Tesla Confirms Cancellation Of Model 3 Supply Order Due To Supplier’s Inability To Meet Technical Standards

Tesla Model 3


Tesla Model 3

Tesla Model 3

Tesla said this week that the company did, in fact, cancel a substantial Model 3 supply order that was previously contracted with Germany-based automotive supplier, SHW.

Tesla Model 3 - Image Via Datcode on Imgur

Tesla Model 3 – Image Via Datcode on Imgur

Earlier, speculation linked the cancellation with the new U.S. President, Donald Trump, and his administration’s potential policies. Elon Musk had met with Trump a few times recently, and a German news agencies spun the story to suggest that the meeting had something to do with the situation.

On the contrary, Tesla clarified that this was surely not the case. Instead, the company pointed to the issue being related to the supplier’s compliance issues:

“The main reason why we now confirm that we cancelled the order is to counter those utopian claims that we were acting in response to political pressure. The fact is the order was cancelled because technical standards weren’t complied with.”

The cancellation will cost SHW a loss of ~$107 million. This huge impact caused the company’s shares to dive to their lowest value in months. SHW manufactures engine components, pumps, and brake discs.

While this could be forecasted as a setback for Model 3 production, others believe that it is Tesla proving that it will be rigorous and inflexible in choosing its suppliers and assuring their compliance and timeliness. If Tesla sets this standard, and creates healthy competition, the company is more likely to get what it wants and needs in a timely fashion. With the ridiculously strict timeline, there is not room for second chances.

Tesla reiterated its policy, which states:

“Tesla’s policy is to terminate any supplier that is unable to meet their contractual milestones or violates their non-disclosure agreement. Unfortunately, we have to be firm in this regard in order to keep the Model 3 program on schedule and prevent plot spoilers.”

Earlier SHW note on the orders cancellation (via Reuters):

SHW said on Tuesday its customer was disgruntled over the technical specifications for axle-drive pumps which failed to meet its requirements, but SHW said it did not accept the reason.

Source: ET Auto

Categories: Tesla

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98 Comments on "Tesla Confirms Cancellation Of Model 3 Supply Order Due To Supplier’s Inability To Meet Technical Standards"

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“SHW said on Tuesday its customer was disgruntled over the technical specifications for axle-drive pumps which failed to meet its requirements, but SHW said it did not accept the reason.” Yahoo Finance

At this point, Tesla has little credibility left. They ate crow for all the lawsuits they were involved. More likely reason:
1. Tesla is running out of money, can’t pay its bill.
2. Mr. Musk sees the writing on the wall now. Model 3 volume will be waaay lower than the original order.

At this point ValueSeeker has little credibility left with his constant anti-Tesla diatribe and Tesla’s rise to becoming a $40B market cap company.

Neither of those reasons makes any sense. Tesla has cash, credit, and a stock price that allows it to do another secondary offering. It has 400k reservations.

Tesla trying to increase USA content does make some sense. OTOH a German supplier is unlikely to be cheap, so any technical deficiency is just unacceptable.

Tesla has no cash because it’s burning it probably in their paint shop. Recently it has been putting up everything including the kitchen sink as collateral for revolving credit with less and less favorable terms and rates and oh! Elon Musk doesn’t want to dilute shares because he has borrowed $2B on his and if the stock prices falls below $220 he is going to get a lot of calls from his personal creditors. This is not the first supplier that is complaining and this is not not going to be the first or last supplier that will sue Tesla for breach of contract and failure to make payments! This company is like the Titanic. The Captain keeps saying the ship is unsinkable while the water slowly rises and the orchestra is playing lively music! Tesla has taken over 100 years of automotive manufacturing and sales history and decided to repeat every mistake made in the last 100 years and turning around and saying they are innovators. In a sense they are. Got to hand it to the hype machine. No one has made this many mistakes and survived this long but time is no longer on their side.

I have a brother in law like you. He can be a real **** too. Site some real evidence if you are going to make such a claim … your sounding a bit too much like trump.

Dr. VS,

Having problems with suppliers is common and regular in the manufacturing industry. Apple/Qualcomm being a prime example ($1 Billion dollar dispute).

Do you think Apple is out of money because they are in a dispute with their supplier? Hardly.

You’ve publicly stated that you short TSLA stocks. How are your shorts on TSLA working out for you lately? How much are your losses?

Dr. VS:

Could you elaborate please?
Not criticizing, I’m just stating that having the tinyest shread of information as to what the situation is, doesn’t help us casual readers understand more fully the situation.

