back to article Tesla hits Model 3 production speed bumps, slides to loss

Tesla has recorded a US$671 million third-quarter loss that it has blamed on supply chain and production problems plaguing its forthcoming Model 3 sedan. The company's Model S and Model X vehicles have picked up by 4.5 per cent, the company said in its announcement (SEC filing here), but the company only managed to build 220 …

  1. DougS Silver badge

    Layoffs

    Reportedly at least two of the people laid off had consistently high performance reviews, and had never been given any negative feedback about their performance, so unless they're lying it seems unlikely they were dismissed for performance reasons.

    1. Sirius Lee

      Re: Layoffs

      "Reportedly" from where? More questionable news? Even if accurate, the people overseeing the integration sub-contractor who only noticed the problem recently probably needed to be shown the door even if previous reviews were good. Hiding problems can make you seem good until you can't hide the problems any longer.

  2. nagyeger

    100 MW of batteries

    100 MWh, or 100 MW in/out for (people in the know) knows how long?

    1. Sorry that handle is already taken. Silver badge

      Re: 100 MW of batteries

      It has a capacity of 130 MWh and will deliver 100 MW peak

  3. John Smith 19 Gold badge
    Unhappy

    Kind of them not to name the supplier.

    If of course that's an accurate description of the situation.

    1. Richard 12 Silver badge

      Re: Kind of them not to name the supplier.

      Best not to unless they have terminated the contract. Legal liability can be nasty.

      Aside from that, anyone in the same industry will already know who screwed up. I don't think there are many suppliers in that field.

  4. Slx

    I don't want to be unnecessarily negative about Tesla, as it's possible they could pull this off. However, there's a huge leap from small scale production to mass car plants and a lot of the reason that the traditional car companies survive and prosper is more about manufacturing prowess than technology.

    The next few years will really decide whether Tesla becomes a serious player in the automotive industry or just a technology supplier to other companies.

    1. Anonymous Coward
      Anonymous Coward

      Scaling up

      From the pictures of the Model 3 production line and Elon Musk's statements it seems that they are going for a step change in the level of automation on the line when compared to other car makers.

      This requires a vastly different and incredibly complex system to back it up.

      All the fuzzy stuff that we humans do without thinking needs to be programmed into the system.

      As someone who has spent almost all my working life doing this stuff, I find it next to impossible to believe that Tesla 're-wrote' the system that was failing to deliver in such a short time AND to test it AND put it into work on the Model 3 line.

      If this was the case then I am not surprised that a good few of those laid off recently were probably suffering from burn out. I've seen this before in US Companies operating in their own backyard. They work you until you drop and then you are let go. One reason is because the company does not want to pick up the healthcare bills for your recovery.

      A relative of mine moved his whole family to the US and then three months later he was let go for no (to me) reason at all. He spent close on $100k in legal fees before the company settled. Five years later, they were still battling in court over costs. He eventually got them all back but he was broken by the whole experience.

      Several of those 'let go' recently had no black marks on their employment history at Tesla. That's why a good number of law suits have been filed already.

    2. Anonymous Coward
      Anonymous Coward

      I don't want to be unnecessarily negative about Tesla, as it's possible they could pull this off.

      Well, starting from scratch they're trying to create:

      A brand (relatively easy, complete)

      New car designs (relatively easy, mostly done)

      New car power & control technologies (tricky, but mostly done)

      Efficient manufacturing (much, much harder than it looks, nowhere near done)

      Logistics & supply chain for manufacturing (a lot harder than it looks, nowhere near done)

      Vehicle distribution & Sales (fairly easy, partly done, but will need to ramp with volume)

      After market logistics & support (much harder than it looks)

      On top of that, they haven't yet got to the stage of having to support a lot of varied models of older, ex-warranty vehicles. Even with planned launches they'll have a VERY restricted range, and can't share platform costs across multiple brands. Model reliability and build quality are major concerns, which they may not be able to address before the Europeans introduce comparable EVs which will be properly built.

