Yes. All part of the secret master plan. actually, it's capacity that's required to build the X which should be coming out this time next year if I recall.
I've had the pleasure of visiting the factory twice. Once before it started production, and again a few months ago. It's massive. Even at this doubled production of up to 50,000 cars/year it's only 1/10th of the plant's potential production capacity.
This is just starting to get interesting...
It's spelled Fremont, not Freemont. Let this site know if you have a social media account (I don't). If they are going to do a blog on Tesla they should at least know how to spell the name of the city where it's manufactured.
Good news for Tesla, not so good news for California taxpayers who are spotting Tesla a $34.7 million exemption on sales and use taxes for the expansion. Oh sure, it's going to create 112 new jobs ($34.7 million/112=?) and we'll get paid back at some nebulous future date through increased tax revenues from job growth and car sales. How much tax revenue does CA get from cars not sold in CA? Gov. Brown came to us not long ago, told us the state was on the brink of insolvency, and begged us to approve a ballot initiative raising our taxes. We believed him and approved the tax increase. Now he wants to spend billions on high speed rail that few will use and continues to support mega tax breaks for green industry. I'm sure you all appreciate what CA is doing to save the planet, but the CA taxpayers are getting pregnant in the process. End of rant.
@Steven, The first rule of politics is to spend every dime of other people's money you can get your hands on. Spend every waking minute thinking of ways to get more money from the people and spend every cent as fast as you can. Why not it's not your money.
Government can't "give" you anything without first taking it from you.
@Steven - why is your rant Tesla directed? It is not a special Tesla tax break, everybody gets it who manufactures in CA in clean technology. Do you think it Is better to give the tax breaks - as we do with both hands - to companies that produce offshore?
@ Roamer and Stevenmaifert,
Couldn't agree more with the sentiments. I think we should get rid of ALL the tax subsidies and breaks. No deductions, no breaks, etc. You have to live/die on your own merits. How about all of the personal deductions and exemptions? Why does the government have any business in choosing their favored constituencies?
Do you think the 60+ billion in yearly breaks and subsidies to oil/gas industries should stop? How about the 2 Trillion dollar wars in middle east to help subsidize oil/gas prices?
How about bailouts of massively failed US auto companies? It wasn't until just recently that Government motors finally got out from tax payer funded parachutes (at a 10B loss as I recall).
I suspect if you actually just play on a level field, Tesla and electric vehicles would be FAR ahead of where they are today. So, ya ... no breaks for Tesla or anyone else. Let's see what a true free market does ... my bet is on Tesla.
Regarding tax subsidies - here in Belgium, both company and personal taxes on cars are determined by the CO² emissions and this plays a major factor in the choice of car in the first place.
So I wouldn't consider that a "tax break" as such, it's rather the tax laws.
Haha, hadn't seen that before (Government Motors)
Interesting that the article seems to focus on the "tax breaks", rather than the core topic at hand - increased production!
Re: "Tax Break" - If it weren't for these breaks, I'm assuming that most of these "clean energy" companies wouldn't even step foot in CA.
Re: Increased Production - I'm glad to see this ramp up. I'm interested to know when this "ramp up" is expected to be completed by. That would give us an idea on what Tesla thinks the demand will be for 2014 (not just what they publically state to the news media).
Confused as to how this tax break will cost CA taxpayers.
Don't we (CA) get more tax if we make and sell more cars? I mean in the form of more people working = more income tax (including factory, parts manufacturers, etc.
I mean, if incentives are really a problem, move the factory to Texas.
What if California said NO? It's not like Tesla is in a financial position to move its manufacturing facilities out of California. Chances are Tesla would have moved forward regardless.
For all of the people here critical of the tax break that is helping reduce the smog in CA (what monetary value do you put on it), the gross profit on 1 year's worth of Tesla Model X (provided of course they produce at least 25k cars) is going to be more than $470m Of course from that we need do deduct salaries (which will be taxed) and other overhead, which will yield a net profit that will still be taxed, and finally if dividends are paid, taxed yet again. I do not however see dividends in the immediate future because the company needs the cash to expand. Just my 2c. This tax 'subsidy' is helping to ramp up production, because it allows the purchase of equipment that may otherwise require financing that will not help to bring the cost of the product down.
