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TESLA’S MANUFACTURING WOES DAMAGE Q3 RESULTS: Tesla suffered a $US619 million loss in Q3 2017, its largest ever in a quarter, as troubles at its Gigafactory caused it to fall far behind production goals for its new Model 3 sedan. The electric automaker only managed to deliver 260 Model 3s in the quarter, far below its target of 1,600 deliveries, and production bottlenecks at the Gigafactory, where it produces the Model 3’s batteries, remain an issue. The Model 3 is Tesla’s first mass-market vehicle, and the lynchpin in its efforts to become a major automaker.
CEO Elon Musk provided more detail on the bottlenecks recently reported at the Nevada Gigafactory. Musk said battery production at the Gigafactory is divided into four manufacturing zones, each with their own manufacturing systems and robots, and that the most painstaking problems stem from the first and second zones. In particular, issues with a system integrator’s solutions in the second zone continue to slow battery production. Musk reported that the software behind the systems had to be completely rewritten over the last four weeks, and said the company has a plan for fixing the issue, but declined to say how long that fix would take. The company originally planned to meet its target of producing 5,000 Model 3s per week by the end of the year, but moved that goal back to March 2018, due to the production problems. Company officials also declined to say when they now think it will reach its long-term goal of producing 10,000 Model 3s per week, which it originally said would be next year.
The pushed-back production timeline for the Model 3 means more customers who pre-ordered the car will have to wait until 2019, or possibly later, to receive their vehicle. Tesla has received more than 450,000 pre-orders for the Model 3. At a run rate of 5,000 per week, Tesla would produce around 260,000 Model 3s per year, meaning those orders won’t be fulfilled within the next year, even if it achieves its production goal. Moreover, the possibility looms that Tesla could still miss the new target of hitting that run rate by March 2018. A recent Morgan Stanley analyst note predicted that Tesla would deliver about 120,000 in 2018, after factoring in the possibility of further production bottlenecks.
It remains unclear how long customers will be willing to wait for their Model 3s, as they can cancel their pre-order and receive a full refund of their $US1,000 deposit at any time. Already, 68,000 customers have canceled their pre-orders. The longer it takes Tesla to deliver pre-ordered vehicles, the higher likelihood that customers might take back their deposits and opt for one of the other affordable electric vehicles coming to market from traditional automakers like GM, Ford, and others. For example, Nissan’s new electric Leaf, one of the Model 3’s chief competitors, will come to the US next year after seeing early success in the Japanese and European markets. That competition will continue to pressure Tesla to ramp up production and get Model 3s into customers’ hands as soon as possible.
A LOOK INTO XPO LOGISTICS’ BEST QUARTER YET: XPO Logistics, the Connecticut-based provider of parcel- and freight-based logistics services, posted its highest-ever quarterly revenue and profit in Q3 2017, according to Reuters’ reports on the company’s earnings release. Total revenue came in at $US3.89 billion, up nearly 5% year-over-year (YoY), while gross profit increased a staggering 316% YoY to reach $US57.5 million. The top line also came in about 4% higher than in the prior quarter, and up 10% from Q1. The company specialises in transporting heavy goods, such as furniture and large appliances, both through last-mile delivery and trucking services.
The company’s e-commerce business drove much of its overall revenue growth in Q3. CEO Brad Jacobs said XPO’s omnichannel fulfillment business, which delivers furniture ordered online for companies like Crate & Barrel or Home Depot directly to customers’ homes, grew 47% YoY. The company plans to hire about 6,000 temporary employees by the beginning on December to help it cope with this growing demand, especially as the high-volume holiday season approaches. But Jacobs noted that this is likely to be more challenging than in previous holiday seasons since the labour markets in the US and Canada, the two primary markets the company operates in, remain very tight.
Meanwhile, XPO’s logistics unit made up about half of its top line in the quarter. The unit, which houses the company’s trucking operations, brought in $US1.46 billion in revenue for Q3, up about 8% from $US1.35 billion in Q3 2016. Over the past four years, the company has built out this business extensively with mergers and acquisitions, notably through its purchases of Con-way Freight and Menlo Logistics, both of which closed in Q4 2015.
