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Why Elon Musk's Tesla Model 3 production ramp plan is flawed



  Elon Musk
Tesla CEO Elon Musk

Rebecca Cook / Reuters


The news surrounding Tesla's troubled Model 3 was largely poor. The company launched the vehicle last year and has so far missed its production targets significantly.

Let's not gloss over the situation: this is the worst rollout situation for new vehicles I've seen in the auto industry for over a decade. It could be the worst rollout in the history of the company. Even the notorious Edsel was vividly produced during his sad two years, sixty years ago.

In contrast, the last risky rollout I saw was Ford, which rebuilt its flagship F-150 pickup truck in 2014 and converted it from a steel case to an aluminum case. There were problems, but Ford still managed to relocate production at its Rouge Factory in Michigan in about two months. In a short time, Ford built more than 1,400 pickups per day.

Tesla is approaching the production of 2,500 model 3 – but that's weekly. By Tuesday, we expected 5,000 per week by the end of June.

Then CEO Elon Musk made something very muscular and issued an enterprise-wide route target by email.

Instead of 5,000 models 3s a week, how about 6,000?

Tesla throws people at the problem

Worker in Tesla's factory.

Tesla

Electrek received Musk's extended e-mail, which also included stern warnings to Tesla's suppliers, tips for avoiding meetings, instructions for improving the quality of Tesla vehicles, and a request to Tesla's staff – now move on to the so-called "24/7" production of the Model 3 – to recruit 400 people per week to increase staffing levels.

Tesla has not taken on a competent role in developing a Model 3 production system that can reach this 5,000 weekly production target, and Musk's dream of creating a highly automated production line has failed.

The solution is to throw people around the problem and find ways to partially blame the supply chain, which was often problematic for Tesla – for example, the seats of the Model X were so patched up that Tesla itself decide it yourself.

Musk needs to get better at building cars

Great car. Not enough to build from them.

Hollis Johnson / Business Insider

Musk is a visionary who plays a role with all the advantages and disadvantages. But as a production manager, he is a work in progress.

The Model S, the first car built from scratch, had initial production problems, and the Model X was so overdesigned that Musk later acknowledged that the company probably would not have made it.

Recently, he said he would take over the production of Model 3 and – again – sleep in the factory floor in Fremont, California.

There are no other car CEOs putting up sleeping bags in their factory halls. This is because their factories are managed by manufacturing specialists who can build 2,000 Model 3 daily with less drama than Tesla has brought to the company. General Bar's Mary Barra oversaw the sale of 10 million vehicles last year and launched a fully electric car with a range of 200 miles in 2016, a year and a half ahead of Musk.

As a longtime Musk observer, I find that not surprising or unusual. But it is another case in which the guy embraces his propensity for hubris, a trait that he has freely acknowledged in the past. (I recognize that overconfidence is an integral part of Musk's personality.)

However, in typical Silicon Valley fashion, Musk does not learn so much from his mistakes as to double it to bow to the willpower.

Tesla's bad news overwhelms the good

Let's do it harder.

Mike Blake / Reuters

I will not argue with Tesla about hiring more people – jobs are jobs, and in my interaction with the company, the employees claim that it is an inspirational workplace.

But I will argue with Musk's tendency to make measurable progress and pass it by to keep the troops motivated.

Objectively, Tesla has done a good job of bringing the Model S and Model X production to where it should be. The system was designed to build 100,000 cars a year, according to Musk, and that's exactly what it does.

The model 3 should bring that to 500,000 – but that never made sense. Tesla's factory, operated by GM and Toyota in the 1980s, never reached that capacity, though it came close.

Despite the difficult birth of Model 3, Tesla has managed to set its own benchmark, producing around 2,500 a week, to call it a late success. But if the company had delayed the launch by only six months, a lot of this negative material might have been avoided.

But instead of consolidating at that level and ensuring that 2,500 per week is sustainable – something Tesla has repeatedly said – the company has decided to focus on more adventurous goals.

Just like the premature start and oversized manufacturing process, this is a mistake. Tesla has to spend at least a few months learning how to mass-produce cars according to centuries-old industry standards.

Musk does not always seem to be satisfied with good news

I take the bad news, then the bad news.

Bobby Yip / Reuters

The Model 3 was well received by examiners, including myself and my colleagues from Business Insider. That is good news.

Tesla sold more than 100,000 cars last year. That is good news.

China has just changed a decade-old rule that allowed Tesla to build a factory in the country without a Chinese partner. That is good news.

The automaker has not made any money since it was founded, and yet its market capitalization is higher than Ford's. That's good (if confusing) news.

And the model 3 finally got on course. Customers who pre-ordered and paid $ 1,000 each could look forward to getting their cars.

But instead of enjoying this milestone, Musk has boosted production and over-relieved Tesla's limited abilities.

It might work. An increase to 6,000 model 3s a week would be impressive and would allow for a margin of error to allow Tesla to fluctuate around that 5,000 target. But if it does not, it will be bad news that Musk sometimes seems to prefer anyway.

"Production hell," as he calls it, is where he likes to be. Tesla has made investors rich by stamping one crisis after another – so much so that it could be argued that the crisis is their true product. Therefore, it is possible that they see this ultimate crushing goal as an opportunity to put their money into what they know.

The auto market is strong in the US, and the economy is reasonably well-endowed, so Tesla is not punished too much for Musk's unorthodox and sometimes controversial leadership style.

In the end, however, customers could suffer if the Model 3 continues to withstand the challenges of production. They are a patient crowd, but Tesla asks a lot about them.


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