Tesla's Model S impresses, factory, vertical integration steals show

Tesla's Model S beta was impressive, but analysts are more focused on the company's ability to ramp its production facility.

Tesla introduced its Model S over the weekend, but its progress on its factory as well as ability to hit production target may have gone further to bolster confidence in the company.

Tesla's plant. Credit: Dougherty & Co. research

On Saturday, Tesla held its Model S ride event at its Fremont, CA factory. Generally speaking, analysts gave the Model S high marks for ride, noise and overall fit. The Model S is in the beta phase with a planned 2012 launch.

At the event, Tesla CEO Elon Musk talked up the Model S and said it would popularize electric vehicles. "The great news is that at start of production, we're going to offer a perfect model that has a 0-60 mph time of under 4-and-a-half seconds," said Musk.

But the item that really seemed to win over analysts was Tesla's ability to produce the Model S and the promise of a vertical integration strategy. Deutsche Bank analyst Dan Galves said:

We were struck by the scale of the operation (a $1 billion manufacturing complex, acquired for $42MM), and were impressed that 90% of the production equipment is already in place, operating, and being debugged just one year after the company took possession of the plant.


Dougherty analyst Andrea James noted:

Dozens of large robots have been installed on the assembly line; the Schuler hydraulic press and all stamping machines are functioning; and most of the paint and plastic systems are ready to go. Remaining tasks include installation and configuration of the Fuji Industries tooling dies and set-up of the final inspection space.

Tesla has basically built out its plant since July. Morgan Stanley analyst Adam Jonas said that presses, plastic molding, paint and assembly robots have been installed at the plant since he visited the company in July. Jonas said:

The production launch of the Model S and pace of early customer adoption is loaded with execution risk. That may help explain why Tesla management is making such extraordinary efforts to share its early accomplishments with the public. Just in case they need to cash the credibility check for factors outside of their control.

Tesla has hired 180 of the 500 workers needed for one shift to produce 20,000 units a year.

Tesla made a big bet on vertical integration, which revolves around producing multiple parts in the supply chain. Tesla has aimed to innovate on everything from stamping to paint to retail distribution. Galves said that this focus on vertical integration---a management method deployed by Apple---could yield cost savings.


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This post was originally published on Smartplanet.com


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