3 Takeaways from Tesla’s Supply Chain Mistakes

Tesla models are technological marvels in electric car design. And as this writer attest to firsthand, they are very fun to drive. Unfortunately, Tesla’s supply chain acumen has sometimes fallen short in comparison to the company’s engineering feats.

Most recently, hiccups in Tesla’s supply chain set its stock price reeling, after supply shortages and glitches in robotics production forced workers to build parts of the Model 3 by hand, in a desperate bid to make up for the production shortfall. Labor issues could further compound the Model 3’s production woes.

Tesla founder and CEO Elon Musk is one of the most well-known modern-day visionaries, hell-raising entrepreneurs, and a vociferously positive showman. His other company, SpaceX, he says, will eventually make space travel to Mars, where Musk hopes to die, possible. But positive thinking and far-reaching visions can only take a company so far. 

Tesla’s more immediate concern is that it only made 260 Model 3s in the third quarter and expects to meet its 5,000 per-week production target by the second-quarter 2017, instead of in the fourth quarter this year as forecasted.

Tesla has struggled with production delays of its Model 3, its first mass-produced car. Photo courtesy: Tesla

Tesla has struggled with production delays of its Model 3, its first mass-produced car. Photo courtesy: Tesla

And yet, all is certainly not lost for Tesla, as it has successfully been able to overcome supply chain issues for its Model S and X production in the past. Its recent supply chain bungles also serve as a great case study for OEMs or suppliers about mistakes to be avoided.

Here are some initial lessons that can be gleaned thus far from Tesla’s Model 3 assembly woes.

Quality comes first

Tesla’s production shortfall has certainly attracted a lot of attention, but it will be a mortal mistake to rush cars out to make up for the glitch at the expense of quality. Sending out a product before it is ready is also a cardinal error for any OEM, but in Tesla’s case, it will serve as an extreme counter example of what not to do if it makes this mistake. 

The stakes are especially high since the Tesla 3 is the company’s first mass-produced car. It will compete in the affordable electric vehicle (EV) category that is becoming crowded, with players such as BMW, GM, Mercedes, Nissan, and Volkswagen, and others aggressively entering the fray. 

“Tesla is going to be at a turning point for a large number of consumers. If somebody has a bad experience with one of their Teslas, there are so many other different models coming out in the EV space, it will likely be a consumer’s first and last Tesla experience,” Akshay Anand,

an analyst with auto research firm Kelley Blue Book, told EBN. “If you are a niche player and launch a mass-volume product, then consumers are on board. You get that wrong and you've got a bunch of trouble ahead.” 

Disruption does not (necessarily) superiority

Tesla has well earned its place as a great disrupter in the automotive industry. Almost out of know where when Tesla began car production in 2012, Tesla’s Model S served as the world’s first all-electric super sports car that could run over 300 miles on a charge, compared to the then paltry ranges of EVs on the market at the time. The model also set a new standard in car infotainment, with an always-on, Internet-connected 17-inch display that was high up on the list of the car’s “wow factors.” All traditional premium carmakers could do at the time was to catch up, by offering alternatives in the EV space and to scramble to design higher-end in-car infotainment systems. 

Tesla also disrupted traditional supply chain models, often using its component designs and even producing some tier-one components, such as batteries for its Model S and then Model X. 

Comparatively, volume carmakers have adopted a more modular approach for the vast majority of car production that relies mainly on a limited number of tier-one suppliers. One trend that has emerged during the past decades is that volume-produced cars are less distinguished from one another than they were in the past, as a result 

However, the Model 3 is a different animal for Tesla, since it is a mass-produced car. Among other things, Tesla may have benefited by using the auto industry’s true-and-tested production model for high-volume production for its Model 3’s production. Disruption is not always better, in other words. 

Tesla's Sparks, Nevada Giga factory is a major source of car batteries for the company. (Photo courtesy: Tesla)

Tesla's Sparks, Nevada Giga factory is a major source of car batteries for the company. (Photo courtesy: Tesla)

“It is safe to say the Model 3 needed a different supply chain compared to the other Tesla models,” Anand said.

Keep your people happy

Tesla’s recent labor relations could also reportedly serve to disrupt the Model 3’s production schedule. As the company hopes to make a leap to reach an annual production target of 500,000 vehicles per year compared to less than 85,000 vehicles it made in 2016, the company fell into disaccord with union officials in October, when it fired hundreds of its workers or about two to three percent of its workforce due to what Musk said were job performance issues. However, the United Automobile Workers (UAW) claims union and organizers were targeted and were fired at proportionally higher rates than non-union workers were. The United Automobile Workers has since lodged a formal complaint with National Labor Relations Board. 

The labor dispute follows other criticisms that Tesla demands too much of its factory workers, and according to some accounts, neglects their safety. Factory workers have repeated previous concerns about safety they had during the Model X’s ramp up as Tesla entered what Musk described as “manufacturing hell” for the Model 3’s launch earlier this year.

On an executive level, Tesla’s demanding culture is widely known, exemplified by how Musk has sought to lead by example by working 100-plus workweeks and reportedly sleeping on the factory floor leading up to a production launch. 

The final verdict? This writer will give Tesla’s work environment the benefit of the doubt. It likely does not systemically promote the level of hostility and mean spiritedness of Amazon’s culture as The New York Times documented. 

But all things being equal, well treated employees are arguably more productive and helping to foster a healthy life-work balance is also the right thing to do for supply chain workers.

“Happy employees are better employees at the very least,’ Anand said “I don't think we ever going to learn much about the details about why the Tesla employees were fired. Hypothetically, some employees may have actually had slip ups on the line, but will never get the full story. “

The real story

Meanwhile, we will likely eventually learn more details about what has gone wrong with the Tesla 3’s production by Musk himself in the future. He has previously been very candid about disclosing supply chain mistakes the company has made while taking responsibility. But between now and when and if Tesla can boost its production by more than five-fold, Tesla should reveal more supply chain mistakes we can learn from.

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