Is Tesla sacrificing quality for quantity as it produces its allegedly low-cost Model 3 all-electric car? That’s what the Business Insider web site suggests this week, based on internal Tesla documents it has acquired.
According to the article, Tesla has reached at the end of June its 2017 goal of 5,000 Model 3 cars rolling off its assembly line monthly. But 86% of those cars have had to be repaired before they can be sold. Business Insider said that documents it has seen show that “of the 5,000 Model 3s that contributed to Tesla’s manufacturing target, about 4,300 required rework.”
The report said, “Within the auto industry, cars that make it through a manufacturing process without requiring rework are part of a factory’s ‘fist pass yield,’ or FPY.” Tesla’s FPY is 14%. It quoted well-known automotive consultant Ron Harbour, proprietor of “The Harbour Report” on worldwide manufacturing, “A competitive plant will pass 80%-plus vehicles that do not require repair. I would say the average plant is about a 65-80% range.” Reworking, even if minor, reduces the overall labor productivity of a plant, driving up the costs to produce a vehicle.
The Model 3, which Tesla views as critical to the electric car company’s survival, was touted to cost consumers about $35,000, putting it within the range of a majority of new car buyers. The earlier Tesla models S and X have sticker prices far above that figure.
But Tesla so far appears unable to deliver Model 3s at that price point. CNBC reported this week that UBS thinks “Tesla will never be able to make money at the $35,000 the company originally planned to charge for an entry-level model designed for the masses.” So far, the Model 3 is going for $50,000, well out of the range for most middle class consumers. Model 3 options can bring the price to $80,000.
According to the UBS analysis, Tesla would lose about $6,000 per car at the $35,000 price. UBS analyst Colin Langan said, “This car needs to sell in the low $40,000s to break even, and I think they’re a long way from the 25 percent growth margin target unless they can sell it well over $50,000.” Tesla has struggled for over two years to bring production of the Model 3 up to its goal of 5,000/month in order a fill a large backload of orders, along with $1,000 deposits, to buy the cars. Tesla does not operate through franchised dealers, but sells the cars itself.
Meanwhile, Tesla founder and CEO Elon Musk – who demonstrates Trumpian tendencies – has roiled Wall Street with his tweet two weeks ago that he was considering taking his publicly-traded, cash-starved company private and had financial backing lined up for that. It turned out he didn’t have the cash necessary to buy back the company’s stock in his pocket. Musk’s tweets and amplifications set off suggestions that he was attempting to manipulate the company’s share prices, leading to an inquiry by the Securities and Exchange Commission.
Musk gave what was described as a “tearful” interview with the New York Times, saying he was overworked, stressed, and taking Ambien in order to sleep, as a result of his business pressures. “This past year has been the most difficult and painful year of my career,” he said. “It was excruciating.”
— Kennedy Maize