Musk Calls Tesla’s Berlin, Austin Plants ‘Money Furnaces’ Amid Startup Snags

Tesla’s brand new plants in Germany and Texas will eventually help the electric-car maker dramatically boost output but for now they’re “money furnaces” losing billions of dollars, according to CEO Elon Musk.

The mercurial entrepreneur made the comments in an interview with fans from the Tesla Owners Silicon Valley group that were recorded at the Austin Gigafactory on May 31 and posted to Twitter on Wednesday. The group previously posted two other segments of their extended chat with Musk this month.

“Both Berlin and Austin factories are gigantic money furnaces right now. It’s like a giant roaring sound, which is the sound of money on fire,” Musk said. “Berlin and Austin are losing billions of dollars right now because there’s a ton of expense and hardly any output.”

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

The Berlin plant, which opened in March, is doing somewhat better in its startup phase though was 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 that’s intended to eventually help hold down the overall cost of its Model Y crossover.

“This factory (Austin) is losing insane money right now because … we should be outputting a lot more cars from the factory versus a very puny amount of cars,” he said. “We had challenges with the 4680 at ramp and with the structural pack at ramp.”

The plant also couldn’t quickly shift back to using the 2170 lithium-ion battery cells used at its other plants because “the tooling necessary for making 2170 variant cars is stuck in China,” an exasperated Musk said.

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

“We mark to market our 2Q forecasts for lower volume (latest data, China) with most of the shortfall made up for in 2H volume and higher pricing,” Jonas said.

China’s strict public health rules to halt the spread of the coronavirus that began in late March temporarily idled Tesla’s factory at the beginning of April and held production well below its capacity through May. Output could return to about normal this month, though the plant will likely produce just 115,300 units in the quarter, down from 178,887 in the year’s first three months, Reuters reported, citing data from the China Passenger Car Association.

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

“This is all going to get fixed real fast, but it requires a lot of attention. It’ll take more effort to get the production to get this factory to high volume production than it took to build it in the first place. The same is true of Berlin,” he said in the interview. “Getting Berlin and Austin functional and getting Shanghai back in the saddle fully are overwhelmingly our concerns. Everything else is a very small thing.”

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

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