Howes: Complacency amps stress in Tesla Model 3 launch
Tesla Inc.’s move to temporarily halt production of its highly anticipated Model 3, confirmed this week, is yet more evidence that founder Elon Musk is learning the hard way what Silicon Valley already has.
Building cars well, building them on time and building them with the quality expected by the contemporary market is not easy. It’s hard. It’s complicated. And success comes from repeated refinement — not by continually reworking, stopping and restarting the manufacturing process, and not by defying the industry’s best practices.
Even Musk sounds like he may be getting the message. In a tweet last Friday, he conceded that, “Yes, excessive automation at Tesla was a mistake. To be precise, my mistake. Humans are underrated.”
Success is not guaranteed, either, just because the CEO “under stress” sleeps on the plant floor. That signals a special sort of panic that should cause investors to pause and ask: what’s really going on with Tesla, an industry innovator clearly struggling to reckon annoying reality with an expansive vision?
“We got complacent about some of the things that we felt were our core technology,” Musk, Tesla’s chairman, told CBS This Morning late last week. “We put too much new technology into the Model 3 all at once. I’m definitely under stress, so if I seem like I’m not under stress then I’m gonna be clear, I’m definitely under stress.”
He should be, considering the stakes. Tesla’s luxury Model S set a standard for battery-electric cars, but it’s the company’s volume Model 3 that is supposed to determine whether the Silicon Valley start up can play in a space occupied by others, too.
Can it generate enough cash to play with the likes of General Motors Co., Toyota Motor Corp. and German automakers who know a thing or two about engineering high-tech luxury vehicles with established brands? These legacy competitors are coming right after Tesla with battery-electrics of their own that they can build in world-class assembly plants and sell through established dealer networks.
Complacent? I’ll say, with a generous dollop of arrogance. Nowhere are the wages of complacency more readily found than in Detroit, where affluence born of success came to die before a remarkable reinvention changed the arc of its own history. Detroit learned some things from those mistakes, but it’s not yet clear whether Musk will.
A recent CNBC report said Tesla is sending “flawed and damaged parts from suppliers to outside shops for rework” and it “tweaks the design of some parts after receiving them.” And it said “towering racks and stacks of boxes” embossed with “Tesla” were spied in a lot alongside a sheet metal shop a half-hour’s drive from its Fremont, Calif., plant.
That proved too much for Jim Collins, a longtime auto analyst who now runs his own firm, Portfolio Guru LLC, and writes commentary for Forbes.com. “My first reaction was: what are they doing,” he wrote last week. “My second: that’s not how you make cars! TSLA’s processes are totally at odds with the best practices of major players like Volkswagen, Toyota and General Motors.
“Tesla is the worst car manufacturer (italics Collins’) in the developed world. Bar none. Note that I didn’t write ‘designer’ or ‘marketer,’ but manufacturer. When capital is tied up in byzantine manufacturing processes that stunts the development of cash flow. It’s all connected. This is why Tesla has such dire cash flow problems.”
Which is precisely the point. If Musk and Tesla can’t get the Model 3 line humming, they won’t be able to generate the cash they need to keep operating as envisioned. Musk says they will; a not-insignificant chunk of investors and those who might be aren’t so sure.
The “production hell” of Musk’s own telling doesn’t exactly instill confidence. Damaged and reworked parts are investor dollars baking in the California sun instead of going into Model 3s reserved by hundreds of thousands of would-be buyers who are waiting, waiting and waiting some more.
Belief is no more a business strategy than hope, and both are running low at Tesla. Bloomberg News reported late Tuesday that the electric-car maker would begin “round-the-clock” production of the Model 3 and try to ramp to 6,000 models a week, citing an internal company e-mail.
“The reason that the burst-build target rate is 6,000 and not 5,000 per week in June is that we cannot have a number with no margin for error across thousands of internally and externally produced parts and processes,” Musk said. Tesla produced 2,250 Model 3 sedans last week. “We are burning the midnight oil to burn the midnight oil.”
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him at 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.