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Not So Fast: Can Elon Musk Really Open Tesla’s China Gigafactory This Year?

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Elon Musk rarely shies away from setting bold targets for Tesla, despite a mixed record for achieving them when promised. So it was in character when he announced the electric-car company’s first Chinese Gigafactory could be operational in about 11 months.

“We’re looking forward to hopefully having some initial production of the Model 3 towards the end of this year and achieving volume production next year,” Musk said at the Shanghai groundbreaking January 7.

He may be disappointed.

There’s no precedent for building a large, modern auto-assembly plant and starting its production in under a year, manufacturing experts say. In fact, even Tesla’s official goal of ramping up to 3,000 Model 3 electric sedans per week at some point in 2020 won’t be easy.  

“Unless he’s mastered some approach that I’m not aware of to do everything in a more effective and efficient way, that lead time to build is going to be really challenging,” said Laurie Harbour, CEO of manufacturing consultant Harbour Results Inc. in Southfield, Michigan. “It definitely seems completely optimistic.”

Musk’s motivation to rapidly localize Tesla’s operations in China is as simple as legendary criminal Willie Sutton’s apocryphal maxim about banks: That’s where the money is. China is the world’s largest electric-vehicle market, where sales of rechargeable vehicles likely reached about 1 million units in 2018. That’s why Tesla’s capacity target for its Shanghai Gigafactory when fully ramped up is 500,000 vehicles annually.

Tesla begins delivering Model 3s to China in March, but its China sales are restrained by a 40% import duty on foreign-built autos (China last month moved to cut that to 15%). Along with the Model 3, the Shanghai plant is also to eventually produce Model Y electric crossovers that can be sold to Chinese customers with no added tariff.

But first Tesla has to build that plant.

It typically takes at least two years to get a large new auto factory ready to churn out vehicles, according to Brian Jones, COO of Lexington, Kentucky-based Gray, an engineering firm that’s built nearly 450 auto and parts plants in North America over the past five decades for companies including Toyota, Volkswagen, General Motors, Mercedes-Benz, Nissan and Volvo.

“From the first shovel in the ground to the first vehicle rolling off an assembly line, the fastest we’ve ever seen is 24 months, which is typically a project you see from one of the more mature, experienced manufacturers,” Jones says. “That schedule can go all the way up to 36 months.”

That includes building the factory structure itself, as well as infrastructure in and around the site, including utilities, roads and exit ramps in place.

Tesla secured the 210-acre site in Shanghai’s Lingang area last year for about $140 million, and Musk said the cost of the initial phase to get the facility up to 250,000 units of annual capacity would be about $2 billion. (Analysts estimate that getting the plant to Tesla’s half-million-unit capacity goal may total $5 billion.) The local Shanghai government is helping expedite the project in terms of permits and supporting infrastructure, and Tesla says lessons learned from Model 3 production at its Fremont, California, plant mean it can accelerate Chinese Gigafactory construction.

Still, Musk’s comments were at odds with those he made in a July statement issued by the Shanghai Municipal Government about the plant’s timetable. Once permits and other preparations were set, “it will take roughly two years until we start producing vehicles and then another two to three years before the factory is fully ramped up to produce around 500,000 vehicles per year for Chinese customers,” he said.

By October 2018, however, he’d begun describing the accelerated timetable. “We’re driving to have Model 3 production for the China market or the Greater China market active certainly next year. It will be happening next year,” he told analysts during Tesla’s third-quarter results call.  

“Things work differently in China, so the North American experience (for building a new plant) may not translate exactly there,” said Kristin Dziczek, who studies industry, labor and economics as a vice president at the Center for Automotive Research in Ann Arbor, Michigan. Local government assistance will certainly help, “but this does seem really, really aggressive,” she said.

ELON MUSK VIA TWITTER

Reproducing the design and robots used for the Model 3 assembly line in California will speed things up, according to consultant Harbour.

Tesla also has to certify new suppliers in China, which is very time-consuming. Auto-assembly plants are “such a big system, and it’s such a gamble from launch of construction to starting to build (vehicles). Everything has to fall in line as planned in order for it to execute in that kind of timing. And to do it in 11 months, every star in the universe has to align for that to happen,” Harbour said.

