Are Tesla Motors Inc (TSLA) Factory Expansion Plans Over-Optimistic?

Tesla Model 3 (TSLA)

Tesla Motors Inc CEO – Elon Musk – moved its already aggressive targets for building half a million electric cars a year to 2018 from 2020. This announcement made in May was followed by more than 350,000 potential buyers giving $1,000 deposits for a place in the Model 3 reservation line.

However, now the question is – does the electric carmaker have the factory capacity to build half a million cars?

Tesla Motors Inc. (TSLA) Store in Southern California

Tesla doubling its production capacity?

Trip Chowdhry – analyst at Global Equities Research – wrote in late September that they drove around the “periphery” of the new construction (which was) happening adjacent to the current Tesla Motors Inc Factory Location. He found that the new construction area is nearly the same size as the existing Tesla Fremont factory. Based on this, he concluded that the electric car making giant planned to double its production to 1,000,000 units per year from the plant’s current 500,000 units.

However, commentators were quick to raise questions over Chowdhry’s report. What the analyst contemplated looked more likely to be site preparation work started by developer Lennar Corporation for a 111-acre development. The project includes 1.4 million square feet of office and research space and 2,200 housing units, notes Green Car Reports.

Does it has the permits?

Another problem related to the report came up two days after Chowdhry’s note. A detailed article in Daily Kanban, suggested that the recent emissions permit for the upgraded paint shop at the Fremont plant limits production to around 200,000 cars.

“If any future expansion or upgrade increases the Fremont plant’s net emissions by more than 6.5% over currently-permitted levels, Tesla’s paint shop will be required to comply with the extremely stringent Lowest Achievable Emission Rate (LAER) standard,” the article noted.The concerns regarding the emission levels highlight the big challenges of operating a huge manufacturing facility in California – a state known to have most restrictive and detailed environmental regulations in the United States.

Also, Tesla’s plan of adding 4.6 million square feet of space on 250 acres of land it owns, is yet to be approved by Fremont’s planning commission.

Tesla Motors Inc missed the initial release dates for the Model X, Model S and Roadster. So, if these doubts are anywhere near truth, then the Model 3 – expected to go into production before the end of 2017 –could get delayed as well.

In pre-market trading today, Tesla shares were in the red. Year to date, the stock is down over 15% while in the last one-year, it is down almost 9%. The stock has a 52-week high of $269.34 and a 52-week low of $141.05.

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Aman is MBA (Finance) with an experience on both marketing and Finance side. He has work as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, playing PC games and cricket.


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