Tesla employees say automaker produces flawed parts requiring costly rework
cnbc.com
cnbc.com
Tesla is making several very interesting bets on the Model 3.
Bet 1: Model 3 mix - Tesla is betting that the ratio of expensive, high-content Model 3s to cheap, low-content Model 3s will be sufficient to make enough money to offset investments and pay back loans.
It will not be sufficient to make a small profit on each Model 3 sold given the debt load that Tesla has accrued, so they will want to sell a good ratio of expensive Model 3s.
If it takes to long to produce the cheaper Model 3s, Tesla will lose some potential customers. Many investors are looking at that "top line" right now - the number of customers and potential customers. If the top line moves too much, investors may get spooked.
Bet 2: Vertical Integration - Most automakers rely on a web of parts suppliers, who are under enormous pressure to reduce costs, but Tesla produces most of its components in-house. The contract with an external parts suppliers ensures that the supplier is responsible for any re-work or replacement of defective parts. This allows the automaker to concentrate on internal production issues.
Tesla's bet is that internal production of parts will lead to better and cheaper components. This has not worked for any other automaker.
Traditional OEMs shoot for a mix of components where the internally produced components are part of the company's core competence: Body Shells, Engines, Transmissions - and externally produced components may be generic - switches, latches, seats, frames, tires, wheels, etc.
If Tesla spends too much capital on component manufacturing, they will be inefficient and investors pressure them.
Additionally and probably more importantly, if Tesla is not able to spend the time and attention to iterate on cost and quality of these parts, it will also lose this bet.
Personal opinion: I think Tesla has learned the wrong lesson from previous dealings with suppliers. For instance, the original Roadster was designed with a two speed transmission. A supplier claimed they could make it, but it never really worked. Tesla learned the lesson that suppliers are stupid and suck at making new things - I think they should have learned that lesson that it is really really hard to make new things.
Bet 3: Automation - But first a detour - There are 3 main areas of auto assembly, and most manufacturers have already fully or almost fully automated 2 of them: Body Shop (welding and assembly of the body shell) and Paint Shop. The 3rd area is General Assembly.
General Assembly is the bloody, thorny, devilish poster child for multiple single points of failure. A high feature vehicle may have on the order of 1000 assembly stations (aka footprints) in General Assembly. The Model 3 is designed with much lower complexity in mind, and may only have 100 footprints.
If and when any of those 100 footprints has an equipment failure or parts issue, ALL 100 stop running in a short amount of time. Human assembly workers are rather resilient and can figure out a multitude of small issues on each and every operation. This may allow for a hypothetical variation of 5% in non-critical parts.
Automated assembly may only allow for a 1% variation.
Additionally, automated assembly only runs well when EVERYTHING is designed for automation. That is not impossible, but it is expensive and time consuming.
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Most importantly, these three bets are linked:
If not enough base models are sold, the cost of design and equipment spending will be excessive on a per vehicle basis.
If internally produced parts are too far out of spec, you have strong negative impacts on automation.
If automation fails, you cannot produce enough vehicles at a low enough price to satisfy your low-end customers.
But, if Tesla wins all three bets, they win big time.
Designing for automation can have unexpected benefits. Many years ago IBM sold a dot-matrix printer called the "ProPrinter". It was to be built on a new automated assembly line in Charlotte NC, so all the parts were designed to be easy to snap together, with no screws or fasteners.
Well, the robotic assembly line never really got going, so they hired a bunch of temp workers to sit in front of tables and put them together. And it turned out that the design was excellent for a group of recently-hired humans with no experience to assemble.
This video shows the assembly (you can skip the first bit) in under 3.5 minutes:
do they think they are still immune? 300-400k people money down sounds awesome until your realize the big auto makers usually have more than one line that does that per year.
I still think the really bad bet was not having the in depth prototyping that they openly mocked that other manufacturers have just to prevent such assembly line issues
That is something that puzzles me too. However, since I have been in the market for a car recently, it seems that it happens regularly to all the brands.
Some reviewer even mention the fact the car is early production model and has some quirks that will be fixed later.
In any case, car reviews before a car reaches general availability are highly biased anyway. There is a press package that comes with the car and you can clearly ear the same words used in every review. And then they fly reviewer over to a special testing location, put them in nice hotel, feed them well and the actual "test" looks like a corporate team building event. (youtuber are now invited too, which lead to a lot a video behind the scene of those events)
Is it an efficient manufacturing process? Probably not but I don't see how the end costumer should care about this. The problems in the manufacturing line are already well known and commented by Elon Musk. This is a company that have been mass producing cars for only 5 years, it's normal that they are still catching up with the process.
this, getting a production line optimized can take years, especially if you are relatively new to the field and the company has little instituted knowledge at hand.
