Disclaimer up front: I work for a Tesla competitor.
Tesla is making several very interesting bets on the Model 3.
Bet 1: Model 3 mix - Tesla is betting that the ratio of expensive, high-content Model 3s to cheap, low-content Model 3s will be sufficient to make enough money to offset investments and pay back loans.
It will not be sufficient to make a small profit on each Model 3 sold given the debt load that Tesla has accrued, so they will want to sell a good ratio of expensive Model 3s.
If it takes to long to produce the cheaper Model 3s, Tesla will lose some potential customers. Many investors are looking at that "top line" right now - the number of customers and potential customers. If the top line moves too much, investors may get spooked.
Bet 2: Vertical Integration - Most automakers rely on a web of parts suppliers, who are under enormous pressure to reduce costs, but Tesla produces most of its components in-house. The contract with an external parts suppliers ensures that the supplier is responsible for any re-work or replacement of defective parts. This allows the automaker to concentrate on internal production issues.
Tesla's bet is that internal production of parts will lead to better and cheaper components. This has not worked for any other automaker.
Traditional OEMs shoot for a mix of components where the internally produced components are part of the company's core competence: Body Shells, Engines, Transmissions - and externally produced components may be generic - switches, latches, seats, frames, tires, wheels, etc.
If Tesla spends too much capital on component manufacturing, they will be inefficient and investors pressure them.
Additionally and probably more importantly, if Tesla is not able to spend the time and attention to iterate on cost and quality of these parts, it will also lose this bet.
Personal opinion: I think Tesla has learned the wrong lesson from previous dealings with suppliers. For instance, the original Roadster was designed with a two speed transmission. A supplier claimed they could make it, but it never really worked. Tesla learned the lesson that suppliers are stupid and suck at making new things - I think they should have learned that lesson that it is really really hard to make new things.
Bet 3: Automation - But first a detour - There are 3 main areas of auto assembly, and most manufacturers have already fully or almost fully automated 2 of them: Body Shop (welding and assembly of the body shell) and Paint Shop. The 3rd area is General Assembly.
General Assembly is the bloody, thorny, devilish poster child for multiple single points of failure. A high feature vehicle may have on the order of 1000 assembly stations (aka footprints) in General Assembly. The Model 3 is designed with much lower complexity in mind, and may only have 100 footprints.
If and when any of those 100 footprints has an equipment failure or parts issue, ALL 100 stop running in a short amount of time. Human assembly workers are rather resilient and can figure out a multitude of small issues on each and every operation. This may allow for a hypothetical variation of 5% in non-critical parts.
Automated assembly may only allow for a 1% variation.
Additionally, automated assembly only runs well when EVERYTHING is designed for automation. That is not impossible, but it is expensive and time consuming.
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Most importantly, these three bets are linked:
If not enough base models are sold, the cost of design and equipment spending will be excessive on a per vehicle basis.
If internally produced parts are too far out of spec, you have strong negative impacts on automation.
If automation fails, you cannot produce enough vehicles at a low enough price to satisfy your low-end customers.
But, if Tesla wins all three bets, they win big time.
> Additionally, automated assembly only runs well when EVERYTHING is designed for automation. That is not impossible, but it is expensive and time consuming.
Designing for automation can have unexpected benefits. Many years ago IBM sold a dot-matrix printer called the "ProPrinter". It was to be built on a new automated assembly line in Charlotte NC, so all the parts were designed to be easy to snap together, with no screws or fasteners.
Well, the robotic assembly line never really got going, so they hired a bunch of temp workers to sit in front of tables and put them together. And it turned out that the design was excellent for a group of recently-hired humans with no experience to assemble.
This video shows the assembly (you can skip the first bit) in under 3.5 minutes:
I am of the opinion they will keep pushing base models off as they do not want to make them. What I do not understand is how they let defective cars get into the hands of some press people. I have seen more than one newspaper review that highlighted all sorts of issues.
do they think they are still immune? 300-400k people money down sounds awesome until your realize the big auto makers usually have more than one line that does that per year.
