I think it is more they can make the same number of vehicles in a smaller space, thereby doing it faster and more profitably. Tesla's gross margin (profit per car essentially) is 10-15% higher than most all of the rest of the industry. He is pointing out that doing it better makes them more competitive.
Currently, the Volkswagen Wolfsburg Plant is the biggest automotive factory in the world by number of vehicles produced by a single factory. That number is 815,000 vehicles per year. The tesla factories that are currently built are in theory capable of 1 million vehicles per factory apiece, but are not there yet. If tesla can out-manufacturer VW, obviously they'll be more likely to sell more vehicles, and further erode VW's business.
Currently, the Volkswagen Wolfsburg Plant is the biggest automotive factory in the world by number of vehicles produced by a single factory. That number is 815,000 vehicles per year. The tesla factories that are currently built are in theory capable of 1 million vehicles per factory apiece, but are not there yet. If tesla can out-manufacturer VW, obviously they'll be more likely to sell more vehicles, and further erode VW's business.