I know in Europe for instance, many plants that fabricate parts for the big three have been doing so since the early 50's, and thus have an amazing body of knowledge on what works and what doesn't in terms or producing high quality parts in high numbers. Tesla does not seem to really have this knowledge.
Also, the ones with a job in a decent company will not leave to a worse company.
If you spend a bit of time on Linkedin you'll find that many Tesla executives have spent 5-10 years at other car manufacterers.
To give you a start: a guy in charge Tesla semi spent 8 years at Daimler (https://www.linkedin.com/in/jeromeguillen/)
A guy in charge in Tesla's Fremont factory (https://www.linkedin.com/in/gilbert-passin-74a36117/) spent 17 years at Renault, Mack Trucks, Volvo and Toyota.
Given how rapidly is Tesla's stock rising I'm sure they are pretty attractive employer especially compared to the likes of convicted criminal organizations like Volkswagen.
Then you're gonna need hundreds of people to design and manufacture the cars, in specific locations. These positions are a lot harder to fill.
A general is useless without his army. An executive is useless without employees.
So you could source most of the parts that are not Tesla specific, then the problem is managing the efficient transport of this parts, storing them, and the hard problem of assembling them, for this problems you will have to hire people with experience to setup this processes, build the assembly lines, handle QA, unfortunately for Tesla they can't be cheep with the experienced workers(even here in Romania experienced engineers are expensive and if you do not pay them enough they leave because they get offers all the time from the competitors)
I don’t like Volkswagen that much, but your perspective is kind of skewed by the Musk Distortion Field, in my opinion :)
By the time the Model 3 preplanning should have been in place, it was obvious enough that Tesla is short term here to stay. You're talking about probably 2 years of job security. I feel like thats enough for many of the less risk adverse (who will probably those who are itching for greenfield) employees to consider leaving.
Some of the guys I knew who are working as engineers in electronics, mechanical, software have more than a decade in the same company. That's in Europe and outside of the major tech hubs. They have the unions, unheard of in tech companies, and the accrued benefits with age.
They won't move to an unknown company just to disrupt some processes, but it doesn't matter because Tesla doesn't exist on this continent anyway.
I don't think that 2 years is enough to entice many people in the field, but I feel like it's enough to entice enough.
I'm not sure where Tesla is recruiting but I don't think they have much footprint even in the USA. If so, they are certainly cut from the vast majority of the talent pool that compose their worldwide competitors.
However, the main thing I was trying to comment on is that "especially if the person has a family to consider" doesn't play out the way the person I responded to thinks, with actual middle-aged Silicon Valley engineers, in my experience.
Anyhow, my original claim was never that it was impossible for Tesla to get the right experienced people, just that what they had to offer was probably enough to get their hands on some of the right people, but not most.
Is the rework something that is actually comparable to normal automotive manufacturing lines? Or is it highly specific to EVs? If it’s EV specific it seems reasonable to believe there is no relevant institutional knowledge existing at Tesla’s competitors.
I have no background here .. how would one best decide if this is evidence Tesla is behind on a solved problem it’s competitors know how to solve or ahead on an unsolved problem it’s conpetitors are also struggling with outside of the limelight?
door has huge gap on one side, rubs against frame on other side
panels not fitting together correctly
screwed up weather stripping application
I mostly worked in getting new models and lines up though, so it may be something that nearly never happens after the first 5k-10k cars or so.
But as someone else mention on HN, they have a customer base that will accept it, so i can see why they do it.
aerospace is a good example of such an industry.
So far it seems to be average - for a mid-class sedan. The price is almost twice as high as it would be for an average ICE car in the same class, because you're paying for early adoption of EVs.
If the above comment on stock shorting and reputation war is true, then you can only trust actual drivers, not the news or even Tesla itself.
Teslas are like a Prius circa 2006. Mostly about projecting your eco-consciousness and hipness except it’s a luxury car.
GM and now Honda already beat them to an affordable midsize car, it just looks like a Chevy and is missing the hype. Nissan beat them to an economy EV.
The car is viewed as so bleeding edge that it attracts a lot of these folks.