I still think the really bad bet was not having the in depth prototyping that they openly mocked that other manufacturers have just to prevent such assembly line issues
> What I do not understand is how they let defective cars get into the hands of some press people.
That is something that puzzles me too. However, since I have been in the market for a car recently, it seems that it happens regularly to all the brands.
Some reviewer even mention the fact the car is early production model and has some quirks that will be fixed later.
In any case, car reviews before a car reaches general availability are highly biased anyway. There is a press package that comes with the car and you can clearly ear the same words used in every review. And then they fly reviewer over to a special testing location, put them in nice hotel, feed them well and the actual "test" looks like a corporate team building event. (youtuber are now invited too, which lead to a lot a video behind the scene of those events)
Tesla doesn't buy enough units to have real clout with suppliers. Tesla made 737 cars last week. That doesn't get you much clout with the door hinge manufacturer.
Sensanionalist article. So Tesla makes sure to manually fix flaws in the parts of cars that are manufactured before using them. Sounds like every manufacturing line ever.
Is it an efficient manufacturing process? Probably not but I don't see how the end costumer should care about this. The problems in the manufacturing line are already well known and commented by Elon Musk. This is a company that have been mass producing cars for only 5 years, it's normal that they are still catching up with the process.
> This is a company that have been mass producing cars for only 5 years, it's normal that they are still catching up with the process.
this, getting a production line optimized can take years, especially if you are relatively new to the field and the company has little instituted knowledge at hand.
I know in Europe for instance, many plants that fabricate parts for the big three have been doing so since the early 50's, and thus have an amazing body of knowledge on what works and what doesn't in terms or producing high quality parts in high numbers. Tesla does not seem to really have this knowledge.
Tesla tried to buy that knowledge by aquiring German robotics specialist Grohmann. When the acquisition was complete, Tesla in classic startup fashion tried to pressure employees into overtime and to cut all obligations Grohmann had to other, mostly German, car manufacturers. This resulted in Grohmann's CEO leaving the company in protest and unions threatening strikes. I image quite a few top execs and engineers left with the CEO and went to VW, BMW, and Daimler. Even lower level employees leaving would be hard on Tesla as those people, despite "just" doing blue-collar work, are highly trained specialists.
The overtime claim csme up a whule ago already and back then I could not find a supporting source. There was a payment negotiation shortly after Grohmann was bought, but thay did not seem out of the ordinary, either. Remember that Grohmann is a German company operating under German law, which is very different from U.S. labor laws.
How much of this is transferable? Is this institutional manufacturing knowledge a gigantic amount of potential energy for tesla’s competition that will put them in lead for EVs? Or is it a friction keeping a competitive EV from a big car manufacturer eternally around the corner?
Is the rework something that is actually comparable to normal automotive manufacturing lines? Or is it highly specific to EVs? If it’s EV specific it seems reasonable to believe there is no relevant institutional knowledge existing at Tesla’s competitors.
I have no background here .. how would one best decide if this is evidence Tesla is behind on a solved problem it’s competitors know how to solve or ahead on an unsolved problem it’s conpetitors are also struggling with outside of the limelight?
Is Tesla using fresh people without experience?
I imagine they would hire people with experience to setup the factories and the processes, it would be much more expensive to use people fresh from the school without experience.
Given how rapidly is Tesla's stock rising I'm sure they are pretty attractive employer especially compared to the likes of convicted criminal organizations like Volkswagen.
Executives are the easiest people to identify and to hire. You select them from your major competitors and you throw a bunch of money at them. It's easier done than said.
Then you're gonna need hundreds of people to design and manufacture the cars, in specific locations. These positions are a lot harder to fill.
A general is useless without his army. An executive is useless without employees.
Say you need some air filters for a new Tesla model, you do not need to make them inside Tesla, usually you make some requirements then show them to a few companies that make air filters, this companies will respond with a design and with an offer and you chose the company you want to make the air filters for you.
