Published on April 19th, 2018 | by Kyle Field0
Tesla Adds 3rd Shift To Model 3 Production In Push To 6,000 Vehicles/Week Run Rate
April 19th, 2018 by Kyle Field
An internal email from Tesla CEO Elon Musk to all Tesla employees was obtained by Jalopnik and provides insights into Tesla’s progress to date on Model 3 production rates as well as the path forward for Model 3.
Progress to Date
Tesla noted in its first quarter earnings call that it had (barely) achieved a weekly production rate of 2,000 cars per week by the end of the quarter. As always, deliveries trail the production numbers, and given that this rate was only hit at the end of the quarter, that wasn’t registered in the final deliveries.
In the leaked email, Elon shared that the team had continued its progress to increase the production ramp and has exceeded the current target of 2,000 cars per week for three successive weeks in a row for the last 3 weeks — at 2,020, 2,070 and 2,250 cars per week, respectively. While this does not demonstrate sustainable production rates, it does show that Tesla is truly “burning the midnight oil to burn the midnight oil” as Musk puts it in the email. In other words, the company continues to work hard ratcheting up Model 3 production.
These rates will suffer in April, as Tesla is planning to shut down Model 3 production lines to upgrade them in order to enable faster run rates, with another similar outage planned in the coming months as well. This downtime won’t come as a surprise to anyone who has worked in manufacturing plants where downtime is not just expected on new lines but planned.
This expectation is further compounded by Tesla’s divergence from traditional automotive manufacturing methodology, which typically tests equipment out in “soft tooling” runs before installing hard tooled equipment. Tesla cut soft tooling out of its process, essentially skipping the beta testing phase in order to trim up the schedule — and the budget.
Additionally, Tesla has not only designed the Model 3 for production — it spent significant capital acquiring Grohmann Engineering in Germany and Riviera Tool & Die in Michigan (now known as Tesla Michigan now) in order to design the “machine that builds the machine” to optimize production as much as possible. The sheer volume of change that Tesla is introducing with the manufacturing of Model 3 as compared to Model S and Model X is simply staggering.
Stepping back to look at Tesla’s current production rates versus year-ago rates, it is currently producing more than twice the vehicles it produced last year. I’ll say it again — Tesla is making twice the number of vehicles per week now than it was at this time last year. That’s crazy sauce by any measure and shows just how hard Tesla is pushing to scale up its battery cell production, battery pack production — both at the Gigafactory in Nevada — and its vehicle manufacturing operations at its Fremont, California, factory.
Elon contends that Tesla’s production ramp over the last 12 months was done while maintaining and improving quality standards for its vehicles — though, there were notable issues with build quality in the first few weeks of Model 3 based on early owner reports. On our end … and admittedly with only a single data point … we didn’t notice any issues in the Model 3 we spent the day with back in January.
Model 3 Production Looking Forward
After a brief congratulations to the team, Elon pounds on the accelerator with a call for direct, individual accountability to all internal departments and external suppliers to meet or exceed a rate of 850 vehicles per day — or 6000 per week with some creative rounding. In typical hands-on Elon fashion, he makes it clear that anyone that doesn’t meet this rate will answer to him personally.
To hit this rate, Elon shared that Tesla will be moving all Model 3 production to 24/7 shifts, specifically noting an additional shift will be added to general assembly, body, and paint operations at the Fremont factory. It is not clear from the letter if this is a short-term change or if it is part of the long-term production ramp plan for Model 3.
These production targets are set in parallel to calls for increases in quality. Early Tesla vehicles were susceptible to panel squeaks and creaks when drivers realized that a quiet powertrain hides less of the interior noises that wouldn’t be noticed in a comparable internal combustion vehicle. In our long-term review of the Tesla Model S, the overhead support between the two panels of glass in the panoramic roof squeaked and prompted a family DIY project that made quick work of the nuisance.