What should our expectation of Tesla's manufacturing process be when the CEO makes tweets like this: https://twitter.com/elonmusk/status/881757617416056832 ???
He made similarly over-optimistic predictions about SpaceX. They were several years late with their rockets and yet SpaceX crushes competition today.
If you seek some objective measure of Tesla's engineering capabilities, maybe the fact that Model S was named best overall car 2 years in a row by Consumer Reports should be more pertinent that Musk's tweets (http://time.com/3721049/tesla-model-s-consumer-reports-car/).
For a company like Tesla which is on the order of LOSING $1.8 Billion / year, the fact of the matter is that ramping up Model 3 production ASAP is incredibly important.
https://www.marketwatch.com/investing/stock/tsla/financials
Tesla's cash flow is in a poor state, and the company is relying upon hypothetical Model 3 shipments to carry them over. It doesn't matter how good a car is if they can't build it.
With that said, maybe a bank will sponsor them some debt, or maybe the investors will throw more money in another stock dilution. As long as the banks / investors are happy, Tesla isn't really at risk of going bankrupt. But with that said, its unlikely for the share price to increase or to issue a dividend.
Extra work means higher per unit costs and, likely, lower production numbers, both of which would impact what the company is worth.
It’s pretty obvious that the magic of Tesla is the battery and the in-car “avionics” and telemetry. For every $1 worrying about lock buttons, a dollar is lost to batteries and other, material things.
If Musk can't let go of the micromanagement, Tesla isn't going to scale.
What convinced me was following @TeslaCharts on Twitter. For example, here's a recent series of tweets: https://twitter.com/TeslaCharts/status/974087889997975552
Having followed both the bullish and bearish sides, the bearish one is more convincing.
What is confusing about this company is that they make (in some aspects) a great, unique and innovative product but on the other hand they're in a very bad financial situation, have production and quality issues and their CEO tends to bullshit.
Tesla wants people to believe in them in order to continue selling cars to customers (who probably wouldn't buy if they thought the company was going bankrupt) and stock/bonds already issued to investors.
Short sellers want to give people doubt to cause a decrease in stock price in order to benefit from their short position.
Both parties are probably acting in good faith - Tesla wants people to see how good they are and short sellers want people to see how risky they are. But as a result the news is crowded and it's generally hard to know the truth.
Just remember, in the US the Supreme Court has ruled that it's legal for news publications to lie to their readers/viewers.
Link please?
I think OP is referring to "NEW YORK TIMES CO. v. SULLIVAN" where the Supreme Court placed the bar of something being libel as the accused having 'actual malice' which is in itself is somewhat slipperly defined as having knowledge that they were lying, or recklessly not investigating what they were publishing.
I certainly don't think that qualifies as a decision that "the news media can lie". In fact, to the extent you can prove the news media was lying in a report about a public figure (that is, the news media published something they knew to be false), that's explicitly covered. That's the opposite of what OP claimed.
https://www.snopes.com/fact-check/fox-skews/
http://www.politifact.com/punditfact/statements/2014/sep/10/...
It is a bit hard to google about because a lot of the people who choose to write about it are partisan, but you can get a feel for the mess in the Snopes article†.
As with lots of law, part of it turns on technical definitions. The Appeals Court (not Supreme) found that the FCC policy against falsification did not meet the legal definition of "law, rule, or regulation" in a particular section of relevant law. Remember, three of those four quoted words probably don't mean what you think they do unless you are a legal scholar. It's like having a variable in a program named "loop_count". Maybe it is a count of the looping, maybe not, unless you read all the referencing code.
The wikipedia article‡ is currently ok too, but who knows by the time you read it.
Anyway, there's more than just "bulls vs bears" going on here.
In any case, Elon Musk's 20,000 Model 3 manufactured per month target for late 2017 is incredibly late (See: https://twitter.com/elonmusk/status/881757617416056832). A lot of Tesla bulls don't seem to care however and continue to throw money at the company.
Tesla isn't even at 2000 cars a month, and we're well into 2018. A lot of people are interested in "why" this is happening. Yes, short-sellers are interested, but I'm sure normal investors are wondering why Musk isn't even hitting 10% of his target months later.
The article suggests that the QA group is finding flaws in the manufacturing process. So... yeah. That makes sense for why the Model 3 is late with very, very low production numbers. There's been a lot of speculation in different groups for the failure, but ultimately, the core is that Tesla is not making enough Model 3.
