Tesla Has 450,000 Problems It Can Learn From Immensely

Tesla Model 3

MAY 25 2018 BY EVANNEX 55

TESLA’S 450,000 PROBLEMS

Having more orders for your product than you can fill sounds like a problem that a lot of business owners would love to have – but make no mistake, it is a problem. Tesla’s difficulties ramping up Model 3 production have become a media mantra, with pundits proposing half a hundred possible reasons for the delay: too many robots, too little manufacturing experience, too much hubris… or maybe not enough gasoline? An article by Maarten Vinkhuyzen in CleanTechnica presents a different perspective – the root of Tesla’s Model 3 mess is simply too many orders.

*This article comes to us courtesy of EVANNEX (which also makes aftermarket Tesla accessories). Authored by Charles Morris. The opinions expressed in these articles are not necessarily our own at InsideEVs.

Related: Musk Says Tesla Model 3 Production Target Is 6,000 A Week By June

Check This Out: Tesla Model 3 Dual Motor And Performance Versions Revealed

Above: Tesla’s Model 3 (Instagram: model3nc)

An axiom from the software industry holds that the cost of fixing a mistake increases exponentially if it is discovered later in the development process. For example, an error that would have cost $1 to correct if caught early in the design phase will end up costing $10,000 if it isn’t discovered until the product is in production.

Vinkhuyzen explains that the design teams for both Model S and Model X were fortunate to have more time for the design phase than they had anticipated – in the first case, because of delays in finding a production location; in the second case, because Tesla sidetracked the launch of Model X in order to ramp up for the higher-than-expected demand for Model S.

With Model 3, the opposite happened: the design process was cut short, because of the sheer number of orders that poured in. No one can say how many advance orders Tesla was expecting to see, but it’s safe to say that Musk and his crew were as surprised as anyone when 100,000 people plunked down deposits before the car had even been shown, and the order book eventually grew to around 450,000. “Definitely going to need to rethink production planning…” Elon tweeted.

Above: Tesla deliveries picking up for the Model 3 (Instagram: coswatte)

A realistic plan might have been to produce 100,000 vehicles in 2018, and try to ramp up to 400,000 per year by 2020. However, this would have meant that many customers would languish on the waiting list for three years or more. So, Tesla opted for an unrealistic plan instead. It brought the start of production forward by six months, and advanced the goal of 5,000 per week by a year, to the end of 2017. When it announced the new timetable, Tesla warned of setbacks, missed deadlines and “production hell.” And this is exactly what has happened.

As Vinkhuyzen explains, accelerating the production plan likely resulted in more than just missed forecasts. “Shorting development time increased the number of mistakes that had to be corrected, and also the severity of the problems encountered. What is worse, it exploded the costs of correcting those mistakes.”

Elon Musk acknowledged much of this during Tesla’s famous conference call from hell. When asked about plans for Model Y, he said, “Although the amount of money spent in the beginning is really quite low in the beginning of a development program, decisions made at the beginning have massive implications for future CapEx. So it is better to spend a bit more time making the right design decisions and really thinking through the producibility of a product before racing ahead with CapEx decisions. There’s no question we could have made the Model 3 much easier to produce than we have.”

Above: Here at last, the Model 3 (Instagram: rsantanna)

Tesla learns important lessons from each new vehicle program, and the learnings from Model 3 will probably be enough to inspire a whole college course someday. As usual, Elon is already looking ahead to the next project: Model Y. “I think Model Y is going to be a manufacturing revolution,” he said on the recent call. “It will be, I think, incredible from a manufacturing standpoint, because we do not want to go through this pain again.”

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Written by: Charles Morris; Source: CleanTechnica

*Editor’s Note: EVANNEX, which also sells aftermarket gear for Teslas, has kindly allowed us to share some of its content with our readers, free of charge. Our thanks go out to EVANNEX. Check out the site here.

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55 Comments on "Tesla Has 450,000 Problems It Can Learn From Immensely"

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Preselling is a good idea if you can get away with it and they CAN.

Yet to be seen. If 80% of those defect to other brands, then maybe it wasn’t such a good idea.