      I'll give the man full marks for trying, and for his determination. But Tesla will struggle to become a real volume maker - there's so many things they don't know that the established car makers have spent a century learning, and in particular, that limited model range looks a problem. Another issue is that model life cycles these days are around six-seven years - whilst Tesla struggle to add new models, the Model S is ageing - launched in 2009 albeit with first sales in 2012.

      To command premium prices, you need to have some element of differentiation, and lets face it, at first glance the X and S already look far too similar. Do you think Tesla will be able to create or acquire and integrate two or three additional brands, and create the manufacturing scale? Given time, they could. But I don't think they've got time. As soon as the major makers have credible all electric cars, Tesla's iffy build quality, problems with logistics, limited range and premium pricing will no longer be acceptable.

      Incidentally, I don't think Tesla are unaware of any of this. I attribute the layoffs and the desire to automate as an urgent effort to improve build quality (in addition to faster, cheaper assembly). But if automation on its own were a solution, Fiat cars would have been well built and reliable since the 1970s, but they are still bouncing along the bottom of (eg) the JD Power annual surveys.

      My money remains on Tesla becoming a tech supplier to other companies, or a (supposed) merger of equals with a large US car maker, because Tesla's chances as a standalone car maker are poor. Whether such merger would work remains to be seen, the history of M&A is littered with failure.

      1. Anonymous Coward
        Anonymous Coward

        I agree with some of what you have said but not other parts. A new car entrant is going to really struggle with market penetration and brand awareness. It is pretty significant that Tesla is the most well know EV manufacturer that the more established manufacturers are trying to catch up with. Just the fact that there are 500,000 awaiting order who have been prepared to put down a deposit (albeit a soft deposit) is quite impressive and unique.

        When you mention other established car manufacturers have spent decades of experience getting supply chains and production line right. Tesla can but expertise in this are in, but also they can look at it with a new set of eyes, question what has gone before and forge a new way of doing things. Who'd have given them any hope with SpaceX - existing suppliers, high cost of entry, don't understand the complexities etc. Look at how Apple manage to coerce the Cellular networks to fight over the rights to sell the iphone, profit shared their contract revenue which the existing suppliers never could.

        Just to achieve what they have in terms of car technology in such a relatively short period is pretty amazing.

        The other comment about their range of cars - possibly not such a major issue. There is a psychological principle confirmed with experiments* that showed greater choice can be demotivating and lead to less overall sales. A smaller range can actually increase sales as long as it covers a wide enough range of use cases. Sure they lack a pickup, which could stifle growth in some regions but general commuter cars with a regular western nuclear family would be catered for. Once again look at Apple with their limited choice of handsets which often worked in their favour as the choice was easier.

        I doubt Tesla will give up unless they get some real long term obstacles - major issues with their product or ongoing long term production run issues, or major shareholder rejection.

        *Iyengar, S. S., & Lepper, M. R. (2000). When choice is demotivating: Can one desire too much of a good thing? Journal of Personality and Social Psychology, 79(6), 995-1006.

        http://dx.doi.org/10.1037/0022-3514.79.6.995

      2. jmch Silver badge

        @Ledswinger - great all-round analysis.

        Re "Vehicle distribution & Sales" - In the US they still have to jump through a bunch of hoops because many states have laws against car manufacturers selling direct.

        "that limited model range looks a problem" - I'm not sure why this would be the case. Sharing technology across platforms works to cut costs when you build in volume for the cheaper end of the market. I don't believe Maserati, Bentley etc and the top-end German cars in the 100k-ish bracket that are Tesla S/X competitors share platforms. With model 3 the non-sharing of platform could mean they can't cut down on costs so much, but anyway it's more expensive than the Golfs or Mondeos it will compete with, and it will still sell as many as Tesla can make.

        From a customer perspective I find a limited model range to be a plus. With most other carmakers it requires hours of in-depth study to understand the differences even in teh different versions of a single model let alone teh entire range. I think that was one of the greatest points of appeal of the original BMW-Mini - it was extremely customisable for outward appearance but under the hood there were just 2 or 3 variants.

