’t include hundreds of millions in research and development, much of which is going toward the Model 3.

Baird analyst Ben Kallo issued his report March 14. Stifel’s James Albertine issued a report on March 8. Credit Suisse’s Dan Galves issued his on Feb. 28.