So having 90,000 buyers (450k – .8 = 90k) waiting for you to build them a car is a PROBLEM? In what world is your worst case scenario a real world problem?
Tesla is in the cat bird seat. As long as they can deliver at least 30k 3’s a year to US buyers they are doing acceptably well, if they deliver 50k 3’s to US buyers a year then they are setting records for the industry. Everything over 50k a year is gravy.
And Tesla appears to be able to build around 5k a week, or 250k a year. Keep just 1/2 of those cars in the US and you have 125k sales a year in the US. And that would be a success few industries can boast of.

You seem to miss the point. Tesla can’t be profitable at those volumes. If they sell only 30K TM3’s this year they are going to die. If they sell only 50K TM3 this year… they will die. Only by selling in volume do they even have a prayer of getting cash flow under control. They are in a tough Catch-22 — they can sell at ton of cars at the price point they can’t make any money at. Or, a handful of cars at higher prices, which still won’t cover fixed costs. meanwhile warranty costs escalate, recall costs escalate, Supercharger costs escalate and they are still carrying around that nascent sorta-business SolarCity. If 80% of the mythical 450,000 reservations move to other car companies– the business problem is THOSE companies CAN make money selling a $35-40K car. Tesla? Cannot. I always giggle when I hear “oh the big guys must hate Tesla for competing”. Heh. The Big Guys LOVE Tesla for spending billions on market research they will benefit from… WHILE TESLA LOSES MONEY ON EVERY ONE. Every car that ships today has 235 $100 bills stapled to the hood. They flap in the breeze. It’s an amazing sight. And… Read more »

Bull. 1) The number of reservation holders is NOT the cap of buyers, it is the entry point. Both the S and X have sold full orders of magnitude more cars than they had reservations. The Model 3 will be even bigger, as mass market buyers don’t buy using wait lists. At current production rates they will blow past 100K even without building faster.

2) Even at the rate they are at now, even if they never manage to build any faster, the Model 3 is ALREADY at a production rate that will put them in the top 20% of monthly vehicles sales in the US by volume. And they are ALREADY above the median car price. There is no problem making money

3) “TESLA LOSES MONEY ON EVERY ONE” — Clearly you never learned how moronic that math is when it was done on the Chevy Bolt to claim that the early models cost them $100K each to build. Upfront costs are amortized across the entire live of a generation, which is roughly around 5 years.

If he manages to produce 150.000 model 3 in 2018, and 300.000 in 2019 it´s very very good!!
I hope that´s enought to raise capital for the model Y and new gigafactoryes!

If we take into account that the BMW 3 series sold worldwide 379,000 cars in 2017 (sedan + touring and maybe 3GT?). We are talking about a brand that produces cars for about 100 years!

BMW sold 59,449 BMW 3 in 2017 in the US, if Tesla’s target for 2018 had been 100,000, we would not be hearing these claims about Tesla M3 production

This is what happens when someone with no experience in the car business starts building cars. They make mistakes. Some tiny and cheap to fix, some big and painfully expensive. You’d see the same general pattern if someone who spent a lifetime building houses decided to get into software development.

Anyone who didn’t see this coming was very naive.

And Tesla fans, PLEASE hold your fire. I’m one of you. I desperately want Tesla to succeed and push other car companies in the right direction. (And I love having one of my fellow geeks, Musk, running it.) That doesn’t mean I’m blind to Tesla’s mistakes, though.

So you’re saying that the only companies you want building cars are the legacy automakers? Because every other company trying to do this will have had no experience? Okay then.

And if you’re talking about just Elon Musk, well then as much of a genius as he is, he doesn’t do every single job at Tesla. Tesla hire ten’s of thousands of people, many of those who have had a lot of experience in the car industry. Many people have even come from the other legacy automakers.

The truth is that the legacy automakers have gotten stale and set in their old archaic ways. Sometimes it takes a new company to break new ground or to try new things which push the technology boundary forward. Make no mistake, all the other legacy automakers are sweating now as they realise Tesla is doing what they’ve long said was not possible for decades to come. The electric offerings available today from those other makers are only available today because of Tesla. Without Tesla, they’d still be saying “vehicle electrification” isn’t possible until 2050.

I can see where you are coming from, but the mass exodus of auto industry talent is a little sobering. Now the new AutoCruise guy was formerly in charge of monetization at Facebook? huh?

