Tesla production slump — Can they stay afloat?

Olivia Warwick

The electric car maker Tesla has hit snags in its attempt to become a mass market player through production of affordable Model 3 automobiles. Quarterly results released 1st November showed a rise in post-tax losses by 67% to $671m. Tesla’s shares fell by 6.8% on the 2nd November partly due to US government tax changes that reduce incentives for electric car buyers; a significant blow to the appeal of affordable electric cars including the Model 3. Other contributing events add to the struggles Tesla are facing. Holdups are partly caused by the company themselves, with bottlenecks in the production line causing serious delays to their short-term targets, resulting in only 260 Model 3s being produced out of the 1,500 target from the last quarter. This has led the company to push back its target of making 5,000 Model 3’s a week by three months. Tesla has so far produced 250,000 cars in its 14 years, and aims to make 1m cars by 2020.

Problems include workers manually operating robots that should be automated, multiple cost overruns, in addition to delays from suppliers due to last minute changes to design specifications. Further difficulties in sequencing parts once they arrive at the plant has led to unfinished cars at the end of the production line. Expert automotive manufacturers describe the operational problems Tesla are facing as ‘basic’, that come from the fixation on speed, in both product development and the manufacturing process.

Regarding production bottlenecks, delays in Tesla’s Nevada battery factory are to blame, where workers build battery packs by hand instead of using the automated systems installed, a situation Elon Musk has described as being “really inefficient”. Nevada is not the only plant experiencing difficulties with manual operation. Witnesses of the production process in the Fremont assembly plant in California have observed the newly-installed Kuka robots (designed to increase speed of production) being manually operated. One visitor, who inspects car plants across the globe, claimed they had “never seen so much manual labour on a line”.

Another potential weakness is Tesla’s supply chain. In at least one instance, Tesla has made alterations to crucial components mid-production which has meant re-starting the process, causing a ripple effect of hold-ups down the production line. These late alterations may well have resulted from Tesla skipping a manufacturing prototyping stage. When questioned on automation, a Tesla spokesperson said that the production line contained both manual and automated elements and that there are no fundamental issues with the supply chain nor production of Model 3s, adding that they have always anticipated time taken to fine-tune the production line and that they are confident in addressing the current bottleneck issues within a timely manner.

Having a high level of automation is part of the company’s efforts to streamline production. Elon Musk highlighted the aerodynamics of robotic arms as an area for increased efficiency. He thinks “speed is the ultimate weapon when it comes to innovation or production”. It is not unusual for Tesla to take unconventional approaches in the interest of saving time, for instance in the shipment of incomplete vehicles to Tesla-owned dealers, who finished assembly before delivering the vehicles to customers. This practice, though an unorthodox process, does not break with regulation. It does however encourage questioning of the adequacy of vehicle checks and calibration before being delivered to customers, particularly at higher volumes of production.

As aforementioned, Tesla is also facing problems with its ‘sequencing’ of components (matching up parts with their intended vehicles once they arrive on site as fast as possible). Tesla’s inefficient sequencing has led to the pile up of components coming into the factory to be stored, along with incomplete cars coming off the line. Analysts have calculated that Tesla’s ‘work in progress’ (costs tied up in unused goods and materials) is 14% of its total sales; significantly higher than other more established carmakers, such as BMW (2%) and VW (4%).

There is now a greater risk that some of the nearly 500,000 waiting customers with $1,000 deposits will withdraw their deposits and choose a different car manufacturer after those who have reserved Model 3 cars received emails this week informing them that their orders would be delayed.

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