It is sad this thread diverged from the point that Tesla is increasing production by 50% (every other article I saw gives 35k/yr as the new production rate).
@HiteshBhatt - given the cost of living in CA, I doubt any manufacturing would take place there without incentives. When Google closed the Atlanta engineering office, I figured I could take a $50k pay cut and come out ahead staying in Atlanta due to outrageous real-estate costs.
Also, other states offer tax breaks for building plants, so it is a bit of keeping up with the Jones's - if you don't, the other states look a lot more attractive.
Anyway, I am also fine with removing all the subsidies, but I don't know how we get there since it is like campaign finance reform -- anyone who doesn't play along gets a huge benefit, so it has to happen everywhere all at once for it to work, and I don't see a practical way of doing that.
I own two manufacturing plants, one in California and one in Washington.
California is one of the few states in the nation to NOT have a sales tax exemption for manufacturing assets. It makes capital investments in California substantially more expensive than the same investments in almost any other state.
Most other states realize that manufacturing activity has many positive externality effects, such as creating more and better paying jobs (vs. service jobs), creating more demand from local suppliers which encourages other local businesses, and creating local areas of manufacturing excellence and expertise that have multi-generational effects on the local economy.
Currently moving manufacturing out of California is a positive ROI move. I wish that weren't the case. The only thing keeping us there for now is that it is very expensive to move. But I would never expand that plant, if I could expand elsewhere instead.
It's sad that some people here act like this is some sort of taxpayer-funded handout or grant to Tesla. The fact that there needs to be an exemption at all to this tax is what's sad. But keep on pushing manufacturers out of your state and see what road that takes you down.
Companies often ask for and receive various incentives, including tax breaks, for locating or expanding productions in a specific municipality or state. It's called capitalism.
Of course, some think it goes too far:
+1---you hit the nail on the head
To All - My rant is not specifically Tesla directed. It's more about principle. If the Fed wants to give tax breaks/subsidies to whomever, that's the Fed's business. When they run short of money, they just print more and have been doing so to the tune of $85 billion/mo. for quite some time. States don't have that luxury. They are expected to live within their means. Presumably, California's corporate tax breaks are there to serve some sort of public good as determined/defined by the politicians. What I'm saying is CA can't afford it. It's disingenuous for Sacramento to coerce us into approving a tax increase, predicting financial calamity if we don't, and continue to pursue spending and corporate tax incentives that have little to do with the core functions of state government.
I'm surprised they are only doubling with the model x coming up. Perhaps they are starting to see softer demand for the MS?
I see Tesla's hasty expansion into foreign markets as tacit acknowledgment that domestic Model S demand is not unlimited. You can only sell so many $80k+ electric sedans in one market before you need to crack open other markets to keep the revenue stream flowing.
"and continue to pursue spending and corporate tax incentives that have little to do with the core functions of state government".
Yet, on the hand none of the factories in China pays taxes to the State of California, except for sales taxes.
As far as I know, States, all of them do it all the time to attract businesses. Why California shouldn't do it to retain businesses?
@stevenmaifert - If you stand up for principles you lose you seat.
Others are willing to give tax incentives.
That is why Boeing HQ is now in Chicago and they are talking about moving production lines for aircraft to the south. They try to blame it on unions, but in the end it is all about the tax breaks. Boeing HQ folks were not union and the State didn't think it was fair giving them excess tax breaks compared to other industries so they left.
@Captain_Zap - that was part of it with Boeing. But the unions really were a big deal. A big reason they moved the execs to Chicago was so they would be separated from the union workers in Washington, and not too partial to the 'local economy'. Hard to be a tough negotiator when you have to be neighbors with the other side.
I did the math on the pension benefits and it was insane. For each year that a fully vested employee worked, the future pension liability created for that employee was more than the entire salary that employee worked that year. IE, it more than doubled their compensation cost per employee.
