Before people start placing Linette Lopez on a pedestal, note that she is a “champion of Tesla FUD” only outside the realms of Seeking Alpha. It appears the Tesla writers on Seeking Alpha are in a competition about who can create the most outlandish theory about Tesla’s finances, preferably completely devoid of reality, whereas Linette Lopez is more your run-of-the-mill yellow press reporter.
Her latest alarming report about Tesla is titled “Internal documents reveal the grueling way Tesla hit its 5,000 Model 3 target.” Ouch‼
More stories about workers wading hip deep through sewage? Office workers conscripted from all over the country to work the lines? Working 36 hour shifts to the beat of a steel drum? Or just the CEO sleeping on the factory floor (aka conference room luxury sleeping coach)?
Nope, it was the assembly line itself that was gravely mistreated. It was forced to perform at a higher speed than ever before, and with far more humans working on it than any planner had imagined. Tesla was pushing it until something broke, and then pushing it some more until the next thing broke. Criminal.
In automotive production, repairs of vehicles coming off the line are expensive. About 40–50 years ago, it was normal that a car from the assembly line went straight to the repair shop — no car was error free. It is far better to do it right the first time, and Toyota came along as the champion of such a production system. A well designed and tuned line can now put through over 80% of cars that are error free when they pass final inspection at the end of the line.
An important point, though, is that the process to build such a production line for a new model can take up to 7 years. That includes extensive testing and tuning of the production process before the official start of production.
The progress made by Toyota and others in the last decades to improve quality and lower production costs is phenomenal. But in the last decade or so, progress has come to a halt. Improvements have hit a brick wall.
Jumping back to the world’s most popular Silicon Valley car company, recall that Tesla did not start the design of the Model 3 in 2010, did not have the layout of the production line ready in 2014, and did not start tuning the production process in 2015. It received most robots for the line in April 2017 and started the line in July 2017.
The reason why is very simple — Tesla does not have the time nor the money to do it in the old-fashioned way of the legacy carmakers. On top of that, Tesla wants to do it better — making cars faster and with a higher quality at lower costs. When the whole industry has hit a wall in improving production, you have to find a new way to do it.
What was the grueling secret that Linette Lopez reportedly discovered? It was that more than 4,300 of the 5,000 cars made in the last week of June 2018 needed some rework, costing an average of 37 minutes per car. That is, of course, terrible — extra hours cost money. Because the legacy automakers only change their production process once a year, Tesla has to pay this extra money for a long, long, long time.
Tesla does not wait for the model year changeover to update the assembly line. It improves the lines and the cars on a daily basis. It is experimenting with new ways to organize the improvement of production. The methods Tesla is looking at are akin to the software method of “scrum” applied to hardware manufacturing. It is a logical approach for a Silicon Valley company, which sees manufacturing as a software problem. While not the same, this last week of June is possibly best compared to a scrum sprint.
This approach of continuous improvement of both the product as well as the production process is new to automotive manufacturing. It is what Sandy Munro saw in the panel gaps from one of the early cars off the line — that that was no way to build a modern luxury car. But Tesla was not building cars, it was building a car production system. Now it is starting to look like Tesla is succeeding in creating a very fast, high-quality production line at relatively low costs. Tesla CFO Deepak Ahuja often talks of Tesla’s superb efficiency on conference calls. It is not what you would assume from a young startup, but it is this obsession with ongoing improvements and tweaking that enables it.
The whole car industry is looking at what Tesla is doing with these new methods, even if the executives are not admitting it. If Tesla succeeds, others will follow.
The public and the shareholders were probably very happy with the 5,000 cars produced in that last week of June. The 4,300 errors, costing 2,652 extra hours (less than $100,000), were far more valuable to Tesla. They enabled Tesla to identify weak spots, places where the assembly line could be improved. They enabled Tesla to move forward another step, helping to reduce the number of hours needed to make a car by 30%. That is worth $200–300 million per quarter, or $1 billion per year. It was perhaps one of the most valuable scrum sprints in history.
Linette Lopez seems to have collected some actual facts, but has since then missed the broader context of what they mean. It is not adequate to pull in some quotes about how manufacturing has historically been done — Tesla is changing up the process, and that means extreme manufacturing, scrum sprints, and jumping into production of a new model years quicker than is normal.
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