After having missed multiple deadlines for the mass-market Model 3, Tesla is still struggling to ramp up production. The Model 3 production woes aside, Tesla is planning to start capital investments in Model Y production soon. During the EV maker’s fourth-quarter earnings call, chief executive Elon Musk told investors that the company would start capital investments for Model Y production in the third or fourth quarter of 2018.
Musk added that the Model Y production plans along with a location would be revealed in the next 3-6 months. Tesla could set up a new factory for the all-electric compact SUV crossover. Elon Musk reiterated his ambitious goal to increase the production capacity to one million units per year by 2020. A few years ago, Musk had declared that Tesla would ramp up production to 500,000 units by the end of 2018. But the company failed to meet that ambitious target as it struggled to scale up Model 3 production.
With the Model Y, Tesla plans to “avoid all the pain” that they experienced with the Model 3 production ramp up. It will also simplify the manufacturing process. The Model Y will be Tesla’s first crossover vehicle. The crossover sales are growing faster than sedans in the US, which represents a huge opportunity for Tesla’s Model Y. The California company currently makes two sedans – Model S and Model 3 – and an SUV called Model X.
Tesla had originally planned to build Model Y on the same platform as Model 3 to bring it to the market faster. It would save Tesla a lot of time and resources required in developing a new platform from scratch. However, Elon Musk said last year that the company would develop a new platform for Model Y. Musk later went back to the original plan to bring Model Y to market by “2019 or 2020.”
It doesn’t mean the upcoming crossover would have the same chassis as Model 3, though. Tesla will make significant changes in the wiring and battery architecture to make it easier to manufacture than Model 3. The company will ditch the 12-volt battery architecture and significantly reduce the overall wiring to simplify the manufacturing process. Less wiring means greater automation in the production process.
Sources familiar with the matter have told Autocar that the Model Y would be a fully autonomous SUV crossover. It would come equipped with 12 ultrasonic sensors, a forward-facing radar system, eight cameras, and a supercomputer capable of processing data 40 times faster than previously. Morgan Stanley analyst Adam Jonas predicted last year that the Model Y would become Tesla’s highest selling vehicle when it comes out. The Model Y is expected to cost in the same range as the mass-market Model 3.
It is unclear whether Model Y production would take place at Tesla’s existing Fremont facility or the company would set up a new plant for the vehicle in the US. However, at least some Model Y vehicles will likely be manufactured in China, according to the Wall Street Journal. Tesla has signed an agreement with the Shanghai municipal government to establish a “wholly-owned” factory in Shanghai’s free-trade zone.
The agreement will allow Tesla to set up a factory in China without having to partner with a local manufacturer, a first for any international automaker. Tesla may still have to pay 25% import duty, says the Wall Street Journal. The Shanghai facility is expected to roll out the first cars by 2020. The Chinese factory will only produce Model 3 and Model Y to meet the local demand and that of China’s neighboring countries, Elon Musk has said.
There is still a good chance that Model Y production could be delayed beyond 2020. Tesla tends to set ambitious goals that it isn’t always able to achieve. The company was planning to make 500,000 vehicles in 2018. But in July last year, Elon Musk said Tesla would only be able to make 20,000 vehicles per month by December 2017. Difficulties in battery production coupled with glitches in the Model 3 assembly process have slowed down the output. Tesla made only 2,425 units of Model 3 in the December quarter of 2017.
For the fiscal fourth quarter of 2017, Tesla posted a net loss of $771 million or $4.01 per share, the biggest quarterly loss in Tesla’s history. Revenues jumped 44% YoY to $3.3 billion on the back of strong sales of the Model S and Model X vehicles. The EV maker blamed high costs related to Model 3 production for the steep losses. Tesla had incurred a loss of $121 million in the same quarter a year ago.
Tesla has suffered losses in eight of the last nine quarters. The company ended the quarter with $3.37 billion in cash. Elon Musk hopes that Tesla will be able to generate profits in 2018 as Model 3 production goes up. The company has received more than 400,000 pre-orders for the Model 3.