Tesla Model 3 Ramp, Financials, Skeptics; Ford EVs… (Cleantech Talk #25)

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Editor’s Note: In episode #25 of Cleantech Talk, Matthew and I tackled the recent Tesla financials conference call, Tesla Model 3 ramp plans, Ford’s electrification plans, etc.

You can listen to the show via the embedded player below, on iTunes, or on SoundCloud. Or you can download it. Below the embedded player, you can read Matthew’s helpful show notes. And you can check out our Cleantech Talk archives for previous shows if you haven’t listened to them yet.

Tesla Q1 2016 Quarterly Call Review

Hi everyone, Matthew here with the show notes for our quarterly coverage of the Tesla Q1 2016 call. Being the kind of guy who dislikes when media types make mistakes (though I appreciate they’re under phenomenal time pressure, and can’t be expected to immediately become experts about the story-of-the-day) I wanted to correct one of mine.

I misspoke a bit saying that the Toyota engineer in charge of the Prius project moved into the factory. This wasn’t quite true. He did apologize to his wife for the fact that he was temporarily moving out of the house, but he “only” moved into the company dorm. (Many Japanese companies have dormitories located close to their factories. It’s a lot easier to get more hours out of your young unmarried workers that way. 🙂 )

Jeff Liker’s illuminating book The Toyota Way offers a ten-page chronicle of the Prius’ development in the 1990’s, including the following passage on page 59 of my edition:

“…Takehisa Yaegashi was a senior manager who had supervisor who had supervised many engine development projects and was personally recruited by a board member to lead the hybrid engine team. When he agreed, he immediately went home, explained the situation to his wife, and moved into the company dormitory to get away from all distractions.”

While that’s admirable commitment, one can’t help feeling it might be just a bit unfair for the company to be asking the employee (and his family) for a sacrifice of this sort! It’s not as if the company’s fate hung in the balance, after all: Toyota was doing quite fine, thank you. Indeed, a colleague who had once worked at one of their Canadian factories once commented that the Toyota plant was full of rich, divorced engineers.

The original Prius’ development timetable does actually lend support to the idea that Tesla could begin producing the Model 3 by end-2017. The Prius’ high-level targets to explore some sort of environmentally-friendly 21st century vehicle (not necessarily a hybrid) were set in late 1993. The Prius became an official project in June 1995, with the engineers proposing a December 1998 launch, which would give them about three and a half years of development. Management told them to shave off a year.

The first full-scale clay model wasn’t completed until July 1996, and the hybrid system didn’t yet work (in this regard, the Model 3 is way ahead, because Tesla has already built functioning mock-ups). But in a burst of effort which would impress even Elon Musk, a thousand Toyota engineers worked like mad — some teams worked in alternating twelve-hour shifts, so product development could continue 24 hours a day — and the Prius launched successfully in October 1997.

Sure, initial production was only a few hundred units per month, but that misses the broader point that the first Prius — perhaps the most technologically complicated vehicle up to that point in history — launched two months early!

Toyota went from a clay model to a vehicle in fifteen months, so should be possible for Tesla to go from a functioning prototype to vehicle by end-2017 (that would be about eighteen months). The challenge relates to the kind of rapid scale-up Elon is talking about: it is very, very difficult and mistakes and delays become very very costly, very very quickly.

If you sell hundreds of cars a month and you discover a problem a few weeks down the road, you can recover. But if you sell hundreds of cars a day, that’s catastrophic. It may be for reasons like this that Ford’s truck plants don’t actually ship new models for the first three weeks after production begins.

Tesla has a lot of people smarter than me (it’s Matthew writing here, Zachary might beg to differ LOL) but if I were Elon for a day, once I raised my capital, I would focus on quality and put the volume goals as a “nice to have”. Tesla has gotten roughed up a bit on quality, so it’s important for the Model 3 to have a nice launch, even if the ramp seems comically slow for the first few months.

With the Prius, Toyota also had the advantage of a deep bench (to use a sports term) and even formed a joint venture with Panasonic, to develop and produce the hybrid’s NiMH battery. Even if it hires world leaders in manufacturing and production, and a Toyota-esque “lean” production system and culture starts taking root, Tesla will need to collaborate closely with suppliers to succeed.

Its lawsuit and castigation of Hoerbiger over the falcon-wing doors will make that, well, challenging. What supplier will want to work with Tesla on a dent-the-world project, if they’re at risk of getting publicly shamed if the customer’s unhappy? Elon has inspired the Tesla team to great things, but he starts off with an advantage because he signs their paychecks. It’s a lot more difficult to cajole, convince and inspire suppliers’ teams to deliver greatness, because they report to their own bosses, who themselves have to be won over. (And perhaps the bosses’ bosses, too.)

All that said, irrespective and either way, this will make for an epic 18-odd months in the automotive industry!

Related stories:

Full Tesla Financials Conference Call, + Note On 1 Million Cars From Fremont Surprise (full text transcript here)

7 More “Tidbits” (aka Bombshells) From Tesla’s Financials Call

Elon Musk Personally Examining Tesla Model X Production Results

Holy Cow, Tesla Has Moved Its 500,000 Cars-A-Year Aim To 2018 (From 2020)

Despite Model X Delays, Tesla Maintains 2016 Production Target (80,000–90,000)

Ford Has No Plans To Join Electric Car Range Race

Ford Bought The 64th Tesla Model X Delivered; Paid $200,000 + Tax For It

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