Gray hasn’t built any of Tesla’s facilities nor has it built plants in China, but it is exploring consulting opportunities there, Jones said.

So could one of the top auto plant builders in the U.S. get a “greenfield” production site ready in under 12 months?

“We love a challenge, but that would be a stretch,” Jones said.

A Tesla logo is seen at the groundbreaking ceremony of Tesla Shanghai Gigafactory on January 7, 2019 in Shanghai, China.
A Tesla logo is seen at the groundbreaking ceremony of Tesla Shanghai Gigafactory on January 7, 2019 in Shanghai, China. VCG VIA GETTY IMAGES

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How Cryptocurrency Scams Work

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Millions of cryptocurrency investors have been scammed out of massive sums of real money. In 2018, losses from cryptocurrency-related crimes amounted to US$1.7 billion. The criminals use both old-fashioned and new-technology tactics to swindle their marks in schemes based on digital currencies exchanged through online databases called blockchains.

From researching blockchain, cryptocurrency and cybercrime, I can see that some cryptocurrency fraudsters rely on tried-and-true Ponzi schemes that use income from new participants to pay out returns to earlier investors.

Others use highly automatized and sophisticated processes, including automated software that interacts with Telegram, an internet-based instant-messaging system popular among people interested in cryptocurrencies. Even when a cryptocurrency plan is legitimate, fraudsters can still manipulate its price in the marketplace.

An even more basic question arises, though: How are unsuspecting investors attracted to cryptocurrency frauds in the first place?

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Fast-talking swindlers

Some cryptocurrency fraudsters appeal to people’s greed, promising big returns. For example, an unknown group of entrepreneurs runs the scam bot iCenter, which is a Ponzi scheme for Bitcoin and Litecoin. It doesn’t provide information on investment strategies, but somehow promises investors 1.2% daily returns.

The iCenter scheme operates through a group chat on Telegram. It starts with a small group of scammers who are in on the racket. They get a referral code that they share with others, in blogs and on social media, hoping to get them to join the chat. Once there, the newcomers see encouraging and exciting messages from the original scammers. Some newcomers decide to invest, at which point they are assigned an individual bitcoin wallet, into which they can deposit bitcoins. They agree to wait some period of time – 99 or 120 days – to receive a significant return.

During that time, the newcomers often use social media to share their own referral codes with friends and contacts, bringing more people into the group chat and into the investment scheme. There’s no actual investment of the funds in any legitimate business. Instead, when new people join, the person who recruited them gets a percentage of the new funds, and the cycle continues, paying out to earlier participants from each round of newer investors.

Some members work especially hard to bring in new funds, posting tutorial videos and pictures of themselves holding large amounts of money as enticements to join the scam.

Lies and more lies

Some scammers go for straight-up deception. The founders of scam cryptocurrency OneCoin defrauded investors of $3.8 billion by convincing people their nonexistent cryptocurrency was real.

Other scams are based on impressing potential victims with jargon or claims of specialized knowledge. The Global Trading scammers claimed they took advantage of price differences on various cryptocurrency exchanges to profit from what is called arbitrage – simply buying cheaply and selling at higher prices. Really they just took investors’ money.

Global Trading used a bot on Telegram, too – investors could send a balance inquiry message and get a response with false information about how much was in their account, sometimes even seeing balances climb by 1% in an hour. With returns looking like that, who could blame people for sharing the scheme with their friends and family on social media?

Exploiting friends and family

Once a scheme has started, it stays alive – at least for a while – through social media. One person gets taken in by the promise of big returns on cryptocurrency investments and spreads the word to friends and family members.

Sometimes big names get involved. For instance, the kingpin behind GainBitcoin and other alleged scams in India convinced a number of Bollywood celebrities to promote his book, “Cryptocurrency for Beginners.” He even tried to make himself a bit of a celebrity, proclaiming himself a “cryptocurrency guru,” as he led efforts that costinvestors between $769 million and $2 billion.

Not all the celebrities know they’re involved. In one blog post, iCenter featured a video that purported to be an endorsement by Dwayne “The Rock” Johnson, holding a sign featuring iCenter’s logo. Videos of Justin Timberlake and Christopher Walken were deceptively edited so they appeared to praise iCenter, too.

