Tesla Inc blamed “production bottlenecks” for having made only a fraction of the promised 1,500 Model 3s, the $35,000 sedan designed to propel the luxury electric-car maker into the mainstream.
Unknown to analysts, investors and the hundreds of thousands of customers who signed up to buy it, as recently as early September major portions of the Model 3 were still being banged out by hand, away from the automated production line, according to people familiar with the matter.
While the car’s production began in early July, the advanced assembly line Tesla has boasted of building still wasn’t fully ready as of a few weeks ago, the people said. Tesla’s factory workers had been piecing together parts of the cars in a special area while the company feverishly worked to finish the machinery designed to produce Model 3’s at a rate of thousands a week, the people said.
Automotive experts say it is unusual to be building large parts of a car by hand during production. “That’s not how mass production vehicles are made,” said Dennis Virag, a manufacturing consultant who has worked in the automotive industry for 40 years. “That’s horse-and-carriage type manufacturing. That’s not today’s automotive world."
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Tesla introduced the Model 3 at an event outside the company’s factory in July, when Chief Executive Elon Musk drove a shiny red Model 3 onstage as hundreds of his employees cheered the first sedans rolling off the production line.
Electric-car maker Tesla delivered a mixed earnings report Wednesday that was strong on the revenue front and gave analysts confidence that the production of its highly anticipated Model 3 sedan is on schedule. WSJ's Lee Hawkins explains. Photo: Reuters (Originally published May 4, 2017)
Within minutes of stepping out of the new vehicle, Tesla’s leader warned his engineers and designers the coming months would be challenging. “Frankly, we’re going to be in production hell. Welcome, welcome!” he said to laughter.
Behind the scenes, Tesla had fallen weeks behind in finishing the manufacturing systems to build the vehicle, the people said.
The extent of the problem came to light on Monday when Tesla said it made only 260 Model 3s during the third quarter—averaging three cars a day. The company cited production bottlenecks but didn’t explain much further.
“Although the vast majority of manufacturing subsystems at...our California car plant...are able to operate at high rate, a handful have taken longer to activate than expected,” the company said at the time.
In Mr. Musk’s pursuit to rid the world of combustion engines, Tesla is trying to apply Silicon Valley’s ethos of rapid change to the type of complex manufacturing process that traditional auto makers have spent decades perfecting. Unusual in the U.S. tech industry, where even companies that do make hardware generally outsource their manufacturing, Tesla’s challenge requires integrating an army of factory workers and some 10,000 parts from suppliers around the world.
Tesla’s rollout of the Model X sport-utility vehicle in 2015 also was plagued by quality and design issues that left suppliers scrambling and hourly workers having to rush to meet lofty goals. But the plans for the Model 3 are far larger, meaning the lack of a fully working assembling line so late in production could deal a bigger blow to the company.
Mr. Musk has said Tesla learned from the Model X mistakes. And he has proven doubters wrong before, creating a luxury brand that competes against BMW and Mercedes-Benz for buyers and has demonstrated that fully electric cars can find an enthusiastic following beyond a niche of environmentalists.
Calling his cars a “computer on wheels,” Mr. Musk caught conservative Detroit off guard with Tesla’s ability to quickly change features, such as a semiautonomous drive system, with software updates over the air. The company’s stock has soared about 69% in the past 12 months, at times pushing its market value past General Motors Co.’s .
But building 500,000 vehicles a year—as Mr. Musk had projected Tesla would start doing next year—is a sizable leap for a company that only made 84,000 Model S sedans and Model X SUVs last year. By comparison, General Motors Co., the largest U.S. auto maker by sales, delivered about 10 million vehicles globally last year, or more than 27,000 a day.
To approach what a typical factory in North America churns out, 14-year-old Tesla must build the muscles to roll out a car every minute of the workday and do it so well that the vehicles don’t cause headaches for customers down the road.
Most auto makers celebrate the start of production of a new vehicle to sell—so-called Job 1—after six months or so of running the assembly line to build a few hundred vehicles to work out the bugs, said Doug Betts, senior vice president of global automotive operations at consultancy J.D. Power and a former manufacturing executive for Toyota Motor Corp. , Fiat Chrysler Automobiles NV and Apple Inc.
“You’re not really improving the final process if you’re not running on it,” Mr. Betts said. “Problems can only be solved once they are found.”
It isn’t uncommon for much larger auto makers to handbuild pre-production versions of a car prior to the sales launch, but those are typically reserved for employees and others willing to test the cars and return them to the company. By the time a car goes on sale, the body shop is typically fully automated.
Inside the Fremont factory, workers said equipment for the so-called body-in-white line for the Model 3, where the car body’s sheet metal is welded together, wasn’t installed until by around September. They guessed at least another month of work remained to calibrate the tools.
One worker who spent time in the Model 3 shop—dubbed by some as Area 51 because of the limited access and secretive nature—described watching young workers in September struggling to move large pieces of steel to weld together instead of using robots as is traditionally the case.
“In place of the robots…you’ve got two associates lining up with a big, old spot welder hanging from the ceiling by a chain, and you’ve got one associate kind of like balancing it and trying to get the welder in position, and you’ve got another welder with his arm guiding it,” this worker recalled seeing. “Sparks go flying.”
In August, Mr Musk told analysts that the Model 3s coming out of the factory were “not engineering validation units.”
“They’re fully certified, fully DOT-approved, EPA-approved production cars,” Mr. Musk said, referring to the Department of Transportation and the Environmental Protection Agency. “These are not prototypes in any way. They’re not validation anything. They are full production cars.”
But he also said early versions coming out of Fremont would have issues, which is why the first cars were going to employees and investors who paid for them.
Tesla has said it expects to begin delivering the first cars to nonemployees this quarter. It will have to seriously boost production to meet Mr. Musk’s 5,000-a-week projection.
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