So you could source most of the parts that are not Tesla specific, then the problem is managing the efficient transport of this parts, storing them, and the hard problem of assembling them, for this problems you will have to hire people with experience to setup this processes, build the assembly lines, handle QA, unfortunately for Tesla they can't be cheep with the experienced workers(even here in Romania experienced engineers are expensive and if you do not pay them enough they leave because they get offers all the time from the competitors)
Criminal organization? Just like Microsoft, Ford, Google, Apple, Goldman Sachs and most Fortune 500 companies? Also, Volkwagen is the #1 car company in the world, I think they’ll manage to hire top execs with their €11 billion profit.
I don’t like Volkswagen that much, but your perspective is kind of skewed by the Musk Distortion Field, in my opinion :)
Tesla (like SpaceX) provides unique incentives to experienced people in their relevant fields. Here's an opportunity to greenfield not just a product, but an entire system and process! In these fields dominated by large incumbent companies with lots of process, history, and yes, cruft in place, it can be hard to fulfill the itch of 'doing it from scratch, and doing it right'.
By the time the Model 3 preplanning should have been in place, it was obvious enough that Tesla is short term here to stay. You're talking about probably 2 years of job security. I feel like thats enough for many of the less risk adverse (who will probably those who are itching for greenfield) employees to consider leaving.
I am sorry but "2 years of job security" is a joke. That's the sort of shit that's sold by web companies in the valley.
Some of the guys I knew who are working as engineers in electronics, mechanical, software have more than a decade in the same company. That's in Europe and outside of the major tech hubs. They have the unions, unheard of in tech companies, and the accrued benefits with age.
They won't move to an unknown company just to disrupt some processes, but it doesn't matter because Tesla doesn't exist on this continent anyway.
Well, it's the norm for a growing company to do with not enough employees, not enough experience and not enough resources. We can both agree on that.
I'm not sure where Tesla is recruiting but I don't think they have much footprint even in the USA. If so, they are certainly cut from the vast majority of the talent pool that compose their worldwide competitors.
Because it's software development. The projects are super short and you can be out of a job every year. Automotive and aerospace have longer cycle. It takes years to ship anything.
However, the main thing I was trying to comment on is that "especially if the person has a family to consider" doesn't play out the way the person I responded to thinks, with actual middle-aged Silicon Valley engineers, in my experience.
I was saying it in the context of what Tesla has to offer to experienced automotive production engineers. Most of them are probably located nowhere near the Bay Area, making the move a bigger deal, especially for families.
Anyhow, my original claim was never that it was impossible for Tesla to get the right experienced people, just that what they had to offer was probably enough to get their hands on some of the right people, but not most.
Ah. As my reply makes clear, I was only talking about people already living here. Obviously choosing to move to a place with a high cost of living and a modest amount of automotive engineering job choices is a whole 'nother kettle of fish for everyone, including those with families.
The thing to be concerned about is that in going for the full vertical integration play, they have folks worried about things like lock buttons and door handle production.
It’s pretty obvious that the magic of Tesla is the battery and the in-car “avionics” and telemetry. For every $1 worrying about lock buttons, a dollar is lost to batteries and other, material things.
I don't have any experience with Toyota. But it definitely happens at the German manufacturing plants I've been to. There is an established process for pulling a vehicle off the line and reworking it. Sometimes there are specific "backup" stations for a process that isn't yet proven to be reliable.
I mostly worked in getting new models and lines up though, so it may be something that nearly never happens after the first 5k-10k cars or so.
No, it isn't. Generally, in mass production, there is an acceptable failure rate where x parts are simply binned because they fail a quality check. It's built into the process. I would assume that Tesla does not over the available overhead to simply toss parts that can be fixed to work rather than tossing them out.
It's no more sensationalist than Tesla's own claims about how many Model 3s they could get off their production line, claims they have completely failed to hit.
I don’t think this article is about whether Tesla can make its customers happy, but about whether it can make so many customers happy that it can make its investors happy.
Extra work means higher per unit costs and, likely, lower production numbers, both of which would impact what the company is worth.
I imagine customers on the reservation list care about this very much.
When will get their Model 3? Can they wait that long? If they wait will it have problems? Will it be out of date compared to what else is on offer at that point, with depreciated value?