So many replies to some very plausible scenatios!
#1 (running out of cash) is easily deduced from a) last quarterly report, with swelling payables. b) accelerating spending for Model 3 and GF c) Many examples of slow refunds d) No cap raise yet, while everyone is saying Tesla needs one.
Shred of evidence: https://teslamotorsclub.com/tmc/threads/how-long-did-model-3-deposit-refund-take.81832/
2) See Adam Jonas’ (big Tesla bull) M3 production forecast. Volume production is years away and not at Musk’s predicted levels. Given #1 that Tesla is having difficulty to pay all its bills, why would Tesla pay SHW for parts in large volumes it doesn’t need now?

The political reason given by SHW is also likely. I put the reason given by Tesla as the least likely. We saw this drama with falcon wing doors also. Tesla quietly settled outside the court, and the FWDs remain as flaky as one could imagine. Check more on my link.

All these years of “running out of cash” and the Sky is falling.

I hope more companies fail like Tesla.

Dr. VS,
thanks for the link, but the ‘shread’ I was looking for was detail about the article – namely what was the problem with the pump? (I mean other than my guesstimate by just looking at the outside of one, and my skepticism of SMH not providing any reasonable information on their website).

The refund speed – well, to the contrary, I find their refund speed actually pretty fast if they get the money back to almost everyone in 8 weeks time. Big Corporations always seem to have plenty of embedded delays so I can’t say that Tesla’s refunds are anything to especially worry about.

8 weeks is how long it takes to weed out fraud. This is normal and standard for pretty much any large company dealing with substantial sums of money. The refund scam is common and every company has to protect against it. It typically goes something like this: 1) Put down the deposit using some sort of bogus instrument, anything from a stolen credit card, to fake checks or money orders, to forged cash bills. 2) Request a refund, and get back good money from the company in exchange for your bad funds. If it is a stolen credit card, tell the customer service rep that you closed the credit card, and ask for a check back instead of a credit back to the card. 3) Cash the company’s check with a fake ID and disappear. The check will be good, so it will clear. 4) Weeks later the company finds out what you gave them was junk. You’ve cashed their check and walked away, so they have no recourse. Easy fix that most every company does is to sit on everybody’s funds for 6-12 weeks. By then your bogus funds will have been exposed through the normal slow banking process.… Read more »

These are highly advanced vehicles with very critical components. Every part has to be exactly to spec. to avoid problems down the road causing recalls and such. Elon Musk understands this and will not compromise on quality standards. He brings the same determination to Spacex.

ValueSeeker wins worthless comment award. We laugh as Valueless flails and fails again and again.

The troll crashing the dinner party can try to squeeze himself into a suit of human clothes, and he can sit at the table and try to figure out how to eat using a fork and spoon, and try to mimic human speech.

But try as he might, “Dr Valueseeker” can’t hide the fact that he’s really an anti-Tesla, B.S.-spouting, FUDster troll. And has been for years.

Haha, brilliant.

Of course, and this is why Tesla’s stock price has risen 25% in the last month. Buffoon.

Yup. The fact that Dr. FUDspouter Dr Valueseeker is making anti-Tesla FUD posts at the very time the stock price is peaking, shows that he’s currently still invested in his Tesla “short” position… which means his judgement regarding when to short Tesla stock and when to exit is as bad as it can possibly be!

Who in their right mind would listen to investment advice from someone who is failing and flailing, and obviously losing money on his investment, so spectacularly?

A smart TSLA “short” investor would, if anything, currently be making Tesla “cheerleader” posts, trying to pump up the stock price to the highest level, so he could make his “short” investment at the peak price, and make money as the price came down from that peak, then sell before the price started its next long-term rise.

How is it that someone like me, who has never invested in the stock market, can see what is so obvious; while a self-proclaimed professional stock investment guy like Dr. FUDspouter is blind to this reality?

What a loser!

Alternative facts.

Wouldn’t surprise me either way

Oh darn, more waiting? I Hope Tesla doesnt Mitsubishi Outlander me!

Likely can be alternatively supplied or built in house with the addition of Grohmann engineering.

Like Tesla would risk the early falcon wing door problems again on another substandard German parts manufacturer. My recollection is they are going with two suppliers for as much as they can. Elon got burned badly by supplier quality of manufacturing at both companies, there’s no wonder he is going as vertical as he can with both manufacturing companies.

Well, when you look at it from a different angle, we’ve been waiting for approximately 4.6 Billion years for this car. A few more months for an exceptional car won’t hurt i’m sure about that!

So wee shall rename the model 3 to Tesla Model ” 3.6″ , because now it will be 6 months late or as some would rather see it as a whole 1 billion years early. Either way, at least it will be actually worth the wait. All systems will be robust, and thoroughly tested!