Lou did not say that only legacy auto manufactures should make cars. Only that they have more experience. Mis-quoting a person and then criticising based on your false statement is a strawman argument.

Sure, sure about the legacy automakers,but to not admit Tesla has screwed up somewhat with the model 3 is just being blind. Ask musk now if he could do it over again and require a much higher deposit amount, to get more cash but also reduce consumer pent up demand somewhat, as well as place the m3 through months of proper beta testing.

Lessons learned from mistakes made: Tesla will beta test all new future high volume bevs they offer and require a much higher deposit amount.

So what’s your takeaway, then?

All Musk would have had to do is read the book “CALL ME ROGER”, regarding Roger’s Smith arrogant stint at the Old GM to find out the way that both of them utilized robots never works.

I knew that, now why would the crack team over at Tesla not know that, or at least SOMEONE on the team? Were they too afraid to contradict Musk?

Experienced car makers still make (big) mistakes. Some causing death.

Mistakes is not an issue per se. It means you are doing something. The key is to learn. And in this field I’m pretty sure Tesla is better than most automakers.

Everybody makes mistakes. Including every established car maker. They made mistakes early, and they have continued to make mistakes over the last 100 years right up to today. One could argue that their biggest mistake was failing to take Tesla’s 2006 “Secret Plan” seriously, and failing to beat Tesla to the market after they showed their first Model S at a car show in 2009. If they had simply stole Tesla’s market plan and copied their concept car and put it out by early 2012 and beat Tesla to the punch, they probably wouldn’t be so far behind the game today.

Huge mistake not taking Tesla seriously!!! Very big mistake.

Apparently though only Tesla is held to some standard where they are not allowed to make mistakes.

Legacy automakers are no different. They screw up just as much as Tesla almost on a weekly basis. Just look at the millions of cars that have been recalled in the last few weeks for non trivial problems. Look at the problem Ford is having right now because they did not have a backup supplier for a single part. Look at the issues FCA is having with production issues on the new RAM truck.

Everyone Else (with decades of experience): Design > Test > Build > Sell Tesla : Design > Build > Sell > Test Tesla does not have a strong production engineering culture and process (not surprising). They rushed the 3 into production and sold what should have in pre-production units for testing. This lead to inconsistent quality and putting thousands of cars in customer hands that need warranty repairs to fix (very expensive and hard on the customer and service people). They got the EV parts correct, but the body building and interior is not very good. (just go to reddit) This cascade of manufacturing and design defects will push downstream and add very high costs to the company. Tesla is fixing things that a rarely issues for established OEMs like DOOR HANDLES on the Model S. The model 3 forums are filled with similar bits breaking and falling off, up close these are poorly designed parts that are out of tolerance or just not designed in such a way that they go together well on the line. This is a business of pennies in the end, all the little parts add up, an error in specification or assemble of a… Read more »

You used the word orders many many times but they weren’t orders, they were reservations. The difference is that people putting down £1k weren’t placing an order, they were reserving their spot in a queue.

With 450k reservations, I find it extremely interesting that I can go to Tesla.com today and reserve a Model 3, take my place at the back of the queue, and still can expect delivery in as little as 4-6 months.

This seems implausible to me.

The higher spec models are clearly higher revenue but also much higher profit, so it makes sense that you should get faster delivery if you order a high spec model, since Tesla needs the financial boost.
Now where your reservation fits into the massive backlog should be at the end of the list of similar reservations.
One could probably figure out what the reservation backlog looks like by analyzing reservations made at the same time with different options.

I didn’t think a reservation was tied to a vehicle configuration until Tesla ‘called on you’ from your place in the queue to configure your car.

How can Tesla promote me to a better spot in line based on my desire for a higher revenue car – if they don’t know what I want yet?

In the configurations it asks you standard battery or longer range battery with luxury upgrades and now dual motor

It now asks for this configuration info during the reservation process?

It was that ever since the configuration started. You can change that anytime you want though.

Are you referring to Tesla’s online configurator? You can configure when you reserve using this configurator?

https://www.greencarreports.com/news/1114115_configuring-a-tesla-model-3-buyer-walks-through-the-process-with-us#image=100635643

Well, when the reservations first started, your only choice was whether you wanted one or two Model 3’s. The concept of there being two battery sizes didn’t even exist at that point. AWD hadn’t even been confirmed as an option. Heck, the first 8 hours or so of reservations (around 100K) were taken before there was even a photograph of the darn thing available.

