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Can Tesla Learn High-Volume Manufacturing From The Chinese?

Jul. 10, 2017 3:08 PM ETTesla, Inc. (TSLA)BRK.B, BYDDF, BYDDY, F41 Comments
Orangutan Capital profile picture
Orangutan Capital


  • Tesla is notorious for missing its production goals.
  • Tesla just announced its intention to set up a manufacturing plant in China.
  • Pretty much every Chinese auto company produces more electric cars than Tesla.
  • We think that Tesla could learn a lot from the Chinese, particularly with respect to high-volume manufacturing.

Last week, Tesla (NASDAQ: NASDAQ:TSLA) announced its intention to set up a manufacturing plant in Shanghai, China. In typical Chinese fashion, Tesla would be required to form a joint venture with a domestic company in order to enter the market. Chinese companies are notorious for absorbing the know-how of its foreign partners and then forcing them out of the partnership. In Tesla’s case, we think that for once, a Western company could gain more from the joint venture in terms of know-how than the Chinese partner.

Somewhere in China: all those white cars are electric vehicles, available for rent; and yes, there’s an app for that, but you won’t need it since you can just use WeChat or Alipay. Source: Bearingtonpartners.com

Tesla’s Approach: Manufacturing By The Drip

Tesla is notorious for failing to meet its production goals. Since inception, Tesla has missed virtually every single production target with respect to both volumes and timeline. This applies not only to cars, but also to its much vaunted gigafactory. While some of this has to do with marketing, as scarcity creates a false impression of pent-up demand, and, therefore, value (reflected in Tesla’s outlandish market cap), in practice, Tesla simply seems to lack the know-how to manufacture cars in large quantities.

The upcoming Tesla Model 3 will be a litmus test for Tesla with respect to manufacturing techniques. For the moment, in the world of automobiles, Tesla could be best described as producing ‘samples’ rather than final products, or in other words, manufacturing cars by the drip.

The Chinese Market

China is the world’s largest manufacturer and buyer of cars. It is also the largest manufacturer of electric cars and electric vehicles, the latter (including buses, cars and electric bikes) by orders of magnitude.

According to Reuters, more electric cars are

This article was written by

Orangutan Capital profile picture
Buyside analyst / sector PM with over 20 years of experience now running my own fund. Formal equity and credit experience (will always look at all levels of the capital structure even when investing in equities). Focus on relative value.

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