Musk calls Tesla factories in Berlin and Austin ‘silver furnaces’ amid start-up issues

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Tesla’s brand new factories in Germany and Texas will eventually help the electric car maker dramatically increase production, but for now they are ‘money furnaces’ losing billions of dollars, CEO Elon Musk says .

The mercurial entrepreneur made the comments in an interview with fans of the Tesla Owners Silicon Valley Group which was taped at the Austin Gigafactory on May 31 and posted on Twitter Wednesday. The group previously released two more segments of their extended conversation with Musk this month.

“The factories in Berlin and Austin are currently gigantic money ovens. It’s like a giant roar, which is the sound of burning money,” Musk said. “Berlin and Austin are losing billions of dollars right now because there’s a ton of expenses and hardly any production.”

His three-week-old comments come as Tesla ends a more turbulent quarter marked by a dramatic slowdown in production at its Shanghai plant, widespread job cuts across the company and a volatile stock price. Musk had been relatively optimistic about Tesla’s second-quarter outlook in April during its last earnings call, despite obvious challenges in China stemming from drastic lockdown measures in Shanghai meant to slow the spread of the latest Covid outbreak. .

The Berlin factory, which opened in March, is doing somewhat better in its start-up phase, but is still building cars below expectations, Musk told the group. The problem in Austin, which officially opened in April, is that Tesla’s new 4680 battery cells are taking longer to produce in volume than expected, as is a new “structural” battery pack intended to help maintain the overall cost of his model. Y crossing.

“This (Austin) plant is losing crazy money right now because … we should be producing a lot more cars from the plant against a very small amount of cars,” he said. “We had issues with the 4680 at the ramp and with the structural pack at the ramp.”

The plant also could not quickly return to using the 2170 lithium-ion battery cells used at its other plants because “the tooling needed to manufacture the 2170 car variants is stuck in China,” it said. exasperated Musk said.

Coincidentally, shortly after his interview was posted on Twitter, Morgan Stanley equity analyst Adam Jonas cut his second-quarter estimates for Tesla. He now expects the company to deliver 270,000 units in the quarter, against an original target of 316,000.

“We are marking to market our 2Q forecast for lower volume (latest data, China) with most of the shortfall offset by 2H volume and higher prices,” Jonas said.

China’s strict public health rules to stop the spread of the coronavirus that began in late March temporarily idled Tesla’s factory in early April and kept production well below capacity through May. Production could return to roughly normal this month, although the plant is likely to produce just 115,300 units in the quarter, compared to 178,887 in the first three months of the year, Reuters reported. citing data from the China Passenger Car Association.

Musk has been through many production cycles and factory headaches over the past decade and said Tesla’s current setbacks will be overcome.

“All this will be settled very quickly, but it requires a lot of attention. It will take more effort to get production to produce this high-volume factory than it took to build it in the first place. The same goes for Berlin,” he said in the interview. “Making Berlin and Austin functional and getting Shanghai back on track are our main concerns. Everything else is a very small thing.

Tesla shares fell less than 1% to $708.26 in Nasdaq trading on Wednesday, dropping to around $706 in after-hours trading. The stock is down 35% this quarter.

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