A Wall Street analyst just toured the Tesla factory, and says the SEC's settlement with Elon Musk is overshadowing beefed-up Model 3 production

Benjamin Zhang/Business Insider


The US Securities and Exchange Commission’s lawsuit against and subsequent settlement with Elon Musk is overshadowing solid progress at Tesla’s California factory, according to one Wall Street analyst who recently toured the production plant.

Romit Shah, an analyst for Nomura Instinet, said his visit to the Fremont assembly lines – including the main building as well as the additional factory tent erected to meet Model 3 goals – was positive reinforcement that the company’s fundamentals were improving.

“Model 3 production appears stable and activity throughout the factory was surprisingly calm and orderly, despite it being the final week of 3Q18,” said in a note to clients last week following his visit. “We walked the Model 3 line from start to finish which included both GA3 (conventional general assembly) and GA4 (the infamous tent). GA4, while relatively unsophisticated, is legitimate”

Most impressive was the futuristic assembly line and its robots, Shah says, even despite Musk’s admission that “excessive automation at Tesla was a mistake” and that “humans are underrated.” The Shuler stamper – one of the largest in North America – even had to be paused intermittently in order to not outpace the rest of the assembly line

“Some aspects of the production process felt ahead of their time,” Shah said. “We were most impressed with panel stamping and later-stage body assembly (door and trunk/trunk attachment), each of which featured high levels of automation and appeared to be operating seamlessly.”

“Additionally, the density of the GA3 line was remarkable,” Shah continued. “Tesla has managed to fit a considerable operation into a very small portion of the overall factory space. We observed Kuka robots programmed to maximise every inch of available airspace in order to work on a vehicle as it travelled through the multi-level, U-shaped line. “

Still, some bottlenecks remain in the production workflow and some aspects of the manufacturing process seem outdated, according to Shah.

“Whereas the Schuler stamper was from the future, the GA4 station where the drivetrain was attached to the body was very much from the past,” Shah said. “Tesla appeared to have employees removing vehicles from the assembly line with a forklift and placing them on what looked like a heavy duty pallet jack in order to join the motor and battery to the vehicle body.”

Now the challenge for Tesla is getting everything to work at the same speed in order to ensure efficient output and maximise the factory’s capacity.

“Down time is probably Tesla’s greatest obstacle at this stage,” Shah said. “Throughout the tour, we encountered multiple inactive stations, presumably being held up by a slowdown ahead or for maintenance, recalibration, or a scheduled break for employees … we saw a number of finished bodies waiting to be elevated to the second floor for painting.”

The third quarter came to a close over the weekend, and Tesla is expected to report those results on October 31. “We are very close to achieving profitability and proving the naysayers wrong,” Musk said in an email to all Tesla employees early Sunday.

Shares of Tesla have whipsawed in recent days, declining 12% Friday after the SEC filed its lawsuit against Musk, and regaining nearly all the losses following the billionaire’s settlement in which he will pay a $US20 million fine and relinquish his role as chairman of the board for at least three years.

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