The queuing is unfortunately not a true queue. There will be a tax credit push in the US for the next 6 months or so until they start delivering internationally.
The 250k+ international reservations have to wait until 2019 and then you are only first in line in your country (if even that with owners and big spenders being prioritized).

It just shows how much line jumping is at work– if you buy the “right” car and turn up in CA to buy it they’ll happily sell you the $80K car in that timeframe.

My theory is still that at least 300K of those reservations are for the promised $35K car.

Truthfully, people are gaming this number. There is such a thing as too many waiting for a 35k-40k Model 3, but that won’t be a bankruptcy problem. Profits, maybe. There’s also Chrysler and Ford getting out of the space, and the higher number of these cars Tesla is apt to sell. Not everybody wants a truck, or “fuel-hungry vehicles, because gas prices are so low”.

My theory is the cap above 450,000 is only limited by production, and Elon won’t be able to get it down much, even if they can deliver 150k Model 3’s, this year. That’s because deliveries propel reservations.

It’s been exciting, for years watching how wouldbe Model S buyers have had this super-elastic reaction to falling price. How it has provided incredible resale, as numbers grew. Most of that time, I bet those batteries were $20,000 each. The base Model 3, probably closing on a cost of $10,000, and, man, will folks get what they’re paying for. The 60KWh / ~4,700 pound MS performed well. ~55KWh / 3,600 pounds, for much less, should do great.

There are not 450000 US orders.
Those are global numbers. You are cutting in line ahead of most of the world.

Don’t expect that ro last once they start shipping overseas

Wow. I didn’t realize how many non-US orders there are. I guess I’ll register and go for the long range RWD. If they can meet the 4-6 month guidance for long range RWD, there is a good chance I’ll have a 300+ mile Tesla for under $40k net (after tax credit) in time for Christmas. Sweet.

Well, if you have $1000 dollars sitting in a regular bank savings account that you don’t need for the next 6 months, you can easily break even with no risk. Use a credit card where you aren’t carrying a balance that gives you 1% cash back to put down the deposit. Then pay off the credit card immediately with the cash from the savings account. 6 months later you can get your deposit back as a check and keep the 1%. That $1K wouldn’t have earned you more than 1% over those 6 months in a standard bank savings account anyways.

So even if it doesn’t happen all you are out is nothing. Your biggest problem is that since they published that information, people have been acting faster than you to get their name in ahead of yours to get a long range RWD.

Good advice.

Yep, America first baby! Musk is clearly a closet Trump fan. 😁

Yes, everyone that are for America first are Trump’s fans. The rest are democrats, liberals, immigrants and traitors. Did i forget anything?
But hey, he was on his council, remember?

My guess is that 50% will back out. My son has a reservation that he isn’t using because he already has an X and an S. That reservation was for the first week in January 2018

Tesla has already stated that the reservation backlog has not decreased even with the cars they have delivered and the cancellations they have had.

Like most of their problems, this still seems like one that Tesla created for themselves. Any normal company would have waited until they had a lot of the problems sorted BEFORE they started to book orders… Any seasoned management team would have advised the same.

Thus, without being too cynical, you are forced to conclude (unless you think they are incompetent, which I DO NOT) they went early because they wanted the reservation money in the bank.

If they do the same on the Model Y (which I will be buying, most likely), be really concerned.

Tesla started taking people’s money because before there was even a single photo or verified spec, people were incessantly posting “TAKE MY MONEY ALREADY!!!!!”

You believe that taking reservations early was Tesla’s idea. It wasn’t. It was the idea pf buyers.

Excellent point by the article.
Of course, since at least 60% (and likely closer to 80%) of the waitlist really wants the 220-mile version, this problem could have been easily averted by Musk being honest with the public, and saying they plan to launch a $45-55k version first, and only 150-200k cars later offer a $35-40k version.

But then, they wouldn’t have received a quarter-billion $$ interest-free loan from those middle class chumps, to subsidize Tesla’s luxury-customers-first worldview.

