Tesla Looks to Increase Manufacturing Capacity

At dinner tonight the discussion came upon Tesla motors and specifically the thoughts of the students on the issue.  It was brought up that Tesla has actually not been running a profit with the sale of its vehicles, but that this has been alleviated to varying degrees by the company’s ability to sell its emissions/CAFE credits to larger auto manufacturers who fall below government standards.  I began to look into why it is exactly that Tesla is unable to be profitable given its preeminence in the future of the automobile if only in the mind and not true market presence.  The answer is not simple by any means, but in short sum; Tesla finds itself as an expensive luxury vehicle that is not practical as an everyday car even to those that can afford it.  However, the high purchase price of Tesla’s fleet may be on the decline as it Tesla has suggested it is looking into producing a more affordable car for the middle class consumer.  Further, a recent article in Forbes discusses Tesla’s plan to open up two new “gigafactories” in the near future.  A gigafactory is essentially a plant that would create all of the lithium ion batteries that are essential to each and every model produced by Tesla.  Tesla currently purchases its batteries from a third party producer with a limited production capacity and little incentive to lower cost and improve efficiency.  Tesla is likely to see states fighting for placement of a factory in their district as it will bring lots of jobs into the community, this will help lower the costs to Tesla of opening this plants.  The opening of these plants will also provide Tesla with more autonomy in deterring output of its vehicle and recharge stations, which in turn could lead to greater economies of scale benefits.  The larger the production capacity and output of Tesla the lower the marginal cost of its vehicles will be, which will only serve to help Tesla’s presence and penetration in the domestic auto market.

http://www.forbes.com/sites/michelinemaynard/2014/05/07/teslas-first-gigafactory-site-will-break-ground-next-month/

3 comments to Tesla Looks to Increase Manufacturing Capacity

  • Peter Wittwer

    The mass production of the Tesla is definitely vital for the success of the car. If Tesla can cut costs and start to make a profit they can put more and more money into establishing supercharger stations throughout America. Once people are able to use Teslas in an everyday scenario, coupled with the new cheaper Tesla model, Elon Musk’s brand will be able to gain a foothold in the car market. The fact consumers could purchase a Tesla and never have to pay for gas or pump gas again is a huge draw for the company. If Tesla can put the final pieces of the puzzle together, make prices more competitive, and lower marginal costs, I think they will really be able to become a huge competitor in the auto industry and even change the future of how cars are produced.

  • Alexander Dawejko

    Where do you think they will establish the gigafactories? I feel like that is a very important question, because it goes back to the Toyota consolidation in Texas. Will Texas become the new Detroit? Or will Tesla stay in California? Tesla is definitely the most interesting thing in the auto-industry right now, so many questions.

  • Louis Ike

    The article seems to suggest that the Tesla is currently pitting several states against each other (Texas and California being two of the prominent contenders) in order to obtain the best financial incentive package. I do not see Texas becoming the next Detroit, however, I do see the possibility of large investment and growth in Texas’ auto industry. I do not see this growth lead by Tesla, but it could play an important role in establishing Texas as an ally to auto manufacturers everywhere leading to further entrance by larger firms.

Leave a Reply