What if we are being seriously sandbagged about the new factories,
just like we were with Shanghai last year. I thought we could try and estimate
what these new factories could do, if their success was similar to how
Shanghai Model Y factory has gone last year. Not only that, we have all the new
manufacturing techniques on top of that. From front die casts, structural battery packs,
seats attached to the batteries, revolutionary new paint shops and who knows what else.
Firstly just clarify, we were initially told that the Model Y Shanghai factory will have
a capacity of 200,000 Model Ys a year. Now I think we all inferred that this meant this was
the capacity at which the factory could produce Model Ys, with all the shifts and pretty much 100%
up time. It's what the factory is capable of, and what we would expect it to get close to
reaching eventually. Incidentally Fremont has still not hit its alleged capacity.
Yet the Model Y factory in Shanghai had reached this capacity by August. 2/3 into
the year and Shanghai was beyond capacity. We were not expecting this. Now the reason
Model Y was able to ramp up so quickly was because Tesla started selling an LFP
standard range version in Asia. The Asian market is more accepting of a lower range,
they also have lower average net worth's per capita, well excluding Hong Kong and Singapore,
and thus a lower priced Tesla is more affordable to that market.
However, Tesla did an outstanding job still getting this much range, using an LFP battery in
an SUV, it is impressive. I don't even think there are any other BEV SUVs that use LFP batteries.
As a result Tesla are not so battery constrained, as they are using CATL's LFP batteries which
is a more abundant battery, so they were not constrained by batteries for ramping.
I know we have had supply issues, and chip shortages, but it still looks like the main
thing holding Tesla back is still batteries. Anyway, as there is a large enough market for
the Standard Range Model Y, Tesla was able to ramp them up to high levels. But the fact Tesla can use
LFP batteries instead of LG's 2170 batteries, then Tesla probably save as much as $5,000 per
vehicle. Of course don't forget all the other cost saving techniques in the Shanghai Model Y factory
when compared to the Fremont Model Y factory. In other words, I have a pretty good feeling,
that these standard Model Ys are already seeing a really good profit margin, and the more they are
ramped up, then the more it will increase the overall gross margin for Tesla's auto profits.
I am not sure the standard Model Y was really on the plans initially, when the 200,000 capacity was
initially set, and that figure was adjusted somewhat for the available battery capacity
they thought was available at the time. But that doesn't change the fact that it still
would have been physically possible to add that many shifts and lines to perhaps see a capacity
of what some think might be as high as 800,000 a year.
Although in Q3 Tesla did change the capacity to above 200,000.
Right, so that could increase gross margin even higher. But not only that,
with the ramping the factory, the OPEX is shouldn't really increase either. In other
words all this extra gross profit, will pretty much go straight to earnings. I
am doing more research on OPEX reducing, and will do a video explaining all this later.
But basically we should continue to see operating margins increasing quite a bit.
If you want to go even deeper down the Shanghai ramping rabbit hole, then we could also talk about
how Elon said that ramping up takes a lot longer than building the factories in the first place.
Implying that even if Tesla are at this rate well the fab has only been operational for a year,
and it took about a year to build, in that there is even further ramping up possible.
I think there are still more shifts that can be added according to some of my sources.
But I don't know, it seems pretty unbelievable as it is. Not to mention the new extensions
currently occurring at Shanghai. Along with a new 80 GWh a year CATL fab built near Giga Shanghai.
Enough batteries for a further 1.3 million vehicles a year. And perhaps that's the Asian
market to focus on, standard range vehicles, but still getting great margins using LFP batteries.
Alright, so we have evidence that Tesla has done significantly better than they initially claimed
in Shanghai with the Model Y. We are also hearing that something similar is possible with the Model
3 factory there too. We have heard that Tesla may have even hit 2,000 Model 3s a day,
and given the Model 3 factory is larger than the Model Y, then perhaps that is
possible. But I still think Tesla are battery constrained, even with LFP, and they simply
prioritize Model Y over Model 3 because it is so much more profitable, which makes sense.
This is also why the two new factories are, surprise, surprise,
starting with production with Model Y lines. So much demand for this car,
and so much more margin. All still making sense. But these new factories, well they have new
production techniques. Structural battery packs, front die cast molds, revolutionary paint shop,
seats attached to battery packs, and likely many other new and improved processes.