        I do find it likely that in the end they will be merged with another big US manufacturer although retaining their independent brand much like Mini with BMW. I say merged not gobbled up because while their volume shifting is a problem, their technology and patents must be worth a huge amount to any other manufacturer who intends to go all-in on mainstream EVs

        1. Anonymous Coward
          Anonymous Coward

          I don't believe Maserati, Bentley etc and the top-end German cars in the 100k-ish bracket that are Tesla S/X competitors share platforms.

          I can understand why you don't think that, But they do.

          And that other lot. And not just platforms, all manner of components, common suppliers, commercial systems and processes.

          From a customer perspective I find a limited model range to be a plus.

          That, sir is the key trick. To persuade people buying a VW Golf that they're not buying an Audi A3, a Skoda Octavia, or a Seat Leon. And vice versa, and all permutations in between. But they do share the same platform, many components, yet have some degree of distinct personality. I drive one of those, and have access to a different one owned by a close relative. The "shared platform" concept works, and it works really well.

          1. Anonymous Coward
            Anonymous Coward

            Having worked in Bentley until recently I can say there was a significant amount of non-Bentley parts in their SUV coming from the Audi Q5 and their new cars coming from one of the Porsche ones. They also use parts from VW because it saves time on designing and testing. But upper management don't realise it increases costs in other areas of the business with trying to get different processes to work with each other, even if the different VWG brands use the same systems forced down on them.

  5. Slx

    "Traditional" car markers are some of the most automated production facilities you could possibly come up with. They require very few staff (compared to other manufacturing facilities e.g. electronics in Asia) and have always been at the forefront of robotic manufacturing. They are actually far ahead of the electronics industry in that regard, which still tends to rely on a lot very poor wages and hand assembled stuff. We've all read the horror stories of Chinese and other far eastern electronics production - basically using people as bio-robots. There are exceptions, notably the likes of Intel and other processor fab plants which have tended to go stay in the US, Europe and so on.

    The car industry has tended to go towards full automation and has largely stayed in relatively high wage economies while the electronics industry mostly fled to low wage economies and exploited cheap labour, while ironically making very little investment in real automation, despite making the very components that should make it possible.

    I don't really buy Tesla's hype on this. Coming from a background in IT/electronics would be quite a poor basis for production automation which is THE core competency of the car manufacturing sector. They are extremely good at this and have been for quite a long time.

  6. unwarranted triumphalism

    More failures and more losses

    Looks like The Anointed One is going down. Not before time.

    1. hammarbtyp Silver badge

      Re: More failures and more losses

      Looks like The Anointed One is going down. Not before time.

      Look I agree Elon can and does act like an asshole sometimes, but so was Steve Jobs, and like him he generally achieves what he sets out to do.

      In every industry he has been involved in, he has been a disruptor to the status quo, but in a good way. He setup his own rocket company and showed NASA and the cozy relationship big industry players taht you could launch satellites cheaper. He forced big car companies to take electric vehicles seriously by exploring the givens and pushing the technology limits. You could also argue that without him electronic commerce would still be stuck in the dark ages and transferring money would take days, not seconds.

      So all in all wishing for his demise, is a bit short sighted

  7. Porco Rosso

    Musk decission to skip "beta" production testing is a flop

    Tesla computer simulations of production tools is a big flop,

    and the rest of the industry is watching this test very very closely.

    Guess they used Siemens PLM and had to skip the Official Beta production to keep the pyramid-game sorry Wall street going with the promise they would be ready with the Tesla 3 this year...

    Musk has big balls to take this risk and he knows he can get a way with every fiasco and a lot of bullshit ... because of his Green guru status .

    ( they are now in Beta production => 250pieces / month and only for the employees of Tesla )

    http://www.autonews.com/article/20170424/COPY01/304249926/teslas-big-model-3-bet-rides-on-risky-assembly-line-strategy

  8. Anonymous Coward
    Anonymous Coward

    Wouldn't touch a Tesla with the proverbial barge pole. Just have a look on youtube regarding all the quality issues and the facty the Tesla really don't like anybody repairing their cars so they are hardly green and effectively worthless secondhand if they've done a few miles.