> Sensanionalist article. So Tesla makes sure to manually fix flaws in the parts of cars that are manufactured before using them. Sounds like every manufacturing line ever.
How does Musk's ambitious goals relate to manufacturing quality?
He made similarly over-optimistic predictions about SpaceX. They were several years late with their rockets and yet SpaceX crushes competition today.
If you seek some objective measure of Tesla's engineering capabilities, maybe the fact that Model S was named best overall car 2 years in a row by Consumer Reports should be more pertinent that Musk's tweets (http://time.com/3721049/tesla-model-s-consumer-reports-car/).
That's nice and all, but the investor is interested in whether or not a company makes money.
For a company like Tesla which is on the order of LOSING $1.8 Billion / year, the fact of the matter is that ramping up Model 3 production ASAP is incredibly important.
Tesla's cash flow is in a poor state, and the company is relying upon hypothetical Model 3 shipments to carry them over. It doesn't matter how good a car is if they can't build it.
With that said, maybe a bank will sponsor them some debt, or maybe the investors will throw more money in another stock dilution. As long as the banks / investors are happy, Tesla isn't really at risk of going bankrupt. But with that said, its unlikely for the share price to increase or to issue a dividend.
Another 10 years and it will be easy to see a pretty accurate rate of failure for Teslas. People can make up their minds then.
So far it seems to be average - for a mid-class sedan. The price is almost twice as high as it would be for an average ICE car in the same class, because you're paying for early adoption of EVs.
If the above comment on stock shorting and reputation war is true, then you can only trust actual drivers, not the news or even Tesla itself.
Huh? An Accord or Camry is the benchmark for quality. Fancy cars are usually less reliable.
Teslas are like a Prius circa 2006. Mostly about projecting your eco-consciousness and hipness except it’s a luxury car.
GM and now Honda already beat them to an affordable midsize car, it just looks like a Chevy and is missing the hype. Nissan beat them to an economy EV.
What turned me pessimistic about Tesla was this piece of news from a month ago:
"During a conference call following the released of the company’s financial results today, Tesla confirmed that its President of Sales and Services, Jon McNeill, is leaving the company.
Home Solar Power
Tesla CEO Elon Musk confirmed that Sales and Services will be reporting to him directly without any plan for someone to replace McNeill."
https://electrek.co/2018/02/07/tesla-president-sales-service...
If Musk can't let go of the micromanagement, Tesla isn't going to scale.
Having followed both the bullish and bearish sides, the bearish one is more convincing.
What is confusing about this company is that they make (in some aspects) a great, unique and innovative product but on the other hand they're in a very bad financial situation, have production and quality issues and their CEO tends to bullshit.
For those catching up on Tesla news - there's a PR war going on between Tesla Inc. and many hedge funds who are short TSLA stock. As a result, it's tough to tell what's truth and what's imaginary.
Tesla wants people to believe in them in order to continue selling cars to customers (who probably wouldn't buy if they thought the company was going bankrupt) and stock/bonds already issued to investors.
Short sellers want to give people doubt to cause a decrease in stock price in order to benefit from their short position.
Both parties are probably acting in good faith - Tesla wants people to see how good they are and short sellers want people to see how risky they are. But as a result the news is crowded and it's generally hard to know the truth.
Just remember, in the US the Supreme Court has ruled that it's legal for news publications to lie to their readers/viewers.
You've missed one important group: union forces. Tesla Employees have been fired en-mass in what was allegedly a union-busting attempt. Since Tesla employees are unhappy, a lot of them are demonstrating flaws with Tesla's manufacturing process, potentially in an attempt to strongarm their bosses into getting better pay or unionization prospects.
Anyway, there's more than just "bulls vs bears" going on here.
In any case, Elon Musk's 20,000 Model 3 manufactured per month target for late 2017 is incredibly late (See: https://twitter.com/elonmusk/status/881757617416056832). A lot of Tesla bulls don't seem to care however and continue to throw money at the company.
