Tesla Motors To Be Profitable Selling Electric Cars By April, It Says Page 2

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Tesla Model S

Tesla Model S

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And, he noted, early deliveries have been of more lavishly specified cars than the company had projected.

More than half of Model S orders have specified the 85-kilowatt-hour battery pack, and less than 10 percent are for the 40-kWh version--though, he acknowledged, "that could change in the future."

Expansion into Europe and Asia

Outside North America, the company has done a limited amount of marketing in Europe--right now, Musk said, it only has two cars there. And it has done essentially nothing in Asia.

That will change "dramatically" this year, Musk said.

Reservations are rolling in steadily from Europe, Blankenship said, despite not having cars to display and stores just clearing out the last remaining Roadsters. Asia is even less advanced.

About 25 percent of the company's reservations now come from outside North America, according to Blankenship, and that will increase. The North American stores saw 1.6 million visitors, he said.

In December, Tesla opened a distribution center in the Netherlands and also announced European pricing for the Model S electric luxury sport sedan.

"We've said it before," Musk noted, "but we expect that ultimately, we will deliver 10,000 to 15,000 cars in North America, 10,000 in Europe, and 10,000 to 15,000 in Asia--but that will take time to build up, especially China.

The export drive "doesn't affect us this year all that much," Musk noted. "I'm quite sure we can deliver more than 20,000 cars this year, but we want to make sure we've laid the groundwork for improvements above 20K for 2014."

"It's not really a question of demand generation for this year," he concluded. The question is more, "How to exceed that next year?"

Quality control data

One question caught CEO Musk off-guard: What were the stats on the number of Model S cars required post-production touching up or rectification of other quality-control issues?

"I don't have that handy," said an obviously surprised Musk. "I wasn't expecting that question."

The percentage, he said, has dropped dramatically since the start of production last June. Cars that have to be pulled off the end of the line to have something fixed are now a "fairly small percentage."

And, he pointed out, any issues related to the cars' software can be addressed by deploying over-the-air software updates--which no other carmaker can do. That, he said, "has worked quite well."

Reservations and waiting times

In its shareholder letter, Tesla wrote:

After deliveries and cancellations, our net reservations at year end, were over  15,000, up from about 13,000 at the end of Q3. New reservations continue at a steady, although slower pace in Q1 2013, as compared to December, due in part to the pull ahead of reservations into Q4 by customers seeking to  avoid the price increase.

Q1 cancellations are likely to remain elevated as the remaining older reservation holders are invited to configure their vehicles within a set timeframe or pay the higher price just like new reservation holders. 

'Revenge of the Electric Car' premiere: Tesla Motors CEO Elon Musk on red carpet

'Revenge of the Electric Car' premiere: Tesla Motors CEO Elon Musk on red carpet

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Asked by an analyst whether the net reservations number would fall during the first two quarters as deliveries ramped up, Musk indicated that it might well do so.

In raising the price of the Model S and asking reservation holders to confirm their orders if they wanted the old price, Musk said, "we were trying to clean out anyone who wasn't serious about buying the car."

Tesla expects its reservation numbers to stabilize, he said, though it has "a lot of demand in North America"--more than half its production target of 20,000 cars a year.

"Our intention is not to have people wait six months for a car," he said. "We much prefer that demand generation and production are better synced, so customers can order a car, get it in a few weeks.

"It's not our intent to have a long waiting list," he said. "That's pretty inconvenient for people."

Factory efficiency

But, he said, the company's production numbers have been constrained solely by its ability to achieve 'steady-state production in an efficient way"--not by demand--which he called "a really important point."

"If we wanted to, we could raise production to 500 units a week," Musk boasted, "but it would have a lot of expense for overtime and so on."

It's far more important for Tesla Motors to improve the efficiency of the assembly process at the current level of 400 cars a week, he said.

2012 Tesla Model S beta vehicle, Fremont, CA, October 2011

2012 Tesla Model S beta vehicle, Fremont, CA, October 2011

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"This is our very first quarter when we're at our target production rate," Musk said, which has really been "very little time to work on production efficiencies."

Those efficiencies include reducing the number of staff hours per car produced, and cutting the number of temporary employees at the Fremont, California plant.

Factory workers averaged almost 70 hours a week in December, which Musk noted cost the company a great deal of money. "It's over time above 40 hours a week," he said, "but it's double time above 60 hours."

Today, workers average almost a 50-hour week, and Tesla's goal is to drive that down to the mid-40s during March.

"The labor hours per car are dropping dramatically," Musk said, saying that "may be the single biggest factor" in the company's drive to Q1 profitability.

Tires from the Czech Republic

Close behind cutting staff hours per car are improvements in logistics, and efficiencies in the parts from suppliers for the Model S.

"We had to fly in a lot of parts in December," Musk said ruefully, at a cost up to 10 times the standard price. "We had to do dumb things like fly in tires from the Czech Republic."

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