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Elon Musk Already Has a Model 3 Supplier Problem

May 20, 2016, 7:00 PM UTC

Tesla Motors— flush with $1.46 billion in fresh capital from the sale of its common stock offering 6.8 million shares—has the cash it needs to produce its most important all-electric car yet: the Model 3.

It has big demand for the $35,000 car too with 373,000 pre-orders, via $1,000 refundable deposits. Now it needs suppliers to get on board.

Plans to move up high-volume production by two years to 2018 apparently surprised suppliers, who say it will be a difficult and costlier to meet that new deadline, according to Reuters. These suppliers, which Reuters doesn’t name, say Tesla has told them that it’s doubling its original production projections to 100,000 Model 3s in 2017 and 400,000 in 2018.

The dates are in line with comments CEO Elon Musk made more than two weeks ago during the company’s quarterly earnings call with analysts. During the May 5 call, Musk said the company would set a July 1, 2017 deadline for suppliers to have the necessary parts ready for the Model 3. He also said Tesla (TSLA) plans to produce 500,000 cars (that’s including the Model S sedan, Model X SUV and the Model 3) in 2018 and close to 1 million by 2020—two years ahead of its previous target.

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There’s no doubt that this highly aggressive schedule will be difficult to meet, and will likely be missed. Musk even said so himself during the earnings call. But as he explained at the time, “to achieve volume production of a new car with several thousand unique items, you actually have to set a target date internally and with suppliers that is quite aggressive. And that is a date that has to be taken seriously.”

Moments later, he added:

“Now, will we actually be able to achieve volume production on July 1 next year? Of course, not. The reason is that even if 99% of the internally produced items and supplier items are available on July 1, we still cannot produce the car because you cannot produce a car that is missing 1% of its component. Nonetheless, we need to both internally and with suppliers take that date seriously, and there needs to be some penalties for anyone internally or externally who does not meet that timeframe.”

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The supplier deadline is significant because a problem with one part can delay production for weeks or even months, something Tesla has dealt with before. Tesla sued German auto parts maker Hoerbiger Automotive Comfort Systems after the supplier allegedly failed to deliver the electric car maker working doors for its new Model X car.

But suppliers, while significant, are just part of the challenge. Tesla will also have to build new assembly lines for the Model 3 and make other modifications and additions to its Fremont, Calif. plant, all of which will take time.