The workers rejected an above-market offer (great 401k program with 401k grant plus matching to 6%, good raises above inflation, etc) because it would affect that pension. Unions called Boeing's bluff, and Boeing started shopping around. We'll see how it turns out, but last time it happened Boeing built another assembly plant in South Carolina.
Anyway I know that's totally off topic now but I thought it was interesting.
@tes-s -- gotta agree, the market for $80k+ sedans just isn't that big. The fact that Tesla has gotten so much market share in the high end luxury market so quickly shows you that it's not that big of a market. Mercedes S class sells 9,310 cars a year in the US. Audi A8 4,561. Porsche Panamera 6,451. Tesla is taking market share, but there's a ceiling to what they can take in the US.
Hopefully international sales keep production fueled until they can get down into the lower price point market in a few years where the market is much bigger.
Softer demand for MS? I haven't seen a single ad yet, and ads a pretty good indication that something has gone soft.
Maybe the market is saturated and brand awareness is a fait accompli in California, but I don't think that's the case on the east coast at least. I still see a lot of "comparable" (as much as an ICE can be) cars on the road around here and wonder why they settled for an inferior car. And I think as supercharges get rolled out, MS popularity will continue to rise.
@ Tiebreaker - You shouldn't conflate lack of advertising with high demand. Elon farting is enough to set off an entire news cycle. Tesla gets more free publicity than it could ever buy. Even when the media reports negatively, it still puts Tesla's name out there. Tesla has not spent a dime on advertising outside of its web site, yet people photograph my car, slow down as they look at it in my driveway, or just walk up to me in a parking lot to discuss it. No amount of marketing that Tesla can afford would buy that.
@AmpedRealtor - Completely agree. All that just reinforces the notion that there is no softening of the demand for or interest in Model S. What I'm saying is that if we do see an ad, it may be an indication that there is softening. Until then, I'm sure demand is pretty hard.
Steve, you said that " California taxpayers are spotting Tesla. ..........." What in the world are you trying to say?
Clearly US demand is down significantly - I don't think anyone disputes that. They have opened international markets and made only modest increases in production - math says US deliveries are declining.
I think they have a good 2-year run on the MS and will sell around 50,000 vehicles total in 2013 and 2014. It will tail off after that, but they'll probably sell that number of MX in 2015 and 2016. Some MS will get totaled, others will get replaced when they come off lease or just be sold and replaced (for new features like larger battery, AWD, etc). Then comes the model E...
My guess is they're good for 30 to 50 thousand vehicles a year in the MS/MX segment for several years, and much more if they can build a $40,000 electric that goes 200 miles before there are competitors.
I believe superchargers will become a differentiator for them - even if future cars have to pay, they will have the infrastructure and the "option" of road trips will be there. The only thing other manufacturers can do to compete is band together and get a good network of CHAdeMO DC chargers out there - but working together is so hard to do...
Many people see the superchargers in the US as a big deal and differentiator for Tesla and they but it should pale in comparison to there impact in high cost gas countries, particularly in Europe. Imagine the attention the supercharger network would be getting here if gas were 6,7,8 $/gal. The Model S also has a very European feel to it. Once the wrinkles for the European market get ironed out and more service centers are built, sales in Europe should be similar to those in the NAM. Around 20k sustained in both markets in my estimation. Tesla is still building stores, service centers and superchargers in the US and Canada which will offset saturation with early adopters.
Asia is a wildcard. It will be very interesting to see how well Tesla does there.
Slowing US demand would immediately show in reduction of waiting time. It would also show in increased advertising efforts.
Sales overseas, particularly Western Europe and China are absolutely required. The market for these cars is truly global. Tesla had to expand even if thous would mean increased waiting time in the US.
Assumption that expensive cars market is a fixed pie is invalid too. Like any truly innovative product Tesla is expanding the market, rather than merely fighting for a market share. There are plenty of stories from people for whom Tesla is the most expensive car they've ever had.