What is actually the purpose of an axle drive pump on an electric vehicle?

Whatever it is… sounds sexy!! My question is… how many axle drive pumps will I get in my model 3!

After looking at SHW’s website, it looks like it would be a cooling pump for the drive unit motor/electronics. The description “Electric drive axle pump” is confusing, but separate “Electric drive axle” and “pump” and it makes more sense. That’s my best guess.

I think it is a pump used to lubricate the moving parts of the axle. In other words the pump provides the necessary lubrication for the moving parts when driving.

Just WHAT lubrication does an axle need?? Can’t think of a simpler component of any mechanical system… must be the wording that is confusing.
Inboard motors with drive axles. Hmmmm…..

Sounds like party of the electric drivetrain. Even though there isn’t combustion occurring in an electric vehicle, they still need cooling. Any time you’re transferring electricity, heat is created.

I think DangerHV danger is right that’s it’s water cooling pumps for the power electronics and motor.

…except that no car uses a pump to lubricate the moving parts in an axle, or at least not the axles attached to the car’s wheels.

I think you are correct from viewing this video:

Yeah hopefully this kind of thing is second or third sourced. My roadster had an air-cooled motor for this kind of thing, and it was interesting that the car as shipped to me had 2 squirell caged blowers driven by 2 independent motors – they were totally quiet, independly operated (the other one was for the drive inverter), but then TESLA did a recall on it and said they were on their own replacing it with a combined 2-fan, dual shafted motor – which THEN had to be replaced 3 times. (Its uncanny that I didn’t have the slightest bit of trouble with the originals, but then all kinds of trouble with all the replacements). The larger motor was run off of a y-connector so that both ‘motor outputs’ from a portion of the main drive inverter contributed to the running of a single doublesized motor). The complicated GM voltec stuff has a pump for every loop – with the added issue that the hydraulics needed for the clutches are supplied by an electric oil pump when the engine is off, and then relinquishes to the regular engine oil pump if the engine is running. Not sure if they do… Read more »

Let’s hope they have a back up supplier. Doesn’t sound like a simple component to get re ordered in time to prevent a delay

SHW is likely to seek damages. Tesla’s going to have to prove the part is substandard and that they didn’t simply cut SHW loose to start building it themselves.

Elon just threw a money wrench into the Model 3 launch for kicks.

Probably a perfectly good part.

He put Tesla at risk to please Trump and will order from an American manufacture.

But did not cancel dozens of contracts with other foreign suppliers. Because Trump likes Korean and Chinese companies over German ones.

What’s your basis for any of that?

An active imagination.


Been watching too much Fox News.

Probably some maryjane?

Trump is of german descent, not sure why youd think that


When people can’t see way over the top sarcasm.

LOL… LMAO…. English reduced ad absurdum.


Poe’s law in action. 😀

Where’s the top nowadays? I can’t see a way over it.

I didn’t think Rob needed to put a “/sarcasm” tag on that post, but clearly I was wrong.

To quote L. Savvik: “Humor… a difficult concept.”

When contract says that delivered part must have XYZ specifications/reliability etc. and you deliver parts with lower specs, calling lawyers when contract get canceled is a waste of money and time (and doing so will lower your chances of getting similar contract in the future even more).

You and Tesla will have to prove that in the courtroom. SHW will file a lawcuit if it thinks its parts are as per spec. Tesla will eat another crow, just like it did for the blame game it played for falcon wing doors.
Bye Bye, modal 3!

Yep, I see that the Tesla shorting trolls like Dr. FudSpreader’s are getting desperate now.

It will be a long goodbye…

Does anyone have any knowledge as to what Specification is at issue here?

Wouldn’t someone from Tesla want one or two samples from the company (surely they must have made something before this particular order from Tesla) and then test it for things like SHUT-OFF HEAD, Prime Efficiency Point, (GPM, at a certain pressure, etc), power consuption, noise level, etc. prior to placing an order for 400,000 of them?

If they are to last the life of the car, I’d assume in this day and age they’d be of ‘brushless’ construction, and either have a magnetic drive, or else be hermetically sealed.