Tesla isn't even at 2000 cars a month, and we're well into 2018. A lot of people are interested in "why" this is happening. Yes, short-sellers are interested, but I'm sure normal investors are wondering why Musk isn't even hitting 10% of his target months later.
The article suggests that the QA group is finding flaws in the manufacturing process. So... yeah. That makes sense for why the Model 3 is late with very, very low production numbers. There's been a lot of speculation in different groups for the failure, but ultimately, the core is that Tesla is not making enough Model 3.
>> Since Tesla employees are unhappy, a lot of them are demonstrating flaws with Tesla's manufacturing process, potentially in an attempt to strongarm their bosses into getting better pay or unionization prospects
This seems like a pretty big/dangerous jump to make with little-to-no evidence.
>> In any case, Elon Musk's 20,000 Model 3 manufactured per month target for late 2017 is incredibly late (See: https://twitter.com/elonmusk/status/881757617416056832). A lot of Tesla bulls don't seem to care however and continue to throw money at the company.
I really hate that Musk publicly underestimates the amount of work and deadlines in this process. It's especially annoying for me because I've worked for people who publicly underestimate and it put way more ridiculous work on me and my coworkers.
That said, I also hate this "fraud-boy" FUD. I think Tesla could eventually pull this off. The ramp will obviously be slower than what Musk expects. I, like many bears, take what Elon says with a grain of salt. But cars are rolling off the production line.
At this point, the Model 3 is now the best-selling EV in the US.
(https://www.bloomberg.com/graphics/2018-tesla-tracker/). Tesla has proven itself with the Model S. People in general love the cars. Tesla will get there, and I think that's why bulls are holding.
But its no small secret that pro-union forces are also in this whole mess. I've got no skin in the game, but its clear that the UAW union wants to unionize Tesla's workers.
The UAW rallying pro-union forces of the Tesla workforce is just... how politics works in the USA. Its going to happen.
I'm overall a Tesla Bear (but I have no real money on this bet, its just my unfathomed opinion). But when I read Tesla news stories, they're either complaints about the workforce (which I generally judge to be from pro-Union forces), or complaints about Tesla's financials (which I judge to be from Financial bears).
That's all I'm saying: keep an eye out for the union pieces. They may or may not be "correct", but there's certainly an agenda that is being pushed here.
How are either of these numbers okay against the 20k estimate due to land 2 months prior? I'm confused. They missed the target by slightly less than an order of magnitude. That doesn't sound great to me.
I'm just wondering how that's a good thing, it sure doesn't feel like it to me. It honestly sounds like me explaining to my family how I'm pulling my shit together. Sure, I haven't quit drinking or found a real career yet, but I went to the grocery store last week, and that's pretty good, right?
I'm exaggerating, but citing numbers that are perhaps factual but not much better than the hyperbole doesn't a convincing argument make.
If you want to argue like people do on stock shorting forums, please keep it there. I literally only wanted to provide an additional datapoint about measured sales.
I'm not shorting this. Just trying to figure out a universe in which it makes sense, that's all. Have no dog in the fight, but I have to say that you're representing an idea that no longer exists.
You hit the nail in the head, on what's evident to anyone who wants to see. But I expect some people are so intent on Tesla succeeding that they don't want to see...
Frequently this is a reference to a suit between a Fox affiliate station and a pair of their reporters who were terminated amid editorial conflicts and whistleblower actions. It is a complicated suit with a number of claims. There are enough bits which if extracted and held up alone can support the grandparent's claim, but on a whole doesn't really say that.
It is a bit hard to google about because a lot of the people who choose to write about it are partisan, but you can get a feel for the mess in the Snopes article†.
As with lots of law, part of it turns on technical definitions. The Appeals Court (not Supreme) found that the FCC policy against falsification did not meet the legal definition of "law, rule, or regulation" in a particular section of relevant law. Remember, three of those four quoted words probably don't mean what you think they do unless you are a legal scholar. It's like having a variable in a program named "loop_count". Maybe it is a count of the looping, maybe not, unless you read all the referencing code.
The wikipedia article‡ is currently ok too, but who knows by the time you read it.
