Posted on May 20, 2018 by Charles Morris
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.
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.”