A leading company focused on virtual transformation.
A constant chorus among Tesla critics, adding to myself, was that while the loyalty of the automaker’s logo is out of the ordinary, though consumers love their cars, and although it is now the world’s most valuable automaker with an astonishing $300 billion market capitalization, the company has struggled with what CEO Elon Musk has called “the hell of production” and what its competition called manufacturing.
Annex A is a failed effort in 2017 to largely automate a new vehicle meeting line for the Model S sedan at Tesla’s plant in Fremont, California. Musk’s plans did not paint and to keep the Model 3 on the road, Tesla had to open a rudimentary meeting line under a tent in the factory parking lot.
The tent, which is still in use, has proven to be a cutting-edge solution to an urgent challenge and has helped Tesla deliver around 250,000 cars in 2019. But he highlighted the steep angle of the company’s learning curve, which has baffled industry experts: Automakers have reshaped the process of assembling tens of thousands of parts, combined through a global source chain, into a procedure that is almost a late occurrence. They announced a new vehicle, and a year later arrived at the showroom, as planned and promised.
Problems arise, of course. Ford, for example, had to succeed over demanding situations with his new F-150 pickup truck in 2014, and recently struggled to launch the new Explorer SUV. But it’s the types of exceptions that make the rule.
Tesla, however, helps to take production into account. It launched the effects of the second quarter on Wednesday and exceeded Wall Street expectations, posting a fourth consecutive quarterly profit as opposed to relatively solid sequential cash of approximately $5 billion. The profits were modest, and much of this can be attributed simply to the decline in operating prices amid the closure of the coronavirus and a giant sale of emission credits in the quarter.
In a call to the convention after the results, Musk and his control team defined the company’s expansion plan for the new plants and became enthusiastic about their production process. A few years ago, when Musk was still talking about “armored alien” plants and introducing many more robots into the factory, such comments would have caused the eyes to appear.
But the truth is scathing, and by the mid-2020s, Tesla has a production force with a big expansion to come. The old blow that your cars are below average has lost its resonance. Tesla’s production quality now impresses even top vocal critics, such as Bob Lutz, retired Motors CEO. (On the other hand, JD Power has provisionally included Tesla in its annual initial quality study, where the company misunderstood.)
Some of Tesla’s disorders in this context come from the operation of a former GM and Toyota plant in Northern California, which it purchased after GM’s bankruptcy in 2009. Tesla Fremont is not preferably configured for the type of production Tesla needs to do, so it is still a painting in progress. However, Tesla has chosen to manufacture less than 10,000 cars per year, if 2020 goes a bit as expected despite the COVID-19 crisis, something like 400,000.
And the new amenities, starting with the company’s Nevada Gigafactory and now expanding to a much more effective plant in Shanghai with new plants planned for Berlin and Austin, Texas, will be optimized from the start for what we call the “Tesla Production System”. “
In other words, the alien battleship is back. And it probably wouldn’t be one of a kind.
A rough approximation of output suggests that each new factory could build 250,000 vehicles a year, taking Tesla production to more than a million units. That’s far from the nearly eight million vehicles GM made and sold last year, but Tesla isn’t spread as thin as GM. It has stayed focused on battery power, and dominates a global EV market that’s steadily growing. Competitors’ electrics simply aren’t selling at commensurate levels.
How did this happen? Well, when Tesla created a compelling new inventory market story, we lost sight of how legitimately Musk is obsessed with manufacturing. But Wednesday’s source of income is a reminder.
“We put a lot of effort into production engineering, the device that makes the device,” he said, reviving the terminology it released a few years ago, when the Model 3 was accelerating.
“We are improving significantly in car manufacturing. You can see it in Array … Shanghai. You’ll see it even more with Berlin. And we’re transforming the [Model 3] design to make it easier to manufacture.”
“We love production,” he added. “It’s great. And I think it’s wiser for other people to deserve to be working on production.” This can only be interpreted as a complaint about the production experts of other automakers, however, what I think Musk meant is that vehicle production is a confusing business that deserves to attract more talent, especially as automation becomes a more vital factor.
The result is that while it will charge Tesla a large amount of cash to increase its capacity in the short term, the company will soon have local production in the U.S., Europe and China. In the automotive economy, this identifies the scale the company wants to make more consistent profits. More importantly, it gives you the flexibility to sell your cars at a lower price, something Musk is still eager to do.
This means a higher market percentage and a greater advantage over much larger car brands that, in terms of the long electricity term, are placed in a serious recovery mode.