Tesla goes from production hell to logistics “insanity” as it posts big Q1 loss

It seems that electric car maker Tesla has gone from the “production hell” lamented last year by CEO and founder Elon Musk to some sort of delivery hell as the logistical challenge of expanding into Europe and China resulted in a worse than expected loss for the first quarter of 2019.

Tesla only last year posted its first profitable quarter, after spending many months overcoming the challenges of ramping up assembly of the now best selling Model 3 in what the CEO referred to as “production hell”.

In this latest quarter, that challenge turned into the delivery of the Model 3 to customers in Europe and China, and Musk described it as one of the most complicated quarters in the company’s history.

He noted that the rapid increase in overseas volume strained the company’s logistics operations, resulting in half of our global deliveries occurring in the final 10 days of the first quarter.

“That is insane,” Musk said, noting that everyone from sales, engineering, legal and HR staff had been involved in helping make the deliveries. “This was the most difficult logistics I’ve ever seen and I’ve seen some tough ones.”

Tesla is promising that April will see its biggest delivery month on record as the logistics bottlenecks are unwound, and it is now looking to the next generation of EVs including the Model Y (an SUV), and the big Tesla Semi, the electric truck that is already making deliveries.

Tesla’s accounts show that while 62,975 Model 3s were produced in Q1 2019, only 50,928 were delivered, although the overflow splashing into Q2 should be positive for the next quarter.

Production and deliveries for the Model S and X were down significantly from Q4 2018 – compared to 25,161 made and 27,607 delivered in the last quarter of 2018, only 14,163 were made and 12,091 delivered in the first quarter of 2019.

With an operating loss of $US522 million ($A745 million) and a significant drop in cash and equivalent holdings at $US2.2 billion ($A3.14 billion) down $US1.5 billion ($A2.14 billion) from the end of 2018, the start of 2019 has proved another trying quarter for the EV pioneer.

The loss was expected, and well flagged, but the scale of it was worse than most analyst expectations.

Musk sought to reassure investors by saying Tesla was undergoing what it refers to as “regional balancing”; that is, instead of making cars almost exclusively for overseas markets in the first half of the quarter and then for domestic markets in the second, it will now blend production throughout the next quarter.

With production and the first release of right hand drive Model 3s due soon, Tesla expects that demand will continue to increase – and one would hope that the regional balancing will ensure deliveries in right hand markets such as Australia and the UK will benefit.

With the recently announced upgrades to the Model S and Model X drivetrains and suspensions, the EV maker also hopes to return its premium models to 100,000 annualised demand for the next quarter.

By and large it was an uneventful earnings call compared to previous quarters, with a lot of air blown out of the sails after Tesla’s Autonomy Day earlier this week and the ensuing announcement of an increase in Model S and X range thanks to the improved drivetrains.

One interesting note from Musk regarding the improved drivetrains was that they are essentially made from a reworked Model 3 rear wheel drive unit to become the front drive unit for the Model S and X  – resulting in not only a cost reduction but also the reported increased range.

Another notable point is that a production location for the Model Y has almost been nailed, with either Fremont or Nevada being considered – Musk noted that if Fremont (which had previously not been in the running due to limited space) were decided upon, space had been identified in internal warehouse areas and a possible external area to the west of the building that could be appended.

A last note worth mentioning is that by next month, Tesla intends to release its own insurance package for its customers.

In Australia, consumers report that insurance for a Tesla can be as much as 3 times the price of insurance for other electric cars.

While there are no details on whether it will be available in Australia as yet, Musk said that Tesla’s insurance package will be “much more compelling than anything else out there”.