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article imageTesla is struggling to build the Model 3 — here's why

By Business Insider     Oct 10, 2017 in Business
Tesla's third-quarter delivery numbers were both impressive and depressing. The carmaker is on pace to sell 100,000 vehicles annually for the first time in its 14-year history.
But it's also far, far behind with the production of its new Model 3 sedan, the vehicle that's supposed to bring Tesla to the masses and spell the beginning of the end for gas-powered cars.
Tesla said it would produce 1,500 Model 3s in September — it has produced fewer than 300 since launching the car in July.
Getting to 20,000 in monthly production by December now seems like a hopeless expectation, as does CEO Elon Musk's prediction that Tesla will manufacture 500,000 vehicles annually by the end of 2018.
This means the half-million preorders for the Model 3 could go unfulfilled for several years, putting many $1,000 refundable deposits for each new car in doubt. That threat is real, but the markets are unconcerned. Tesla stock is still up 65% in 2017, and the brand has lost none of its captivating aura.
But a carmaker that has been around for as long as Tesla should be good at something that Tesla clearly isn't: building vehicles.
So why is Tesla struggling to build the Model 3 on its own admittedly ambitious schedule? There are five main reasons.
Entrepreneur Elon Musk has an estimated current net worth of $13.4 billion from interests in transpo...
Entrepreneur Elon Musk has an estimated current net worth of $13.4 billion from interests in transport, payments and space technology
KARIM SAHIB, AFP/File
1. The numbers don't mean anything.
Tesla has a long history of over-promising and under-delivering. Customers and investors have been more than happy to forgive the automaker for this transgression, largely because both groups understand there's nothing to be gained if Tesla under-promises and over-delivers.
Tesla does not benefit from being normal. The company's entire DNA is organized around being special, different, extraordinary. Leave it to the General Motors of the world to announce in 2015 an all-electric Tesla Model 3 competitor, the Chevy Bolt, and have it hit the streets by 2016.
Tesla's game is to astound (eventually), not execute. As such, the only predictions that matter are outsized ones. You don't change the world by restraining yourself.
And Wall Street doesn't care. Over the past two years, Tesla's stock has been wildly volatile. But it's still up over 1,200 percent since the company's 2010 initial public offering — despite almost no profitable quarters and a balance sheet that can keep the company in business for only about a year before the cash is all gone.
Tesla Motors Assembly Line
Tesla Motors Assembly Line
Steve Jurvetson
2. The Model 3 is all-new production.
Tesla is reasonably good at manufacturing its expensive, luxurious Model S sedan and Model X SUV. Production of these vehicles was designed around a run rate of about 100,000 a year, and Tesla will hit that mark most likely in 2017.
Of course, the Model X endured "production hell," as Musk memorably put it, during its roll-out in 2016. The Model S also endured early production issues that were later corrected. And Musk declared that production hell would be back for the Model 3. In fact, production hell often seems to be Tesla's default state.
Traditional automakers are quite good at mass production, but Tesla has not been challenged to be a mass-production company until now. Musk talks about Model 3 production in terms of an "S curve," with a very slow ramp that rapidly speeds up before leveling off at the desired point.
But Tesla has a second S curve — one related to learning. It doesn't know exactly how to build the Model 3. The company also skipped a beta stage of production to launch the Model 3 ahead of schedule this year. And though the Model 3 was engineered for rapid production, according to Musk, it's still a new thing.
Established automakers build cheaper cars in volume all the time; Tesla never has.
Tesla Greenwich North Supercharger Station in a rest area of Merritt Parkway in Greenwich  Connectic...
Tesla Greenwich North Supercharger Station in a rest area of Merritt Parkway in Greenwich, Connecticut.
Z22
3. Tesla enjoys endless patience from everybody.
Tesla's brand equity is probably its most valuable asset. Short-sellers aren't fans, and plenty of analysts argue that Musk is all hat and no cattle, but everybody else loves the company.
And Tesla knows it. Having built up massive positive brand equity over the years, Tesla has the advantage of "spending" it from time to time by, frankly, deceiving the public.
Within this pact, however, is shared understanding: Yes, we aren't going to make our goals — but we also aren't going to lose focus on the big picture, which isn't to sell more cars, but to save the planet.
Unlike most other companies — even professedly do-gooding outfits in Silicon Valley — Tesla has a mission, one that's difficult to resist or criticize. Importantly, Tesla has earned this trust by delivering a genuine payoff to anybody willing to go along for the ride.
The first 30 Tesla Model 3s are delivered at the carmaker s factory.
The first 30 Tesla Model 3s are delivered at the carmaker's factory.
Tesla/Business Insider
4. Tesla isn't actually mass-producing the Model 3 yet.
A lot of things have to happen at the right time even for an inexpensive, simple-to-build vehicle to stay on schedule. In 2011, when a tsunami and a nuclear-plant disaster hit Japan, the automotive supply chain was massively disrupted for Toyota and Honda, leading to manufacturing slowdowns worldwide.
Tesla is still small by the standards of the auto industry. The company's California factory is also off the grid a bit, as the US car business runs out of the Midwest and the South. Tesla has only recently gained access to the best teams at the best suppliers, according to the company, and the history of its manufacturing is one of fits and starts. The Model X, for example, went through both a rear-door and rear-seat redesign just months before launching in 2015.
Even if Tesla had hit its goal of 1,500 Model 3s in September, it would still be a long way from the levels of production needed to meet demand. The low numbers, which the company has chalked up to production "bottlenecks," suggest the ramp to just pre-mass-production is taking longer than expected.
If Tesla hadn't fallen so short of its run rate for September, we could assume some bobbles. But it looks more like the decision to forego the process of testing the Model 3 assembly line before trying to accelerate the production ramp isn't working out.
The Model X is complication. The Model 3 is supposed to be simple.
The Model X is complication. The Model 3 is supposed to be simple.
Tesla/Business Insider
5. The Model 3 looks simpler than the Model S and the Model X — but is it?
Tesla designed the Model 3 to be easier to build than the Model S and the Model X. But compared with electric cars that have now been in production for a while — the Chevy Bolt and the Nissan Leaf, for example — there's a lot of "clean slate" to the newest Tesla.
To build an EV they can get to market quickly, build easily, and price below $40,000, other manufacturers are adapting the existing gas-car platform. The Bolt doesn't feel all that futuristic inside, and the Leaf has a fairly conventional interior. Neither car is dramatic to look at on the outside.
Tesla has eliminated as much dashboard instrumentation as possible with the Model 3, going for a very clean, minimalist vibe that stars a single, horizontal touchscreen. Though that might sound as though it makes everything easier, it doesn't necessarily — it's a major departure from how cars are currently put together.
Ultimately, Tesla's plan to simplify is likely to pay off. But in the short term, negotiating the learning curve could slow it down.
This article was originally published on Business Insider. Copyright 2017.
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