After posting its second consecutive profitable quarter, Tesla revealed that it had a few more surprises up its sleeve during its fourth quarter earnings call. CEO Elon Musk, as per usual, let slip several key details regarding future product development, including that Tesla was readying to begin production and assembly of its upcoming crossover SUV, the Model Y.
The conversation began with Musk casually mentioning that Tesla had ordered the tooling to begin production of the Model Y. He continued to surprise the public by stating that Tesla plans to move the assembly of the Model Y to the Gigafactory in Sparks, Nevada instead of using its plant in Fremont, California where the Model 3, Model S, and Model X are all assembled. It is also stressed that this decision is not set in stone, however, is the current ideal scenario for production.
Musk continues to say that assembly at the Gigafactory would be "fast, low risk, and low CAPEX [capital expenditure]." In Tesla's quarterly earnings report released on Wednesday, the automaker stated that it planned to reach a sustained weekly rate of 7,000 units of the Model 3 at the Fremont plant in 2019, effectively raising the plant to its manufacturing capacity.
Moving the production of the Model Y to Nevada while leaving Model 3 in Fremont is an interesting decision for the automaker. Musk confirmed later in the call that the Model Y shares 76 percent of its components with the Model 3, raising the question of if it would be more fiscally sound to assemble both vehicles at the same location, barring capacity concerns.
Tesla foresees Model Y demand being somewhere between 50 percent and 100 percent higher than the annual demand for the Model 3 (which is currently anticipated to be upwards of 500,000 units per year, worldwide). If the automaker believes that it will need a larger location for assembly, it would be reasonable to suggest that production is moved to the Gigafactory where the automaker manufactures many its battery cells, modules, and packs.
Limited production is slated to begin in 2020 and, thanks to the lessons learned while producing the Model 3, is expected to achieve exponential "s-curve" growth throughout the year. Musk anticipates reaching volume production to be reached by the end of 2020.