Tesla has received far better consumer response for its Model 3 vehicle than it expected. The EV maker has received more than 373,000 reservations. Tesla founder Elon Musk has openly said that it was “impossible” to meet the July 1, 2017 production deadline for Model 3. But the company has to step up annual production to 500,000 units (including Model S and Model X) by 2018 to meet consumer demand.
Are Korean suppliers overwhelmed?
Now Tesla suppliers are “questioning” the California company’s goal to double Model 3 production target to 100,000 units in 2017 and 400,000 units in 2018, reports Reuters. Though Reuters did not reveal the names of suppliers, some of the reporting came from South Korea, suggesting that Korean suppliers might be skeptical. Tesla is in talks with LG Chem, Samsung and SK Innovation for the supply of Model 3 batteries.
LG Display has reportedly been selected as the main supplier of the 15-inch OLED display panels. Another Korean company Hankook Tires has won the contract to supply Model 3 tires. Supplier executives and industry experts said accelerating production from 50,000 units in 2015 to 500,000 units in 2018 will be difficult and costly. Earlier this week, Tesla raised roughly $2 billion to fund the production plan.
Elon Musk told investors last month that he had asked suppliers to prepare for Model 3 production tests in July 2017. Musk himself acknowledged that the goal was unrealistic. Even if 99% of the components produced in-house or by suppliers are ready in July 2017, the cars cannot be produced due to 1% missing components. Model 3 will be easier to manufacture than Model S or Model X as it has only 6,000 to 7,000 unique components, compared to about 8,000 components in Model S.
Suppliers may demand premium to meet Model 3 deadline
Automobile consultant Ron Harbour of Oliver Wyman said stepping up production at Tesla’s Fremont facility to 500,000 units by 2018 will require more welding, stamping, and assembly machinery. Placing orders and installing these machines alone could take up to 18 months. Tesla will freeze the Model 3 design by the end of the next month. So, it will have only 13 months to begin production.
Even established automakers take 2-3 years to scale up production so significantly. Tesla says it will drop suppliers that fail to meet the deadline, and produce those parts in-house. It could minimize risk, but it would be far more expensive and distracting. Supplier executives told Reuters that Tesla may have to pay a premium for work to step up the Model 3 production plan.