The Math Behind Tesla Getting to 20 Million Vehicles Per Year
Tesla Has a Goal of 20 Million Vehicles Per Year
Tesla made 35,000 cars in 2014. It has ambitious plans to get to 20 million vehicles by the year-end of 2030. That is a 571 times increase in vehicle production in 17 years. That is an unreal feat if Tesla achieves that. Even at a 2 million vehicle per year run rate, if Tesla gets there this year, that is still a 57 times increase in vehicle production in 10 years.
Giga Nevada was being built in 2014 and now it is fully functional. Tesla also had a 500,000 vehicle goal by 2020 and that happened with the Model 3 and Model Y. Many were skeptical that Tesla could never achieve that result - because it had never been done before. It's a 14 times increase in 6 years.
Applying the same logic today, to get to 20 million vehicles by 2030, you have an 11 times increase in 7 years, with 1.8 million vehicles this year, which I think is conservative. Based on Tesla's growth in the past, I don't see any reason Tesla won't be able to make this ambitious goal. Tesla can go 25% slower and reach this 20 million vehicle per year goal.
Some may say that 20 million vehicles is too many. Toyota at their peak made about 10 million. Nobody has done this and therefore, many are skeptical that Tesla can do this.
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The Math for How Tesla Gets To 20 Million Per Year
Tesla is making four vehicle types, the Model S and Model X and Model Y and Model 3 to get to the 2 million vehicles (about) that it will make this year. They have great manufacturing techniques and vertical integration that enables them to move fast.
Giga Texas has a 10 million square foot building. This is 5 times the area of Fremont. Giga Texas should get to 1.23 million cars per year when equal with Fremont production. However, the next generation vehicle is going to be faster to make with improvements and a smaller footprint - 40% smaller.
This puts Giga Texas at a 2 million vehicle per year run rate. That's 205,000 cars per 1 million of square feet. This is utilizing the generation 3 vehicle processes.
We recently heard about Giga Berlin continuing to increase its weekly run rate. All of Tesla's Giga factories that are built new after Fremont are going to have enough space for 2 million vehicles per year. Giga Mexico will be at least 2 million and might get to more. Tesla has secured about 10 million vehicles per year already with the existing land it has - it just needs to build more.
Tesla will need 5 more factories in the next 8 years cranking out cars in order to reach the 20 million vehicles per year. Tesla seems to be on schedule to get there, even though it looks like they are far away.
We now have the math and Tesla's plans to get to 20 million vehicles per year. What about demand? Will there be enough people in the world that want a Tesla that will buy 20 million vehicles per year? Will Tesla actually deliver 20 million vehicles per year?
Demand is simply the given price a consumer will buy a product. Elon Musk said at Investor Day that the desire for people to own a Tesla is high. People want one, but can't afford it. If you have enough money to buy a Tesla, you don't think about or consider that fact. Tesla needs to lower costs and make their cars more affordable. Tesla has found that even small price decreases greatly increase demand. Pricing is extremely important.
There is also an exponential increase in affordability as a car price approaches $20,000. At that price point, nearly 100% of people in the U.S. can afford a Tesla, as well as in many places around the world.
Tesla is still ramping the Model 3 and Model Y vehicles and will bring out generation 3 vehicles that cost much less. Most likely there will be a compact car and Robotaxi variation vehicle. Tesla's prices on their existing products right now will continue to come down as they ramp production and take advantage of economies of scale. I believe Tesla will continue to have over 20% on their margins as they do this.
If you analyze Tesla and the factories they are building as well as expanding into additional markets like a compact car and a van (as well as other vehicles like the Cybertruck), you can see that Tesla can get to 20 million vehicles per year. It's all a matter of reaching the market with the affordability.
For more information, you can check out Farzad Mesbahi in this video:
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Jeremy Johnson is a Tesla investor and supporter. He first invested in Tesla in 2017 after years of following Elon Musk and admiring his work ethic and intelligence. Since then, he's become a Tesla bull, covering anything about Tesla he can find, while also dabbling in other electric vehicle companies. Jeremy covers Tesla developments at Torque News. You can follow him on Twitter or LinkedIn to stay in touch and follow his Tesla news coverage on Torque News.