Isn't that ruling just allowing news stations to segment certain time frames as news and others as entertainment? They still can't make stuff up during news segments.
I think OP is referring to "NEW YORK TIMES CO. v. SULLIVAN" where the Supreme Court placed the bar of something being libel as the accused having 'actual malice' which is in itself is somewhat slipperly defined as having knowledge that they were lying, or recklessly not investigating what they were publishing.
I dunno if that's what OP meant or not, but either way I'd note the actual malice standard only applies to public officials and public figures, which is defined fairly narrowly.
I certainly don't think that qualifies as a decision that "the news media can lie". In fact, to the extent you can prove the news media was lying in a report about a public figure (that is, the news media published something they knew to be false), that's explicitly covered. That's the opposite of what OP claimed.
Short sellers, villainized though they may be, provide a valuable service to the market and society as a whole. It’s a good thing that people are incentivized to spot companies that are financially overstretched (or worse) - it keeps companies honest and penalizes bad actors. See the story of Valeant for a good example.
If hypothetically their position is that the thing that will fail is bad (based on a bad technology, bad management, bad presuppositions, etc.) - then what's so bad about shorting it? They are hoping that the bad thing will fail so that more resources (money, news, workers, scientists, mind-space of the public) will go to other projects that better deserve it? If they can make some money at the same time - then why not? Is the same as going long (investing in) some other projects that they predict will succeed.
(Not saying Tesla is a "bad" company, the comment was about shorting.)
If you're shorting something then you're incentivized to spread negative sentiment about it, possibly in bad faith.
Of course, you could say the converse thing about standard investments, but in the former case you risk otherwise viable ventures being sunk by profit-seeking bad faith actors. In the latter case, maybe some naive and irresponsible investors will lose their money. The latter seems much more acceptable to me than the former.
If they spread good news about a bad company (ie, spreading sentiment in bad faith, as you called it), after acquiring a long position for that company - it means they are pushing resources into that company. Those resources are not endless. There is only a limited amount of capital flowing out there. If the capital goes to a bad company, it means that a good company somewhere did not get the capital that they would have otherwise gotten. It's just as bad.
The issue here is spreading sentiment in bad faith. If someone is doing it, they are affecting the market and enterprises in it, in a bad way. The good guys make less (and go out of business sometimes), and the bad guys make more money and get more attention, stealing it from the ones who truly deserve it.
The downside is not that some naive investors lose money. The downside is that a better project will not get the money it really needs, and instead that money will go to a worse project with better false marketing - thus slowing down the overall progress.
Whether this happens while going long or short positions - doesn't make much difference.
It's a relatively compelling argument, but I'm not convinced that the reality is as "zero-summy" as you're suggesting for a few reasons (off the top of my head):
a) I'm not convinced that it's as difficult/expensive to spread FUD as it is to spread whatever the opposite of FUD is.
b) I'm not convinced that different classes of investors respond in the same ways to FUD and whatever the opposite of FUD is.
c) I'm not convinced that different classes of investors have the same access to tools that allow them to "buy long" and "sell short". This may be on the way to changing, but currently even e.g. Robinhood does not support short selling.
I say "not convinced" because I honestly don't think I have the answer to this, but if the answers to the above questions go a certain way that I think is fairly plausible, it seems that the net effects would include a disproportionate burden on disruptive/innovative ventures that are especially vulnerable to FUD, and an increase in wealth inequality as capital flows to more sophisticated investors. Neither of those things are great.
And if you’re arguing over things like supplier management, inventory management, rework due to QA issues, European vs US vs Japanese manufacturing philosophies and efficiencies, and haven’t read this book, you should. It’s basically a foundation for modern automotive manufacturing discussion (though slightly dated now, as it was written in the 90s).
When my friend bought a model S I went over to drive it and found that it’s one of the shittiest feeling cars in that price bracket (buttons doors etc) but as soon as you get your foot on the “gas” pedal it’s the best car I’ve ever experienced.