For Model 3, Elon is targeting build precision that is significantly better than not only Tesla’s other vehicles, but better than anyone else: “We will keep going until the Model 3 build precision is a factor of ten better than any other car in the world. I am not kidding.” That’s no easy task considering the competition is literally every other manufacturer in the world.
Tightening the Belt
In manufacturing operations, calls for increased productivity go hand in hand with calls for lower cost per unit, and this holds true at Tesla as well. Elon is well known for being tight with money at Tesla — a practice which has put Tesla in a bad light in the past for lower-than-industry-average wages for nearly all of its employees. Elon is quick to point out that when the total compensation from Tesla is taken into account — which rolls in stock grants, retirement, options, etc. — Tesla not only comes out on par with the competition, but on top.
Having said that, in the email to employees, Elon is all business and tightens up on capital expenditures. Any expenses over 12 months exceeding $1 million must get personal approval from Elon.
The tightening of the belt is not just a push for profit, but rather, a move to ensure that Tesla maintains the high margins it continues to enjoy on its vehicles as Model 3 production ramps up. Every dollar saved on a Model 3 means an extra dollar to fund the Tesla Semi, Tesla Gigafactory 2, Gigafactory 3, Gigafactory 4, Tesla Model Y, or Tesla Pickup Truck. Because it’s not like Team Tesla didn’t have enough on its plate already…
Elon notes that the push for profitability had never been a priority until it had reached sufficient economies of scale to absorb the high capital cost of production equipment … and that with Model 3, Tesla will be there. That’ll be music to TSLA stockholders ears as Tesla has not historically turned a profit and gets a lot of heat for it even though it’s all part of the company’s growth plan.
Elon closes his encouraging note with tips on how to speed up and improve hierarchical efficiencies within Tesla. I’ve pinned several of my favorites, but feel free to scroll down to the full text of the email below for all the juicy bits.
— Walk out of a meeting or drop off a call as soon as it is obvious you aren’t adding value. It is not rude to leave, it is rude to make someone stay and waste their time.
— Don’t use acronyms or nonsense words for objects, software or processes at Tesla. In general, anything that requires an explanation inhibits communication. We don’t want people to have to memorize a glossary just to function at Tesla.
— In general, always pick common sense as your guide. If following a “company rule” is obviously ridiculous in a particular situation, such that it would make for a great Dilbert cartoon, then the rule should change.
These bits of insight are sure to bring smiles to the faces of anyone who has worked in the inevitably endless hierarchy of large corporations, myself included. I could just imagine the look on people’s face when they realize at the end of an hour-long call that everyone else dropped off, sensing the lack of value. Classic Elon.
First, congratulations are in order! We have now completed our third full week of producing over 2000 Model 3 vehicles. The first week was 2020, the second was 2070 and we just completed 2250 last week, along with 2000 Model S/X vehicles.
This is more than double Tesla’s weekly production rate last year and an amazing feat in the face of many challenges! It is extremely rare for an automotive company to grow the production rate by over 100% from one year to the next. Moreover, there has simultaneously been a significant improvement in quality and build accuracy, which is reflected in positive owner feedback.
Starting today at Giga and tomorrow at Fremont, we will be stopping for three to five days to do a comprehensive set of upgrades. This should set us up for Model 3 production of 3000 to 4000 per week next month.
Another set of upgrades starting in late May should be enough to unlock production capacity of 6000 Model 3 vehicles per week by the end of June. Please note that all areas of Tesla and our suppliers will be required to demonstrate a Model 3 capacity of ~6000/week by building 850 sets of car parts in 24 hours no later than June 30th.
Any Tesla department or supplier that is unable to do this will need to have a very good explanation why not, along with a plan for fixing the problem and present that to me directly. If anyone needs help achieving this, please let me know as soon as possible. We are going to find a way or make a way to get there.
The reason that the burst-build target rate is 6000 and not 5000 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, amplified by a complex global logistics chain. Actual production will move as fast as the least lucky and least well-executed part of the entire Tesla production/supply chain system.
