Investors would very much like to peek inside
new car factories and see how production is ramping up.
It’s also fun to look at the latest car making technology but it isn’t always easy to get a tour.
however, is letting Wall Street analysts visit and their insights provide a useful lens for investors.
Recently, both New Street Research analyst Pierre Ferragu and UBS analyst Patrick Hummel visited the
(ticker: TSLA) Berlin Gigafactory, which started production early this year. Both were impressed.
Hummel wrote Tesla’s gigacasting was the key innovation at the plant. Tesla is casting the rear body out of aluminum, replacing a section of the car that used to be individually stamped out of metal, formed, and then welded together. Casting is where a part is made, essentially, from pouring molten metal into a mold. Less parts means less complexity and higher strength.
The casting process “replaces an army of welding robots for a single rear-end underbody part,” wrote Hummel, who adds Tesla is casting the rear now and has plans to start casting the front of the underbody soon.
There are eight gigapresses in the plant. The giga in gigapress, gigacasting or gigafactory isn’t a technical term. Tesla likes to slap giga on, well, everything.
The giga prefix probably started with Tesla’s first battery plant in Nevada–built with partner
(6752.Japan). That plant was producing 20 gigawatt hours of batteries a year in 2018. Tesla has plans to boost that plant’s output to 150 gigawatt hours a year.
One gigawatt hour of batteries is enough to power roughly 10,000 to 15,000 electric vehicles.
Hummel believes the Berlin gigafactory can produce gross profit margins of 30%. Tesla’s gross profit margin came in at about 25% in the second quarter. Manufacturing innovations along with a rich product mix will drive better-than- average margins, according to the analyst.
Ferragu, for his part, drove a Berlin-made Tesla Model Y when he visited. “The most stunning moment of the day was probably the one I would have expected the least: opening and closing the door of the Model Y I test-drove,” wrote Ferragu. “I did it 20 times in a row and could not believe the quality of the experience.” He drives a Model Y at home.
Tesla has trailed behind other luxury auto makers in initial quality, based on research by the automotive data provider J.D. Powers, which asks owners about their experience with new cars during the first few months of ownership. Improving build quality is important as a way of driving down costs and enhancing ny auto maker’s branding and pricing power.
Like Hummel, Ferragu was also impressed with the plant’s efficiency and cost. Logistics inside the plant are simpler than at Tesla’s first factory, in Fremont, Calif., said Ferragu. Each car is designed to sit in a station on the assembly line for 45 seconds.
Berenberg analyst Adrian Yanoshik also visited a Tesla plant recently. He went to the Fremont plant, where he noted higher than average labor costs there, along with more dated production equipment.
Yanoshik also took a demonstration ride in a self-driving Tesla while in California. He isn’t sure advances in the technology justify the $15,000 Tesla plans to charge for its full self-driving software.
As a result, he is more conservative on Tesla’s outlook and the stock, rating shares Hold with a $290 price target. Ferragu and Hummel are more bullish. Both rate Tesla stock Buy. Hummel has a $367 price target. Ferragu has a $527 price target.
Tesla stock was down 2.5% in late trading Friday. The
are off 2.6% and 3.2%, respectively. Markets dropped after Federal Chairman Jerome Powell delivered hawkish remarks from Jackson Hole, Wy.
Write to Al Root at [email protected]
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