Tesla to cut costs at old NUMMI plant to make profit

Article by Christian Andrei, on April 16, 2012

Tesla Motors Inc. is conducting a survey on a 50-year-old factory in Fremont, Calif., where it intends to produce electric cars, according to Gilbert Passin, its vice president of manufacturing. Passin is expecting to get a manufacturing bargain. Passin, who formerly served as an engineer for Toyota Motor Corp., Volvo AB's Mack truck unit and Renault SA had designed this second-hand plant.

He filled the plant with Ikea furniture and refurbished machinery to produce battery-powered cars that could rival BMW's 5 Series, beginning in about two months. He asserted that the cost to setting it up was “very, very low” if you compare it to a new plant. He added that it has a “very good” value return.

Preventing costs from ballooning is vital to Tesla’s success because no matter how many consumers prefer environmentally friendly vehicles, the rechargeable vehicle still can’t be economically viable if it can’t be competitive with conventional models on price. Tesla, which is being led by Silicon Valley entrepreneur Elon Musk, has yet to turn a profit.

Since the going price to construct and set up a North American auto plant is estimated to be about $1 billion on average, Tesla may have released less than a third of that figure to purchase, renovate and equip its factory.

Passin said that in 2010, it had paid $42 million for the plant and then used up $17 million for a portion of its presses and machinery. And at a fraction of the cost, it got other used equipment from parts suppliers such as Tower Automotive Inc.

Last February, Tesla released 2011 financial results, where it revealed that its present business plan would offer sufficient liquidity to be profitable in 2013. In 1962, this plant opened and started to build Oldsmobiles, Buicks, Pontiacs and Chevrolets for the former General Motors Corp. [source: Bloomberg]

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