By having a Model 3 subsystem burst-build requirement of 6k by the end of June, we will lay the groundwork for achieving a steady 6k/week across the whole Model 3 system a few months later.
As part of the drive towards 6k, all Model 3 production at Fremont will move to 24/7operations. This means that we will be adding another shift to general assembly, body and paint. Please refer anyone you know who you think meets the Tesla bar for talent, drive and trust. Between Fremont and Giga, Tesla will be adding about 400 people per week for several weeks.
Most of the design tolerances of the Model 3 are already better than any other car in the world. Soon, they will all be better. This is not enough. We will keep going until the Model 3 build precision is a factor of ten better than any other car in the world. I am not kidding.
Our car needs to be designed and built with such accuracy and precision that, if an owner measures dimensions, panel gaps and flushness, and their measurements don’t match the Model 3 specs, it just means that their measuring tape is wrong.
Some parts suppliers will be unwilling or unable to achieve this level of precision. I understand that this will be considered an unreasonable request by some. That’s ok, there are lots of other car companies with much lower standards. They just can’t work with Tesla.
A fair criticism leveled at Tesla by outside critics is that you’re not a real company unless you generate a profit, meaning simply that revenue exceeds costs. It didn’t make sense to do that until reaching economies of scale, but now we are there.
Going forward, we will be far more rigorous about expenditures. I have asked the Tesla finance team to comb through every expense worldwide, no matter how small, and cut everything that doesn’t have a strong value justification.
All capital or other expenditures above a million dollars, or where a set of related expenses may accumulate to a million dollars over the next 12 months, should be considered on hold until explicitly approved by me. If you are the manager responsible, please make sure you have a detailed, first principles understanding of the supplier quote, including every line item of parts & labor, before we meet.
I have been disappointed to discover how many contractor companies are interwoven throughout Tesla. Often, it is like a Russian nesting doll of contractor, subcontractor, sub-subcontractor, etc. before you finally find someone doing actual work. This means a lot of middle-managers adding cost but not doing anything obviously useful. Also, many contracts are essentially open time & materials, not fixed price and duration, which creates an incentive to turn molehills into mountains, as they never want to end the money train.
There is a very wide range of contractor performance, from excellent to worse than a drunken sloth. All contracting companies should consider the coming week to be a final opportunity to demonstrate excellence. Any that fail to meet the Tesla standard of excellence will have their contracts ended on Monday.
Btw, here are a few productivity recommendations:
– Excessive meetings are the blight of big companies and almost always get worse over time. Please get of all large meetings, unless you’re certain they are providing value to the whole audience, in which case keep them very short.
– Also get rid of frequent meetings, unless you are dealing with an extremely urgent matter. Meeting frequency should drop rapidly once the urgent matter is resolved.
– Walk out of a meeting or drop off a call as soon as it is obvious you aren’t adding value. It is not rude to leave, it is rude to make someone stay and waste their time.
– Don’t use acronyms or nonsense words for objects, software or processes at Tesla. In general, anything that requires an explanation inhibits communication. We don’t want people to have to memorize a glossary just to function at Tesla.
– Communication should travel via the shortest path necessary to get the job done, not through the “chain of command”. Any manager who attempts to enforce chain of command communication will soon find themselves working elsewhere.
– A major source of issues is poor communication between depts. The way to solve this is allow free flow of information between all levels. If, in order to get something done between depts, an individual contributor has to talk to their manager, who talks to a director, who talks to a VP, who talks to another VP, who talks to a director, who talks to a manager, who talks to someone doing the actual work, then super dumb things will happen. It must be ok for people to talk directly and just make the right thing happen.
– In general, always pick common sense as your guide. If following a “company rule” is obviously ridiculous in a particular situation, such that it would make for a great Dilbert cartoon, then the rule should change.
If there is something you think should be done to make Tesla execute better or allow you to look forward to coming to work more (same thing in the long term), please send a note to [redacted].
Thanks for being such a kickass team and accomplishing miracles every day. It matters. We are burning the midnight oil to burn the midnight oil.