Looking ahead, the company is sitting on $US8 billion in cash that it intends to use to continue its acquisition spree, Jacobs noted. He didn’t specify which specific areas the company is eyeing for an acquisition, but did say that it currently has a list of about 12 companies it could potentially acquire. XPO likely hopes that these continued acquisitions will help it better compete with larger providers like UPS and FedEx.
CATERPILLAR CAPITALISES ON CONNECTED, AUTONOMOUS VEHICLES: Construction vehicle and equipment manufacturer Caterpillar started connecting its vehicles to the internet over a decade ago, and now manages one of the largest commercial fleets of connected vehicles in the world, numbering 560,000 globally. The combination of embedded sensors and connectivity in its trucks, road graders, and excavators has allowed the company to create new software and services for its customers, including fully autonomous driving systems, Tom Bucklar, Caterpillar’s director of innovation & digital, recently told BI Intelligence.
Those software and services have helped its industrial clients cut costs and increase productivity at their worksites. Many of the services focus on collecting and analysing data from its connected vehicles, such as a subscription-based service it launched in partnership with SaaS company Zuora. Bucklar shared that Caterpillar saved a mining client over $US600,000 in lost production costs by analysing data from one of its machines to predict and ultimately cut down on downtime for repairs. In addition, another client in the construction industry increased its asset utilization by 15% through streaming data that Caterpillar helped collect and analyse on 10,000 pieces of equipment. As more connected and autonomous vehicles make their way into different types of commercial car and truck fleets around the world, vehicle manufacturers will be able to offer similar services to help limit costs for maintaining those fleets and enhance their productivity.
Caterpillar has also been able to make some of its vehicles fully autonomous, since they operate at designated worksites and aren’t subject to road regulations. The company started by building fully autonomous systems into their large trucks designed for hauling materials at mining sites, and Bucklar said the company has moved over 6 million tons of material autonomously with the vehicles. The autonomous systems have delivered 20% productivity increases over human-driven trucks at some mining sites, Bucklar reported. Additionally, Caterpillar is starting to build semi-autonomous and remote control systems into some of its bulldozers so they can operate safely at sites that may be dangerous for human workers.
The biggest challenge in this digital transition has been handling the sheer volume of data produced by these solutions, Bucklar said. IoT devices around the world such as connected vehicles will produce 18 zetabytes (about 18 trillion gigabytes) annually as soon as next year, according to Cisco. This volume of data can be overwhelming for Caterpillar and its clients, so the company is working on finding ways to sift through all of it, and provide actionable alerts on urgent information. Caterpillar is investing in analytics and software to help with this, but it remains a major challenge.
IN OTHER NEWS
- Waymo, Alphabet’s self-driving car spinoff, has partnered with AutoNation, the largest auto dealership chain in the US, according to ABC News. As part of the partnership, AutoNation’s dealerships will provide maintenance and repair services to Waymo’s self-driving Chrysler minivans once they are deployed. The partnership is just the latest indication that Waymo is gearing up to launch its self-driving cars as part of a commercial service relatively soon.
- Enterprise shipping platform Shippo raised $US20 in Series B funding earlier this spring, TechCrunch reports. The round was led by Bessemer Venture Partners, and included Union Square Ventures and SoftTech Venture Capital. The company, which uses algorithms to allow merchants to compare shipping rates across multiple shipping providers like UPS or FedEx, hopes to use the new funding to improve its algorithms to make it a more attractive platform for businesses, and further distinguish itself from competing platforms offered by Pitney Bowes, Stamps.com, and others.
- Brazil has scaled back a proposed bill to place new regulations on ride-hailing firms after government officials met with Uber CEO Dara Khosrow, Engadget reports. The country’s legislators removed a requirement for drivers to own the cars they use, and one that would have mandated drivers for ride-hailing services apply for licenses from local municipalities, just as taxi drivers are required to do in the country. Brazil is a particularly important market for Uber as it tries to become a profitable company by the time it goes public, which it plans to do by 2019. The country is home to the world’s ninth-largest economy by gross domestic product, and has 198 million smartphone users who could potentially use Uber’s mobile app. The market already accounts for about a quarter of Uber’s global drivers and users, ABC News reports.
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