    1. Gordon 10 Silver badge
      FAIL

      Research fail

      Except the stats on residual values don't back up your statements. Look at the the Model S - 3-4 year old examples still going for 80% of their original cost. (Check autotrader.co.uk). Roadster values are still holding well considering they are a discontinued model.

      That's unheard of for whats effectively a 7 series/S class competitor which are mostly over 50-60% depreciation after 3 years....

      1. Deltics

        Re: Research fail

        Except that the stats on residual values are not comparable between Tesla and other cars manufacturers due to the halo effect that still surrounds Tesla.

        Let's check back in in a few years when Tesla is just a.n.other car manufacturer like Renault, Ford, Jaguar etc. Assuming, that is, that Tesla is still making cars by then.

        The reason other luxury marks have such high depreciation is similarly due to a halo effect, but of a more specific nature: That is, the prestige of been seen to be able to afford a new Jag, Merc etc. These are luxury marques where the initial value derives from that luxury.

        A second hand Jag is even less desirable than a second hand Mondeo - every one buys second hand Mondeos (that's Fusions for our US cuzins). But if you are buying a second hand Jag then you are effectively admitting defeat, so the only time you buy a second hand luxury marque is when it's an absolute bargain. Otherwise people would rather save their money and bank the cache once they can afford the factory-fresh model.

        Beyond the luxury marques you then have the performance/super car sector which again has a different psychological model for depreciation which in notable cases can actually result in negative depreciation - i.e. residual values go UP, not down.

        And of course, Tesla's have the added sting in the tail of the cost of disposal.

        Where-as most (commodity) cars take their biggest depreciation hit early in their life, I'd expect to see Tesla values follow a different curve, falling off a cliff toward the END of their life when they near the time that whoever is left holding the pink slip ball is the one facing the scrapage costs to safely and cleanly dispose of the exotic materials in the battery packs.

        1. HamsterNet

          Re: Research fail

          Yet you can just pop a new battery in it for a few grand and be dandy. Brushless motors, single gear drive chains and quality controllers last for decades.

          Forget the scrapage cost, the battery, in any state, is worth a pretty penny for recycling.

      2. Jtom Bronze badge

        Re: Research fail

        EV resale values have plummeted.

        https://blog.caranddriver.com/evs-are-cheap-to-run-but-expensive-to-own-thanks-to-abysmal-resale-values/

        A major cost is the battery, and buying a used battery puts many would-be buyers off.

        If Teslas are the exception, it's merely because a niche market wants the peer envy generated by owning one, and they are still hard to come by. Once that group is satified, the resale market for them will be gone.

    2. unwarranted triumphalism

      This post brought to you by ExxonMobil.

      1. Bodhi

        Must admit I find this assertion that anyone who has an issue with Tesla is automatically in the pocket of the fossil fuel companies a little bit bizarre - supposing we do transition away from fossil fuels (eventually), do you honestly think Exxon, Shell etc aren't going to transition as well?

        1. unwarranted triumphalism

          There's a big difference between having an issue with Teslas and telling outright lies about them.

        2. Jtom Bronze badge

          You get the same brainless posts whenever you disparage manmade global warming theory. Those companies are in the energy production and distribution business. Currently, neither wind turbines nor solar power is cutting into their profits, nor are EVs. If the day comes when any new technology becomes a threat, they will simply buy it (and the patents, as well). Take ev's. Many may have chargers at home, but millions won't have that option, and even those who do will need to recharge away from home at times. Existing petrol stations are the most logical place for them. No need to spend money defending old technology or on bleeding edge new technology.

          I wonder how many realize that Shell and BP were two of the founders of the East Anglia Climate Research Unit, one of the first and most vocal pushers of catastrophic manmade climate change theory.

  9. Phukov Andigh Bronze badge

    I live less than 5 miles from the factory

    only saw my first Model 3 "in the wild" yesterday.

    Took almost that long from "we're in full production" until I saw a Model X on the road or on the lot too.

    Or seeing any loading up on trucks to ship out.

    What's that giant gridwork of pipes they're building? it looks more like a chemical processing plant than construction or office space framwork

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