Transmission: Does Tesla face a demand constraint?

And while the day dedicated to the automotive industry has passed, you can still check out recaps of all the interviews on our site. Here are a few of my favorites:

• GSCW chat recap: Fuel efficiency and a changing automotive supply chain
• GSCW keynote: Ford CTO says auto industry at ‘inflection point’ with electrification
• GSCW chat recap: The future of automation
• Click here for more coverage on the important topics being discussed throughout the automotive industry.

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Does Tesla face a demand constraint?

Tesla has shut down production of its California assembly plant for two weeks, sending Model 3 assembly line staff home with partial compensation. The cause for the disruption remains confidential but people familiar with the situation, who preferred to be unnamed, hinted that port capacity issues, delayed ground transportation due to recent winter storms and the semiconductor shortage are a few of the likely culprits. 

According to Tesla CFO Zach Kirkhorn, Tesla is managing supply chain disruptions and expects the shortage to hinder production temporarily. And, as we all know, lost production typically equates to lost revenue. If Tesla wants to meet its goal of selling 20 million EVs by 2030, it has to hit the maximum delivery targets set in place for each year. So while this shutdown is a temporary effect of sourcing and transportation issues, it could be the highest hurdle Tesla faces this year as it wrestles to meet its 2021 goal, which auto analysts believe is in the realm of 840,000 to 1 million EVs.

These issues also created chatter throughout the financial sector, with finance gurus raising concerns over the true demand for Tesla vehicles. Gordon Johnson, the founder of GLJ Research, has called 20Q4 inventory into question. “When considering Tesla had excess inventory in the fourth quarter of 2020, and has never been able to sell out its production capacity, we see the company as currently demand constrained rather than production constrained,” Johnson wrote. If this was certainly true, wouldn’t that mean Tesla’s manufacturing footprint expansion projects underway in Texas and Berlin are both for nothing? 

Johnson also reminded listeners about Tesla’s price cuts on various models this year in global markets including China, Japan and France, pointing out the automaker’s need to reduce price in order to drive more sales. 

So what’s the answer? Is there an actual demand problem? In my opinion, not really. It’s tough to judge any automaker after the year that 2020 threw our way. Tesla’s innovation is what generates demand. It’s been that way ever since the company stepped into the spotlight back in 2008 as it embarked on its journey of becoming an EV giant. It’s led by an intelligent CEO who is visionary. It’s already taking strides in developing autonomous driving. The company’s focus isn’t based on how many cars it sells but rather on creating a product that connects society in a sustainable way. As EV adoption increases around the globe, Tesla will have the opportunity to reach new consumers. 

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Industry news:

• Hyundai has recalled nearly 76,000 Kona EVs after a series of vehicle fires. Unfortunately, the recall requires installation of a new battery back and could cost up to $900 million. The automaker insists LG Chem, the battery supplier, is responsible for battery defects. LG Chem chose to point blame at Hyundai. Back in November 2020, Chevrolet recalled the Bolt EV after battery cells, also provided by LG Chem, malfunctioned. Who’s really at fault?
• At the end of last year, I wrote about Joby Aviation, an electric air taxi startup partnered with Toyota and Uber. As of Wednesday, Joby Aviation announced it will go public in a $6.6 billion reverse merger with Reinvent Technology Partners. Toyota has shared access with its supplier network and is working alongside Joby to design a manufacturing facility in California. Uber has a key role too: providing data for the air taxi startup. Joby even poached former Ford North America CFO Matt Fields to take charge of the company’s vacant CFO position. Perhaps we’ll see air taxis by 2024 after all.
• Foxconn Technology Group, the biggest electronics contract manufacturer in the world, has agreed to assemble vehicles for EV startup Fisker Inc. The two companies agreed to jointly produce 250,000 EVs per year. Although the model won’t be built until Q4 of 2023, it’s set to be sold in North America, Europe, China and India. Fisker is known for its asset-light approach, hiring contractors for everything including manufacturing and service/repair centers. Foxconn assembles the Apple iPhone and has tried expanding into the automotive industry over the past year. Who knows? Maybe Apple will rely on Foxconn to head assembly operations for Project Titan.

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