Musk Initiates Climbdown From Tesla's High Horse, Production Revolution Postponed
I have written about the auto industry all my life.
“We continue to be surprised by how sort of frankly naïve a lot of people are about production and supply chain,” complained Tesla’s Elon Musk during the company's quarterly conference call with analysts on Wednesday. (Full transcript here.) “It's as though there is some like easy way to increase production. It's truly not.” Better late than never, Tesla’s wunderkind CEO is coming to the insight that the hardest part of the business is not the car, it's the production.
A year ago, Musk announced plans to make 500,000 cars a year by 2018, and a million by 2020, using a high-speed “density and velocity” production method the world has never seen. I was among the few who dared to doubt that publicly. Privately, people with hands-on experience in the car industry thought Musk was in ludicrous mode. A year later, Musk is busy walking back his unachievable plans, while blaming his followers for naively believing his predictions in the first place.
During the conference call, Musk basically announced that the alleged production revolution, something that sailed under “alien dreadnought” in Musk’s preferred sci-fi parlance, is postponed until some unspecified time in the future. Sure, Model 3 production will be more automated. "It's perhaps three to four times more automated than a Model S or a Model X," Musk said. Wide parts of Model S and Model X production are manual, the photogenic robot pictures notwithstanding.
“With Model 3, I think we'll be roughly comparable with the best high-volume vehicle production lines in the world. Better in some respects, a little worse in others, but roughly comparable,” Musk said.
Knowing how Musk usually thinks about these “legacy automakers” he intends to disrupt, this is an admission of defeat.
“Then where things will really be a step change, beyond any other auto manufacturer, will be the Model Y factory,” Musk continued, promising that once Model Y production starts, “there will be nothing close to it.”
There is a startling admission hidden in this statement. Last year, and in one of his many tweets, Musk characterized the Model Y as a “compact SUV off [the] Model 3 chassis.” In the business, this is known as a crossover variant, and it is routinely built on the same production line, and of course, the same platform. In the auto business, yes. Not at Tesla.
In the conference call, Musk intimated that the upcoming Model 3 will be built using somewhat improved methods at Tesla’s current factory in Fremont, while, shockingly, the Model Y variant will be built in a factory elsewhere. To make a silly concept worse, Musk told analyst Martin Viecha of Redburn Europe that the Model Y will be built on a “different platform.”
This announcement caused significant head-scratching in the industry. “Since the last century, we’ve been building multiple models, even of different brands, simultaneously on the same line, and he needs a different platform and different factory for a simple body variant?” asked my usual contact at a large EU OEM, a contact who does not want to be caught talking to me in public. Indeed, building eight completely different models on the same line has been state-of-the-art in the industry for decades, in Europe and Japan, at least.
Meanwhile in China, the stakes are being raised further. Independent Chinese automaker Geely will build 12 models on the same line in its new factory, the company’s chief of pilot production Gao Wen told me during a recent visit to Geely’s production engineering department at Hangzhou Bay, China.
Model S production. (Picture: Noah Berger/Bloomberg)
“Density and velocity” are not the holy grail in this complex industry, but rather overall productivity and flexibility. Some 60% of a car’s cost is in the production facility, with the remainder equally going to parts and labor, a common rule of thumb in the industry posits. Given their high cost, production facilities need to work as flexibly as possible -- production must be able to easily adapt to the inevitable ebbs and flows of demand for individual models. As long as overall demand keeps the line busy making money, OEMs who build 8 or 12 models on the same line are little concerned about the sales of individual models. Knowing that, sell-side analysts are expected to act and ask responsibly in a conference call when someone announces a one car, one platform, one factory strategy that went out of style some 100 years ago. At Tesla, if that Model Y is a bust, the new factory will sit idle.
In the conference call, Musk extolled another amazing fact, namely that car production is “not just a bunch of robots that are sitting there. It's the programming of robots and how they interact. And it's far more complex than the software in the car. I mean, I think, this is just going to be a very difficult thing for other manufacturers to copy. I would not know what to do if I were in their position.”
https://www.forbes.com/sites/bertel...production-revolution-postponed/#63a59a88378f