Just checked the website – apparently this is a brushed-motor and mechanical seal to the pump, (i.e. motor is not sealed). It would be nice if they had life cycle data on this thing to see how long the brushes last, etc, and also the DC drive electronics are built into the unit so that HOPEFULLY the oil doesn’t get too hot and make the electronics and/or enclosed motor overheat. I don’t understand why they don’t keep the motor thermally isolated from the pump it is driving. I’m skeptical of this methodology, but hey, its their party. I’m a bit suspicious of any company that provides vague technical info – I’m providing details just looking at a sole photo from a distance – it would be helpful if they at least mentioned some specs on their website of the most general nature, but then they don’t even bother to do that. Most gear pump companies – like Oberdorfer in Syracuse, NY provide COMPLETE specs and pump curves, along with any optional materials, bearings, or seals that are desired by the customer. You can design the whole job – whatever is required – just by looking at their website! Of course,… Read more »

I couldn’t find any reference to type of electric motors used. http://www.shw.de/cms/en/business_segments/pumps_and_engine_components/products_passenger_vehicles/fixed_displacement_pumps/
Brush type motors have been obsolete for a long time now, this makes no sense. However several manufacturers sell brush motor replacements that have built-in electronics to emulate brush type operation. You say this motor includes electronics so that is probably what the electronics do.

“You and Tesla will have to prove that in the courtroom. SHW will file a lawcuit if it thinks its parts are as per spec.”

Typical brain-dead anti-Tesla FUD from a serial anti-Tesla troll.

Tesla doesn’t have to “prove” anything in court to cancel the contract. If SHW thinks Tesla is in breech of contract, then it’s SHW — and not Tesla — which will have to prove its case in court.

This is most definitely a setback for the Model 3 schedule.

Upholding high quality standards while maintaining a tight schedule, and then shopping for a new supplier, means you’ll miss testing and production dates.

Another challenge will be finding a new supplier. Not everyone wants the drama of working with Tesla as they beat you down on price and schedule.

“This is most definitely a setback for the Model 3 schedule.”

Got a source on record about Tesla having only one supplier per part on all parts ?

“Upholding high quality standards while maintaining a tight schedule ..”

As opposed to using substandard parts AND a lax schedule which would result in hitting all targets ? Really ? ..

“Another challenge will be finding a new supplier.”

Who says they need a new supplier for the said part; apart from you ?

@cmina: If Tesla had a 2nd source for this item, it wouldn’t be a news story.

My other point is this: The writer makes the ridiculously tight schedule sound like a virtue. Tesla’s suppliers sign on so they can make money, not get prestige. As a supplier, I’d be very hesitant to do business with Tesla, especially to replace someone who fell down – and now I have to meet the same deadline.

On the upside, if you are a Tesla supplier you gain the reputation of quality and reliability.

LOL, they must have many bad suppliers judging from the bad quality of those Tesla cars

Says who?

Says all the people hoping Tesla will fail, for either financial reasons (the short-sellers like “Dr. Valueseeker” and the Big Oil shills like zzzzzzzzzz) or political reasons, or both.

Tesla has been disappointing them for more than 10 years now, and keeps growing its market by leaps and bounds every year!

Go Tesla!

I do not know if it will impact the schedule. Deliveries were intended to start in september, that is nearly three month after start of Model 3 production.

That makes this the second supplier for this part, coming in during the ramp up to full volume production. Not the primary supplier for this part.

Either the primary supplier can replace this supplier, a third supplier can step in or Tesla can produce this part in-house. Or perhaps all of the above.

That would presume Tesla only has single sourced suppliers. Based on the non-disclosure clauses, we don’t know how many suppliers they have arranged for each part.

I’ve dealt with suppliers
They act/believe they’re doing you a favor by selling to anyone. Subs must be regularly spanked to keep in reality of whom writes the checks.

This is a strange use of the word “utopian”.

I thought so too. Did they mean to use dystopian?

My guess is they meant “utopian” as in those who are foolish enough to believe The Donald’s campaign promises, including his promises to create an American utopia in which everything sold in America will either be made in America, or else will have high tariffs imposed on it which magically won’t increase the prices we Americans have to pay.

German companies can be SO SLOW…my bet is they had issued meeting Tesla’s timeline as well.

issues that is….Plus they just bought a supplier and maybe will do it in house.

Great news as a share and reservation holder. Several months out from manufacturing the car it’s demonstrating to all its suppliers that contracts aren’t suggestions, and if you can’t meet your promises they won’t hesitate to cut your 100 million dollar contract, sink your stock price, and tell the whole world you can’t meet your timeline or specs.

How much you want to bet that Tesla just became the number one priority of the senior management team of every one of their suppliers?

More likely this kind of public backstabbing will make it less likely suppliers will want to work with Tesla. A poor fit is one thing; a public shaming is another. As the Model 3 schedule slips more suppliers will thrown under the bus.

I thought the German supplier went public first with a suggestion it was politically motivated. They hedged a little by not naming Tesla specifically but how many manufacturers of electric cars can you think of that might have a $100m order to cancel?

And even more likely that serial anti-Tesla troll 4E is continuing his backstabbing Tesla shorting here.

