Ahead of Tesla's Model X Launch, Investments in Production Capacity Mount
On Tuesday, electric-car maker Tesla Motors will unveil the production version of its next vehicle -- a fully electric SUV with falcon wing doors; called Model X. The company is clearly betting the X will be a blockbuster hit with customers in the high-end market for SUVs. Tesla CEO Elon Musk has said on several occasions he essentially expects demand for Model X to be robust enough that it will help the company double total vehicle sales once production ramps up. A look back at Tesla's recent capital expenditures highlights just how significant the company's bet on Model X is.
Tesla teases Model X on its Sept. 29 event invitation. Image source: author.
Going all out on Model X Going into 2015, Tesla told investors it would be forking out some large sums of money. Specifically, it planned to invest about $1.5 billion in capital expenditures on production capacity, Model X development, Gigafactory construction, stores and service centers, its Supercharger network, and "other product development programs, including Model 3." So far, Tesla is staying true to its plan to spend heavily. Its year-to-date capital expenditures have already surpassed 800 million.
But what's interesting is how much of this spending has likely gone toward expanding capacity for vehicle production ahead of the Model X launch.
"Capital expenditures were primarily for the capacity expansion and tooling associated with Model X and all-wheel drive vehicles, as well as the Gigafactory," Tesla said in both its first and second-quarter letter to shareholders.
And in Tesla's most recent quarterly letter to shareholders it also provided investors a peek into how seriously it's approaching capital expenditures related to capacity expansion: "We have historically been frugal with our capital spending, and our most recent capital spend per unit of incremental capacity is significantly more efficient than even our prior performance [(emphasis added)]." In other words, Tesla's production capacity is expanding at a lighting pace.
Investors can glean some insight of what "significantly more efficient" may mean by considering one huge difference between Tesla's current production line and the line it just launched for Model X. Musk said on Instagram about three weeks ago that Tesla's Production Line 2 is home to 542 robots. This is quite an upgrade from production line 1, which has an estimated 150 to 250 robots.
Tesla Production Line 2, central assembly point. Image source: Tesla Motors.
While Tesla's second production line will initially only produce Model X, the line is designed to eventually produce Model S, too. Both models, however, will share the same final assembly line from the start.
Then there's Tesla's huge investment in its paint shop, which was detailed in the company's 2014 fourth-quarter letter to shareholders:
Durr, a maker of high-tech automobile manufacturing paint shop and final assembly systems, reportedly received its largest robot order ever for paint applications around the beginning of the year. The order was large enough to support capacity of 500,000 vehicle units per year, the report said.
No wonder when Pacific Crest Securities analyst Brad Erickson toured Tesla's Fremont Factory this summer he said, "To say the mood in the factory is one of 'gearing up' would be an understatement."
The article Ahead of Tesla's Model X Launch, Investments in Production Capacity Mount originally appeared on Fool.com.
Daniel Sparks owns shares of Tesla Motors. The Motley Fool owns and recommends Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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