So this leads us to wonder, is Tesla under selling us on these new factories?
Are we getting sandbagged again? Are they going to hit it out the park with these new factories?
We haven't even had any official indication of how many vehicles Texas is capable of,
that facility is absolutely enormous, almost an entire mile long, and hosts multiple floors. If
Model Y Shanghai has a capacity of maybe 800,000 alone, then what could these other factories be?
I think we can all safely say that I am one of the biggest Tesla bulls on YouTube, and a lot
of people struggled to believe my estimates, I almost sounded like a delusional fanboy.
But I was capable of backing them all up with solid reasoning. But you see the thing is, despite
me coming up with such extreme estimates, I still continue to under estimate Tesla. Even this year,
I had them at about 1 million units, but that did include quite a few from Texas and Berlin,
I never would have guessed that Tesla were able to hit nearly a million from Fremont and Texas alone.
I have been incredibly bullish all year, scrambling to buy as many LEAPS as I can on
the dips, buying by any means necessary, using credit cards even. No unfortunately my trading
account does not allow me to buy on margin, which is a bit frustrating at times like those.
And now I think at a rough guess, I am inferring that we have been told
they might produce a few hundred thousand from both new factories next year combined.
But these new factories are not using LFP, they are going to be using 4680 batteries,
so its all going to come down to how fast Tesla can ramp up 4680 batteries.
And this is could be where the next level of sandbagging lies. We know for sure,
how fast Tesla are capable of ramping up Model Y production,
as we have literally witnessed it all of last year in Shanghai.
Now a lot of people are upset with the progress of Berlin, well not the progress so much,
but the regulatory hurdles of bureaucracy Tesla are facing. But I assure you Tesla
are not simply twiddling their thumbs waiting for approval. Tesla are already
likely refining the production lines for the cars as much as possible. But not only that,
I would say there is a big chance that everything is being doing to get the 4680 battery line
functioning as much as possible. If they are able to stock pile batteries that would be even better,
but I am not sure manufacturing is allowed at that scale yet. Either way,
I hope there is a good chance that the battery line may be able to keep up with the
vehicle production line. Thus avoiding battery constraints when it comes to vehicle ramping.
We have seen what stage the 4680 line is at in Texas, and given that the Berlin factory
is further ahead, we might expect the 4680 line to also be further ahead. Although we didn't have
photos of them producing the line there. We are expecting 250 GWh a year production eventually.
I think it was in the Q2 earnings call that we were told to expect 2170 batteries initially,
but this may not be the case any more, as at that stage Tesla was expecting Berlin opened a
lot earlier. It is possible that Berlin may also be using 4680 batteries from the get go then.
Ok we have this thing that has been dubbed "Elon Time" as a lot of this stuff
often takes longer than we think. But I think Elon also encourages this,
and plays into it, to distract us somewhat, from the fact that there are other events
that are succeeding what were previously told, like the capacity of Shanghai.
We know what Tesla is capable of when it comes to ramping up the Y,
therefore it will all come down to how Tesla can ramp up these battery lines. We heard
a 4680 target of 100 GWh run rate by the end of 2022. Which is enough batteries for approximately
1.5 million vehicles. The question is, how fast will it take to reach this run rate? Oh
and of course, is that really the run rate we expect, or could it be higher?
On battery day we were initially told 100 GWh of 4680's to be manufactured in 2022.
All of these 4680 batteries are ear marked for cars from these new factories. Therefore
Tesla was anticipating making enough vehicles for this many batteries from these factories.
The battery lines are in, producing a battery is a much shorter and easier process than
building a vehicle, not that I am meaning to down play how complex the 4680 line is,
but there is simply a lot fewer parts and processes for a battery than an EV.
The lines should be up, so it may be a lot faster to ramp up these battery lines than the cars.
But we keep hearing expectations of 50% growth, and analysts even think this is
overly optimistic. But I am sure now that we have quadrupled the capacity,
with several new battery lines producing batteries at the fastest rate ever seen,
then growth is bound to slow down from nearly 100% YoY to just 50%.
Anyway, last year, I have been trying to pay attention to what has been happening in Shanghai,
but this year, it is all about watching the pace of ramping up the 4680 lines,
and I will be reporting on it all year.