Well at least we know they still out there. They have been remarkably silent the past weeks as Tesla has had so much good news, they were nowhere to be found.
But some minute snafu, at from Tesla’s pov occurs, and they are all, see we told you, Tesla is going to fail.
Yes, and drowning men will clutch at straws.

When you put that kind of money on the table, everyone will want to work with you.
Imagine this: The USA aren’t very popular among the Arab countries or Venezuela. Yet those countries sell all the oil they can to the US…

That buys Tesla an excuse to delay the model 3 for at least 6 months.

More B.S. FUD by serial anti-Tesla troll Someone who makes up *%^&#@!

Who made you the forum police? You have added nothing to this forum except throwing abuse at people that isn’t part of the cult.

It’s now very easy to spot the anti-Tesla hater cultists. They’re the only ones trying to pin the “cult” label on anyone who refutes their FUD and B.S.

We should all relax. Drive axle pumps, cooling gear, stuff isnt like falcon wing doors. Price, OTOH, for 100mm makes one think item(s) may more substantial?

A contract with 100 million volume at 5 million parts means a price of 20$/unit.

Maybe the contract was to deliver the part for the next 5-10 years. Maybe you need 4 of those units per car, who knows. A sum of 100 million can easily accieved in multiple ways.

Just guessing but 2 on the RW drive and 4 on the AWD.

Take your time Tesla and do it right.

Message to all the other suppliers: Deliver quality parts, and deliver on time.

Tesla tightened up their supply chain for the Model 3, going so far as to visit factory floors to confirm progress and capacity with workers on the floor, instead of just accepting management promises. (ibid previously posted electrek source).

Tesla also added contractual milestones in order to hold suppliers to their promises.

So now instead of waiting until one supplier fails late in the process, Tesla is monitoring progress closely all the way through the process.

This has allowed Tesla to weed out an under-performing supplier well before the TM3 is anywhere near the point of volume production, giving Tesla plenty of time to turn to a new supplier.

This is all part of the new approach of Tesla’s new VP of Supply Chain management. (ibid) No more waiting until a supplier delays a launch to sack them. Now they have gone proactive in a big way.

Model 3 delayed until end 2018.

I’ve worked with germans company in the past.. a specific one for a “little” order of a 5 color druckmachine about 1 mln euros, I wasn’t happy they didn’t respect delivery time they set, they didn’t respect other contractual terms.. Some of uus are misleading and still think even after dieselgate that somehow germans companies are “honest” nobody and no rules will stop them to do their biz. regardless to any contractual commitment.

Try to find a german company that is working in August or December — plus a few weeks off here and there for other miscellaneous reasons. They put the customer second and them first…..

Well, those of us who have been paying attention knew this would happen. Musk send a very clear warning to suppliers that if they could not meet Tesla’s very aggressive development schedule for putting the Model 3 into production, that Tesla would drop them hard and fast.

And the sooner Tesla drops suppliers which fall behind, the sooner Tesla can start working on getting a replacement for that part, or those parts. So it’s far better we’re reading about this now, instead of much closer to July 1, the target date by which all suppliers are supposed to have delivered their initial batch of Model 3 parts to Tesla.

Expect to see more news similar to this.

SHW is a supplier of pumps for VW. VW now has to make a recall of 600000 vehicles in the US, because of pump related issues. Maybe there is a connection?

I personally would even think so far that this might be a play by the ICE cartel. Try to stop or delay M3 by less obvious methods, like out-of-spec parts. Given the initial transmission issue and the falcon wing door issue, where leaders in the field failed to supply a quality product, namely a transission that could not handle the torque or a hydraulics system that leaked oil all over the interior. They were replaced for delivering crap, too.

Automotive suppliers are not selected unless they demonstrate they meet the technical requirements – first. Potential suppliers are audited first. ISO 13485 certified quality management system – de rigeur.

“It’s now very easy to spot the anti-
Tesla hater

huh? lol

Yes, pointimg out obvious issues with Tesla now makes you part of a cult, because… uh… reasons.

No, it’s the habit of referring to a Tesla fan as a member of a “cult” which outs you as the real cultists here.

Sports stadiums everywhere are filled with tens of thousands of fans, some of which paint their faces in team colors, most wearing clothing with team logos and/or colors, all screaming. Yet nobody calls them a “cult”.

Similarly, Ford and Chevy and every other make of cars have their fans; some of whom would never even think of buying a different make of car. Yet none of these groups of loyalists and fans are labeled a “cult”; only Tesla fans get labeled that. Clearly the real cultists are those few trying to paste the “cult” label on Tesla fans!