@Al1 - I agree with you, there are more nontraditional luxury car buyers for MS. But this isn't the iPhone, where many people could afford a more expensive phone than what they'd traditionally bought, and just spent less on other goods instead. And the iPhone consolidated the need for other gadgets, so that helped it absorb the spend from other categories.
An $80k car is very expensive and the addressable market is limited by those who can afford it -- at that price range there's a much lower ability to just reduce spending on other goods. So Tesla can certainly make the pie bigger, but they're not going to totally redefine the market size potential. Sure, there's the fuel savings, but for most people that's $2-$4k a year, which has a pretty modest impact on the economics at this price.
The fact that waiting times appear to be stable or slightly declining in the face of ramp up in Europe and initiation of sales in Asia tell us that there may have been a backlog of interest in the car, and that now that they are fulfilling that backlog there is not a spiral of increasing demand outside the early adopters and they will stabilize at a run-rate more consistent with the size of the luxury car market.
We're betting our $ 85K car for less than 5 years will match our previous $47K car for 3 years. Of course factoring in fuel and maintenance costs.
The Grin is hard to account for.
I do dispute the softening US demand. And I do think that advertising IS a sign of a company trying to gain or retain market share. The waiting line is still long. It's not quite as short as Tesla originally wanted. None of this says to me that the US market is saturated.
When we see a superbowl ad, I'll be worried.
I agree that even expanded market is not unlimited. Most luxury car makers address these problems by diversification and launching less expensive models.
Tesla also has new models coming in the pipeline.
Still they are building 21500 cars this year and adding capacity to produce 35000 more cars next year. Not sure how this leads to conclusion model S demand in NA is tapping out.
500 million capital expenditure is hefty investment for a start up company.
Still they're going for it. I don't see any signs demand is getting saturated.
Also, let's not forget the most recent price update was upward.
Compare this to Nissan who has been pondering capacity increase for nearly a year now.
@tes-s - What is your claim based on?
I see a lot of brand new $80k cars and SUVs driving around in my area (Bay Area) so the money is there. My coworker just paid for a not fully loaded BMW3 $70k.
I don't think MS takes anything away from the "luxury" cars like S class, A8, etc... maybe some Panamera sales. Model S is a "premium" sedan, not a "luxury" car ( the press just constantly hypes it up... people come up to me and ask "so this is a $200k car?" and they are surprised that it starts at $70k ).
Actual buyers come from everything starting at Corolla to E class, A6, BMW 5, Lexus - the is a thread about it.
Time and time again they repeat that the volume is production-limited and not a demand-limited. Battery suppliers is the bottleneck. @tes-s: I also would like to ask -- what is your statement based on?
@Tiebreaker - not based on anything. Just on slowing demand.
@jbunn - US demand is off. Until this fall, they were delivering exclusively in the US. They are selling more overseas than they have increased production (my opinion) so therefore they must be selling fewer in the US.
@wolfpet - yes, they are production-limited now because they keep opening markets. That works, until they run out of markets to open. Each market has a nice demand backlog, which does not last forever.
Tesla is right on the money with superchargers - there is still a good amount of demand in the US waiting for superchargers to enable distance travel. That, along with people that have an aging car that will eventually be replaced by an MS or MX, will keep the demand going for a while.
If demand was slowing in NA. then we would be seeing opening up of right hand drive markets. There is absolutely no movement in Australia at all, despite a promise that we will see our cars by the Southern Hemisphere fall. They actually phoned each and every reservation holder in August with that information!. me included.
Almost by definition, US demand is lower now than it was a year ago when they had a huge backlog of orders to get out the door. Regardless, Tesla has done an amazing job interleaving new markets in with their production capacity. As demand slackens in one market, they start selling in another, all the while increasing total production. Meanwhile, production is still supplier constrained.
Very few place put sales and use tax on mfg equipment in the first place. CA "exempts" some favored types like Tesla. Have you stopped beating your mother yet? Has Moonbeam?
"they are production-limited now because they keep opening markets. That works, until they run out of markets to open. Each market has a nice demand backlog, which does not last forever".