This seems like a pretty big/dangerous jump to make with little-to-no evidence.
>> In any case, Elon Musk's 20,000 Model 3 manufactured per month target for late 2017 is incredibly late (See: https://twitter.com/elonmusk/status/881757617416056832). A lot of Tesla bulls don't seem to care however and continue to throw money at the company.
I really hate that Musk publicly underestimates the amount of work and deadlines in this process. It's especially annoying for me because I've worked for people who publicly underestimate and it put way more ridiculous work on me and my coworkers.
That said, I also hate this "fraud-boy" FUD. I think Tesla could eventually pull this off. The ramp will obviously be slower than what Musk expects. I, like many bears, take what Elon says with a grain of salt. But cars are rolling off the production line. At this point, the Model 3 is now the best-selling EV in the US. (https://www.bloomberg.com/graphics/2018-tesla-tracker/). Tesla has proven itself with the Model S. People in general love the cars. Tesla will get there, and I think that's why bulls are holding.
Sorry for the lack of evidence.
https://www.usatoday.com/story/money/cars/2016/05/19/united-...
https://www.mercurynews.com/2017/02/09/tesla-worker-long-hou...
But its no small secret that pro-union forces are also in this whole mess. I've got no skin in the game, but its clear that the UAW union wants to unionize Tesla's workers.
The UAW rallying pro-union forces of the Tesla workforce is just... how politics works in the USA. Its going to happen.
I'm overall a Tesla Bear (but I have no real money on this bet, its just my unfathomed opinion). But when I read Tesla news stories, they're either complaints about the workforce (which I generally judge to be from pro-Union forces), or complaints about Tesla's financials (which I judge to be from Financial bears).
That's all I'm saying: keep an eye out for the union pieces. They may or may not be "correct", but there's certainly an agenda that is being pushed here.
https://www.bloomberg.com/graphics/2018-tesla-tracker/
Current rate of 700 cars/week * ~4 weeks/month = ~2800 cars/month.
I'm just wondering how that's a good thing, it sure doesn't feel like it to me. It honestly sounds like me explaining to my family how I'm pulling my shit together. Sure, I haven't quit drinking or found a real career yet, but I went to the grocery store last week, and that's pretty good, right?
I'm exaggerating, but citing numbers that are perhaps factual but not much better than the hyperbole doesn't a convincing argument make.
Of course, you could say the converse thing about standard investments, but in the former case you risk otherwise viable ventures being sunk by profit-seeking bad faith actors. In the latter case, maybe some naive and irresponsible investors will lose their money. The latter seems much more acceptable to me than the former.
The issue here is spreading sentiment in bad faith. If someone is doing it, they are affecting the market and enterprises in it, in a bad way. The good guys make less (and go out of business sometimes), and the bad guys make more money and get more attention, stealing it from the ones who truly deserve it.
The downside is not that some naive investors lose money. The downside is that a better project will not get the money it really needs, and instead that money will go to a worse project with better false marketing - thus slowing down the overall progress.
Whether this happens while going long or short positions - doesn't make much difference.
a) I'm not convinced that it's as difficult/expensive to spread FUD as it is to spread whatever the opposite of FUD is.
b) I'm not convinced that different classes of investors respond in the same ways to FUD and whatever the opposite of FUD is.
c) I'm not convinced that different classes of investors have the same access to tools that allow them to "buy long" and "sell short". This may be on the way to changing, but currently even e.g. Robinhood does not support short selling.
I say "not convinced" because I honestly don't think I have the answer to this, but if the answers to the above questions go a certain way that I think is fairly plausible, it seems that the net effects would include a disproportionate burden on disruptive/innovative ventures that are especially vulnerable to FUD, and an increase in wealth inequality as capital flows to more sophisticated investors. Neither of those things are great.
Citation please. If you're talking about the Jane Akre/Steve Wilson lawsuit, that's factually inaccurate.
Nonetheless, they are excellent cars and worth the early adopter frustration (IMO).
I laughed at this opening line of the article. Tesla isn't a "luxury automaker". It is all cheap, badly fitting plastic inside, and sitting down in any Tesla doesn't feel (to me) like any kind of "luxury" experience. Tesla is "expensive", not "luxury". I get that they have to pay for the tech and innovation, but when I drop over 100k EUR for a car, I expect a certain overall experience, not feeling like I am sitting in a collection of the cheapest possible parts.