Fraudulent initial coin offerings

Another popular scam technique is called an “initial coin offering.” A potentially legitimate investment opportunity, an initial coin offering essentially is a way for a startup cryptocurrency company to raise money from its future users: In exchange for sending active cryptocurrencies like bitcoin and ethereum, customers are promised a discount on the new cryptocoins.

Many initial coin offerings have turned out to be scams, with organizers engaging in cunning plots, even renting fake offices and creating fancy-looking marketing materials. In 2017, a lot of hype and media coverage about cryptocurrencies fed a huge wave of initial coin offering fraud. In 2018, about 1,000 initial coin offering efforts collapsed, costing backers at least $100 million. Many of these projects had no original ideas – more than 15% of them had copied ideas from other cryptocurrency efforts, or even plagiarized supporting documentation.

Investors looking for returns in a new technology sector are still interested in blockchains and cryptocurrencies – but should beware that they are complex systems that are new even to those who are selling them. Newcomers and relative experts alike have fallen prey to scams.

In an environment like the current cryptocurrency market, potential investors should be very careful to research what they’re putting their money into and be sure to find out who is involved as well as what the actual plan is for making real money – without defrauding others.

Nir Kshetri; Professor of Management, University of North Carolina – Greensboro

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Hulu Offers Glimpse Of An Edgier Future Under Disney’s Control As Subscriber Count Passes 28 Million

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Hulu is poised to enter a new chapter in its history as the decade-old streaming service once dismissed as “Clown Co.” moves to refine its identity among a trio of direct-to-consumer services under the control of the Walt Disney Co.

The streaming service offered a glimpse of what’s to come Wednesday as it announced its programming lineup in a presentation at Madison Square Garden in New York City. Hulu is looking for more adult—and, in some cases, edgier and boundary-pushing—programming, as well as comedies that have something to say, in the mold of its new series Shrill.

The company said its viewer proposition—the ability to watch the stories they love, whenever and wherever they want—is catching on with consumers. Hulu said it increased its total customer base to more than 28 million—26.8 million monthly subscribers and 1.3 million promotional accounts. That’s up from 25 million paid and promotional accounts reported in January.

Hulu’s viewers are 20 years younger than those who pay for cable or satellite TV subscriptions — the median age is 31; and some 21 million have either canceled their pay TV subscriptions or never signed up in the first place.

“Hulu’s continued growth, as well as the shows and initiatives announced today, reflect our deep investment in product, programming, brand, customer experience,” CEO Randy Freer said in a statement.

The venerable Hulu will need to differentiate itself as more than a mere cable substitute, as media giants like AT&T’s WarnerMedia and cable giant Comcast prepare to launch their own streaming services. It’ll also need a distinct identity within Disney, which gained a controlling interest in the streaming service with its March acquisition of 21st Century Fox and plans to launch a family-focused Disney+ in November.

Hulu called in some serious star-power to highlight its original series, including Margot Robbie, producer of the forthcoming series Dollfacestarring Kat Dennings, Mindy Kaling, who’s producing an adaptation of Four Weddings and a Funeral, and George Clooney, who stars in a dark, satirical comedy based on Joseph Heller’s novel, Catch-22.

The streaming service greenlighted Nine Perfect Strangers, starring Nicole Kidman, an adaptation of the New York Times bestseller from Big Little Lies author Liane Moriarty. The series, from acclaimed television writer and producer David E. Kelley and John Henry Butterworth, takes place at a boutique health-and-wellness resort that promises healing and transformation to nine stressed city dwellers.

Hulu is also benefiting from Disney’s decision to end its relationship with Netflix, which had created four well-received series based on Marvel characters.

Hulu will add two new live-action series drawn from the Marvel universe, Marvel’s Ghost Rider and Marvel’s Helstrom, whichare slated to debut in 2020. For those not versed in the canon: Ghost Rider (aka Robbie Reyes) is an antihero, consumed by hellfire and supernaturally bound to a demon. Meanwhile, Daimon and Ana Helstrom are the son and daughter of a mysterious and powerful serial killer. Together, the siblings track down the worst of humanity.