This doesn't make much sense. I've never heard there is such a thing as nice demand backlog for a new product. Especially in each of international markets.
- Most cars are being sold from inventory and 2 months inventory is considered a good thing. Tesla has 2 months waiting time in US. For Europe it could be as much as 6 months. And no deliveries as of yet to places like UK, Australia, Japan. None of these markets is too small.
- Tesla is more than doubling its production capacity. With 35.000 capacity added they can double sales of Model S and still have room for 14,000 units of model X. This is as aggressive as an expansion could be.
- Nobody has yet seen an ad paid by Tesla. All that press attention is not really advertising. And if it is, why would others not follow Tesla example and simply delete their advertising budgets?
- For all the publicity and headlines Tesla has got there are researches done which show 78% of the population doesn’t even know about the Model S.
No indication whatsoever US demand might be a concern. At least as of today.
@jbunn "When we see a superbowl ad, I'll be worried."
Yeah, me too.
But can you imagine the ad? I'm thinking back to 1984 ;-)
@AL1 - did you mean to say this? "I've never heard there is such a thing as nice demand backlog for a new product."
Before the first MS rolled off the line, there was a waiting list in the US. People are begging Tesla to come to their country. Asking when they are going to have right-hand drive. So now you have heard...
Yes, there is pent-up demand worldwide, just like there was in the US. They fully met the US backlog, and my bet is they are delivering fewer cars in the US each month.
They will keep the wait time for US cars right where it is - marketing told them it is good for sales.
"No indication whatsoever US demand might be a concern. At least as of today."
Here is your indication: wait times for the MS in the US have never been shorter, and they are now shipping cars outside the US - and only modest increases in production capacity.
This is an interesting thread.
The name of Panasonic has not been mentioned yet in this thread.
I think that the combination of these two news items is a very strong sign that Tesla Motors is right on track in achieving its goals:
1 - The news item of the new 1.8 billion battery cells agreement between Tesla Motors and Panasonic.
2 - The news item of the 415 million investment in order to increase production capacity at the Tesla Motors factory in Fremont.
I think that 2014 will be a great year for Tesla Motors.
The global demand and the global deliveries for the Tesla Model S and the Tesla Model X will keep on growing every year.
My concervative guess would be:
2014 - 35.000 Tesla Model S and 5.000 Tesla Model X
2015 - 40.000 Tesla Model S and 20.000 Tesla Model X
2016 - 45.000 Tesla Model S and 25.000 Tesla Model X
2017 - 50.000 Tesla Model S and 30.000 Tesla Model X
@Xradr. I can see how maybe you misunderstood my post because it was on a Tesla topic thread where a poster described all the taxes Tesla is being exempted from. My post listed below had nothing to do with Tesla. They are a tax victim of the politicians and being given a temporary pass on the politicians taxes.
Here is what I posted. It is a generic explanation of politicians and taxes.
"The first rule of politics is to spend every dime of other people's money you can get your hands on. Spend every waking minute thinking of ways to get more money from the people and spend every cent as fast as you can. Why not it's not your money.
Government can't "give" you anything without first taking it from you."
My point is still that NO MATTER HOW MUCH BIG GOVERNMENT GETS IT WILL NEVER BE ENOUGH. They would not need to give Tesla a break from some taxes if they didn't crap away the money and tax so much to start with.
I completely agree with your sentiment to do away with ALL political tax presents especially if they quit crapping massive amounts of money on failure.
Zero deductions and a flat 10% tax on everyone works fine for me. Everyone should pay their fair share.
Final thought on the tax part of this discussion.
It is impossible for a business to pay a tax. All business taxes are a tax collection system to extract taxes from individuals while having the naive citizens think some evil business is being taxed and punished.
It is impossible for a business to pay taxes. Every dime a business is taxed is passed on to a human buying the product and is ultimately paid by a productive human.
Those sneaky politicians found a way to get more taxes out of you and have the stupid people in our society high fiveing because they taxed some evil big company. You paid the tax the business just collected it from you for the government.