Tesla’s New Giga Press Is Not Toying Around
Tesla (NASDAQ:TSLA) and TSLA stock are revving up again as the company nears the start of manufacturing at its new gigafactory, Berlin-Brandenburg. With new electric vehicle (EV) competitors like Rivian (NASDAQ:RIVN), Polestar (NASDAQ:GGPI) and Lucid Group (NASDAQ:LCID) ramping up, Tesla’s German plant is a reminder of its manufacturing prowess. The plant will significantly expand production, starting with an incremental 1,000 EVs per week and scaling upward from there.
But the new Berlin plant is also important for another reason: it could change the economics of EV manufacturing altogether. Specifically, the plant is home to the Giga Press, a die casting machine that is expected to significantly speed up production and reduce costs. The press will manufacture the chassis of a Tesla vehicle in one or two pieces, eliminating the need to assemble hundreds of individual parts. This new technique is a revolutionary change.
Analysts expect Tesla to deliver over 900,000 vehicles this year. Now, CEO Elon Musk is increasingly focused on improving profitability. Here’s a closer look at how die casting can reduce manufacturing costs and secure Tesla’s competitive advantage.
TSLA Stock and the Giga Press
Elon Musk clearly has profitability on his mind. Earlier this week, the CEO reportedly told employees not to rush to make deliveries by the end of the quarter but to “instead focus on minimizing costs.” With the TSLA auto business operating at around a 30% gross margin, Musk is naturally focused on ways to reduce manufacturing costs.
The Berlin plant is a key part of that focus. This particular gigafactory uses a die casting machine made by Italian company Idra Group. The machine will significantly reduce build time, operating and manufacturing costs as well as factory footprint.
Die casting operates similarly to how toy cars are made. Tesla takes a special molten material and pours it into the exact shape with a reusable mold. A machine then opens the mold and cools the solidified piece. Finally, robots clean and ready it for use. Each piece can be made in approximately one to two minutes. Die casting will also significantly reduce the number of assembled parts.
The machine is expected to cut the time spent on car production by 25%, as well as reduce downtime by 10%. Clearly, it could be yet another boon for TSLA stock.
All Eyes on Production
It’s clear that the Giga Press can bring immediate cost and efficiency advantages to Tesla’s already colossal manufacturing process. But there’s a lot more the company could do with it — and a lot more ways TSLA stock could gain.
First, Tesla could apply this manufacturing technique to other models. Notably, the company has commissioned an even larger die casting machine to make chassis components for its planned Cybertruck pick-up. Tesla could expand this concept and leverage an even bigger die casting machine to create parts for its semi-trucks.
Another possibility is that the EV giant will leverage the technology to create a super low-cost EV model for which the die casting machine would create the entire frame in one piece. As the company moves to compete globally with lower-cost models from Chinese manufacturers, die casting could provide an incremental edge.
Finally, this press is paving the way for Tesla to automate more of its assembly process. Musk talks a lot about robot automation and it may be the company’s secret weapon to increase manufacturing speed while lowering costs. After all, Tesla has been steadily installing more production robots at its Fremont factory.
The Bottom Line on TSLA Stock
The next big catalyst for TSLA stock is the company’s fourth-quarter earnings report, which will take place sometime around late January. Elon Musk mentioned earlier this week that he would be on the earnings call. Given the surprise appearance, I’d expect some important updates on production and manufacturing.
Tesla hasn’t released a delivery target for 2021, although the company has said it aims to increase deliveries by around 50 percent annually. Tesla delivered roughly 500,000 vehicles in 2020 and has already reported delivering 627,350 in the first three quarters of 2021. My take? The company could get to an overall annualized production of 1 million cars by year-end.
Now worth north of $1 trillion, Tesla is clearly the bellwether of the electric vehicle group. EV competitors will continue to fight over design and battery efficiency, but ultimately manufacturing excellence remains one the most important metrics for scale.
Your comments and feedback are always welcome. Let’s continue the discussion. Email me at jmakris@investorplace.com.
On the date of publication, Joanna Makris did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joanna Makris is a Market Analyst at InvestorPlace.com. A strategic thinker and fundamental public equity investor, Joanna leverages over 20 years of experience on Wall Street covering various segments of the Technology, Media, and Telecom sectors at several global investment banks, including Mizuho Securities and Canaccord Genuity.
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