The series join a growing superhero roster on Hulu that includes Marvel’s Runaways, which is entering its third season, and previously announcedadult animated series based on the popular Marvel Television characters Hit-Monkey, Tigra and Dazzler, Howard the Duck and Mental Organism Designed Only for Killing (or MODOK).

Following the success of Hulu’s 2019 comedy slate, it ordered second seasons of Pen15, in whichMaya Erskine and Anna Konkle play versions of themselves as 13-year-old outcasts in the year 2000, and Ramy, a series that follows first-generation Egyptian-American Ramy Hassan on a spiritual journey in his politically divided New Jersey neighborhood.

Hulu confirmed its order for The Dropout, a limited series starring Kate McKinnon, who comically bow-leg walked on stage in heels to talk about her portrayal of Elizabeth Holmes, the founder of the blood-testing company Theranos who is now awaiting trial for fraud.

“Hello advertisers,” McKinnon deadpanned. “I have never been to an Upfront before. If you need the blood of an upfront virgin, I am your gal.”

The service also said it will partner with Vox Media Studios, David Chang’s Majordomo Media and Chrissy Teigen’s Suit & Thai Productions to develop and produce a slate of premium food-centric programming for Hulu.

Dawn Chmielewski; Forbes Staff

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Airbnb Leads $160 Million Investment Into Hospitality Startup Lyric

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Airbnb is the lead investor in a new $160 million funding round for hospitality startup Lyric. The $30 billion home-sharing platform was joined by a host of major players in real estate including new investors Tishman Speyer and RXR Realty, as well as existing investors FifthWall Ventures and Starwood CEO Barry Sternlicht.

The Series B financing is about 50% debt and brings Lyric’s total funds raised to $185 million. The San Francisco-based startup declined to discuss its valuation.

Lyric’s model is similar to the one WeWork popularized for shared offices. Lyric leases a full floor of an apartment building from the landlord, fills each unit with Instagram-friendly furnishings, and then rents them out like hotel rooms. The company makes money off the spread between what it pays in rent and what it charges travelers.

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“The supply and demand of real estate used to move in a rigid cadence. It was like the old Henry Ford quote ‘you can have a car in any color you want as long as it is black,’” says Rob Speyer, CEO of developer Tishman Speyer. “To be competitive in 2019, real estate must offer flexibility to the customer, just like any other business.”

Lyrics average nightly rate is $220. Travelers can book one of 500 “suites” through the company’s site or on rental marketplaces like Airbnb. They can stay for as few as two nights or try to beat the record of 304. Every Lyric apartment includes a Casper mattress, Frette linens and toiletries from Malin + Goetz. Units feature local touches like Delta blues records in Chicago, Ed Panar photos in Pittsburgh and Cultivar Coffee in Dallas.

“We have seen how hospitality entrepreneurs like the team at Lyric can help deliver amazing experiences and help guests feel like they can belong anywhere in the world,” Greg Greeley, Airbnb’s president of homes, said in a release announcing the investment. Lyric plans to use the new funds to grow to 2,500 units in 12 months.

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For real estate owners, having Lyric absorb units can help get a new rental building to full occupancy faster. Lyric says it pays market rate for the apartments it uses. CEO Andrew Kitchell argues access to guest suites can also be marketed as an amenity for traditional, long-term tenants. His company’s presence, Kitchell reasons, eliminates the need for a spare bedroom or keeps a sibling from sleeping on your couch.

“We believe having some percentage of our buildings as shared hospitality, if done right, would be a very valuable addition,” says Scott Rechler, CEO of RXR, which is developing 6,000 residential units. “Merchandising them with multiple products that can meet different customers’ needs will make the communities more vibrant.”

Of course, not everyone likes the idea of random travelers coming and going as they please. Niido, another Airbnb-backed startup, experienced pushback when it took over management of a Florida apartment building and promised to help residents rent our their spaces short term.

Kitchell, who has worked in real estate technology since 2009, cofounded Lyric in 2014 with president Joe Fraiman. In 2011, Fraiman founded Tastemaker, a interior design startup.

-Samantha Sharf; Forbes Staff

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