It’s interesting that Tesla is seen is a technology company and tech companies are almost obsessive about applying Japanese auto manufacturing techniques to software development, but Tesla has managed to get this so wrong. Small batch production, obsessive quality control at all steps of production, etc, it’s all straight out of The Goal or The Phoenix Project.
This rings true to anyone who has owned a Tesla, especially if they purchased it when the model was new. Repeated trips to get minor things fixed is not uncommon.
Nonetheless, they are excellent cars and worth the early adopter frustration (IMO).
Flagged because of the quotes in the article. If hacker news is going to make accusations, can we at least base them on, you know, facts. If we can't do that can we at least base them on statistics?
Luxury automaker Tesla is manufacturing a surprisingly high ratio of flawed parts and vehicles
I laughed at this opening line of the article. Tesla isn't a "luxury automaker". It is all cheap, badly fitting plastic inside, and sitting down in any Tesla doesn't feel (to me) like any kind of "luxury" experience. Tesla is "expensive", not "luxury". I get that they have to pay for the tech and innovation, but when I drop over 100k EUR for a car, I expect a certain overall experience, not feeling like I am sitting in a collection of the cheapest possible parts.
Tesla is making several very interesting bets on the Model 3.
Bet 1: Model 3 mix - Tesla is betting that the ratio of expensive, high-content Model 3s to cheap, low-content Model 3s will be sufficient to make enough money to offset investments and pay back loans.
It will not be sufficient to make a small profit on each Model 3 sold given the debt load that Tesla has accrued, so they will want to sell a good ratio of expensive Model 3s.
If it takes to long to produce the cheaper Model 3s, Tesla will lose some potential customers. Many investors are looking at that "top line" right now - the number of customers and potential customers. If the top line moves too much, investors may get spooked.
Bet 2: Vertical Integration - Most automakers rely on a web of parts suppliers, who are under enormous pressure to reduce costs, but Tesla produces most of its components in-house. The contract with an external parts suppliers ensures that the supplier is responsible for any re-work or replacement of defective parts. This allows the automaker to concentrate on internal production issues.
Tesla's bet is that internal production of parts will lead to better and cheaper components. This has not worked for any other automaker.
Traditional OEMs shoot for a mix of components where the internally produced components are part of the company's core competence: Body Shells, Engines, Transmissions - and externally produced components may be generic - switches, latches, seats, frames, tires, wheels, etc.
If Tesla spends too much capital on component manufacturing, they will be inefficient and investors pressure them.
Additionally and probably more importantly, if Tesla is not able to spend the time and attention to iterate on cost and quality of these parts, it will also lose this bet.
Personal opinion: I think Tesla has learned the wrong lesson from previous dealings with suppliers. For instance, the original Roadster was designed with a two speed transmission. A supplier claimed they could make it, but it never really worked. Tesla learned the lesson that suppliers are stupid and suck at making new things - I think they should have learned that lesson that it is really really hard to make new things.
Bet 3: Automation - But first a detour - There are 3 main areas of auto assembly, and most manufacturers have already fully or almost fully automated 2 of them: Body Shop (welding and assembly of the body shell) and Paint Shop. The 3rd area is General Assembly.
General Assembly is the bloody, thorny, devilish poster child for multiple single points of failure. A high feature vehicle may have on the order of 1000 assembly stations (aka footprints) in General Assembly. The Model 3 is designed with much lower complexity in mind, and may only have 100 footprints.
If and when any of those 100 footprints has an equipment failure or parts issue, ALL 100 stop running in a short amount of time. Human assembly workers are rather resilient and can figure out a multitude of small issues on each and every operation. This may allow for a hypothetical variation of 5% in non-critical parts.
Automated assembly may only allow for a 1% variation.
Additionally, automated assembly only runs well when EVERYTHING is designed for automation. That is not impossible, but it is expensive and time consuming.
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Most importantly, these three bets are linked:
If not enough base models are sold, the cost of design and equipment spending will be excessive on a per vehicle basis.
If internally produced parts are too far out of spec, you have strong negative impacts on automation.
If automation fails, you cannot produce enough vehicles at a low enough price to satisfy your low-end customers.
But, if Tesla wins all three bets, they win big time.