So… it’s a tradeoff. Obviously no dilemma for Musk, who doesn’t really see middle-class customers as legitimate ones to satisfy. Rather, they are only burdens and risks for “killing” Tesla by asking for cars that are “too cheap to be profitable”.

They’re a-ok for shelling out $1k each 3 years in advance, in exchange for deceptive promises, of course.

So you’d prefer that Tesla sell their cars at a loss because you can’t afford them? There will be many other <$20K EV cars in the future, they should fit your needs just fine.

Don’t set up a ridiculous straw man. I wrote nothing of the sort.

What I’d prefer, as I wrote perfectly clearly – is that Elon et al. don’t piss on the customers who gave them $1k years in advance after being promised a $35k Model 3.

The middle-class customers were always at the back of their bus, but when promoting the Model 3 the $35k price was front and center. Just ask ordinary people on the street who don’t follow EV news, how much a Tesla Model 3 costs.

Money talks. It’s a little thing we call economics

The deposit system was set up before Tesla found out demand was easily 5-10 times higher than expected. How could he make comments about the first 200K reservations when they didn’t even expect anywhere near that number of reservations? Why are you blaming Elon for failing to predict the massive number of reservations, as if it were some evil plot to make people “chumps”?

Your comments assume that Musk knew in 2016 before taking a single reservation, that a sub-contractor working for the contractor that Tesla hired to create the battery pack assembly line would screw up the job. And therefore that Elon knew ahead of time that over a year from then the Model 3 would be delayed for 2 quarters and the costs of production for early units would go up and throw off their original numbers.

Your comments assume that Musk knew in 2016 before taking a single reservation that the factory floor would require 2 more reconfigurations and a hackathon in 2018 to hit 5K/wk. Etc. etc. Your claims of intentional duplicity to make middle class folks into chumps don’t seem very well thought out.

Wow, you’re really good at making excuses for Elon Musk, aren’t you?

Funny enough, everyone in the world except him – and apparently you – knew that the Model 3 ramp schedule was unrealistic, and that given Tesla’s previous launch track record a 2-quarter delay was likely a best-case scenario.

It doesn’t matter what he knew or didn’t know. He marketed this as a $35k car. That was the main, massive, deliberate, intentional message. The fine print that $35k customers would be thrown under the bus at the first opportunity – that was kind of missing.

And even assuming that wasn’t the plan and only recently the gap between $50k and $35k availability grew to over a year – where are the apologies or a minimal humility?

Instead, there’s only disdain towards these customers, as if all this is their fault somehow.

Your defense of Dear Leader is pretty sloppy.

Your justification for accusing Tesla of being intentionally deceptive, dishonest, and implying that they are scamming middle class folks is that Tesla has a history of being late?

That is complete bullpucky and a MASSIVE leap. A rational person would realize that they had made a massive leap into unjustified irrational accusations that have no basis in fact. I thought you were one of the rational ones. Your dip into “Dear Leader” BS is beneath you. You should seriously do a gut check to reflect if this is really who you want to be. Shame.

At the 2016 reveal and start of reservations, Elon stood in front of a screen saying “Late 2017” and announced deliveries would begin “next year”. Then joked saying “I feel fairly confident that it will be next year”, to which the crowd laughed because everybody knew the challenge of making that happen. Apparently YOU are the only one who didn’t understand. Actual reservation holders who put down their money that day knew that “late 2017” wasn’t a guarantee for start of production, much less a personal guarantee of any specific trim level delivered to them personally.

AND over 100K people put down their reservation dollars by waiting in lines around the world HOURS BEFORE the “late 2017” projected launch date was even announced!!!! With ZERO expectations for date of delivery, zero idea what the car would even look like. Your revisionist history being turned into an attack on Tesla is unfounded.

A good man would recognize this and simply post “My bad. After reviewing the facts I realized I went too far” and end it there.

I disagree. The large amount of orders is only part of the problem. The main problem comes from Elon’s continued overpromising and underdelivering with regard to timelines, except this time, it’s on a much larger scale, with a customer base that is less accommodating, with a government incentive that is rapidly diminishing, and with a competitive market that is rapidly growing. Because he promised late 2017 and did so with the impression that all models would be available near that time frame, he set a precedent for 450,000 people that he would never be able to keep. Since then he’s changed the timeframe three times, adjusted the model 3 configurations a few times over and made the $35K model something of an unknown potentially available car, more akin to vaporware than anything else. His rush to production has caused many costly service issues, a bottleneck in his service pipeline. a wealth of bad press, forced people to get refunds on reservations, eliminated the possibility of tax credits for thousands of buyers, and frankly left a really bad taste in the mouths of many. The current release schedule is clearly one that shows Tesla will do anything it needs to in… Read more »

I disagree about the tax credit diminishing. Even if they had hit the production numbers and all was good according to schedule the bulk of the reservists would not have received the credit. It isn’t based upon time but sales. If they hit the production numbers they would have hit the credit limits that much earlier.
When I reserved I always assumed I would not get the full rebate. While I want the AWD and LR battery the reality is I will have to wait for the bare bones car. I knew that from the beginning and Musk said no one should expect to receive the credit nearly from the beginning as I recall.

+1

On top of that, Tesla has also said that they expected less than 100K reservations, not 450K. So any talk about tax credits before they opened up reservations would have NEVER been based on an expectation of 450K reservations. There was simply never a point before they started taking reservations that they ever thought they would be building at the volume they are targeting today to meet the huge reservation number they never expected.

Dude, when he announced the “late 2017” date on stage at the reveal, he also ended the presentation genuinely shocked to announce 115,000 reservations. Much less 450K reservations. Elon never promised any specific trim levels at that presentation to anyone. In fact, they simply hadn’t even announced any trim levels or if it would be AWD, etc AT ALL at that point. The reality is that 450K reservations changed everything.

You may be unhappy at whatever you WANTED to happen didn’t actually happen. That’s fair. But it isn’t because people were promised things before they put their money down. Over 100K people put down their money BEFORE THE REVEAL, without even knowing what it looked like, before a single official specification was announced, and long, long before any concept of trim levels had been announced.

To claim such specificity existed when people put down their money is simply false.

M3 Owned- Spark Leased - Niro EV TBD

A fundamental problem disgruntled reservation holders have is they believe there’s a line. There isn’t. we all have reservations on a presale. Tesla releases invites to configure based on their production and delivery locales and schedule. Those that configure higher options will be queued quicker. Forced options are both the Long Range and PUP. Soon with the Dual motor and white seats, that will take priority probably and push even the high optioned $55k car back further than the 3-12 week window we have currently.

Just to be clear the design process was not “cut short”. What a load of crap!

The design process for the car when on for as long as it went on and the launch was on time. It wasn’t pushed forward. The manufacturing at volume is the thing that got pushed up. Make no mistake, the design of the car itself was not rushed.

This is true. Pencil’s down on initial design was a few months after the initial 2016 reveal. Much of the final design was already completed before the 2016 reveal, with the proof of my claim it was already being completed being the already completed Tesla Model 3’s they drove on the stage for everyone to see.

Everybody can go back and see for themselves how far they were into the final design already when they drove the first cars on stage in 2016 for the first time. These already had drivetrains that had already gone through design, development, and testing so that they could do REPEATED full throttle demo rides for hours with just a couple of demo cars that had to perform absolutely flawlessly.

They were well, well into final design at that point.

Two big mistakes Tesla had/has with the model 3 that they will avoid in the future: 1) No beta testing of model 3 before production 2) Deposit amount too low which increased the number of deposit holder dramatically with less skin in the game and robbed Tesla of needed capital that could have been used for beta testing and/or initial m3 production. Imagine instead of 450,000 deposit holders with $1k down for $450 million….250k desposit holders with $5k down each giving Tesla 1.25 billion or my choice would be requiring a $10k which would hopefully still bring 150k deposit holders giving Tesla 1.5 billion in depsitis. Not only would the Tesla faithful likely bring in much more deposit revenue with a higher deposit but those higher deposit amounts would likely decrease the likelihood of those deposit holders saying no to Tesla and the m3 when their reservation comes up cause they get a bolt or new leaf already due to the production delays. Expect the next big sales new bev from Tesla to have a much bigger deposit requirement like $5k or $10k for the model Y which may have a base price of $45k when Tesla finally begins building… Read more »