In a letter to employees, Elon Musk said he was disappointed in automation, ordered to speed up production of the Tesla Model 3, and compared the company’s contractors to Russian matryoshka dolls and drunken sloths
Tesla CEO Ilon Musk recently had an epiphany that it was the over-emphasis on automation that led to such an unpleasant derailment of the mass launch of the Model 3. Almost immediately thereafter, the billionaire decided to suspend production of electric cars to fix the assembly line and promised to triple the volume of cars produced per week. Elon Musk also showed renewed interest in Tesla’s profitability and continued to nag the company’s contractors.
A rather long letter that Elon Musk sent to Tesla employees at the beginning of the week was made available to the Jalopnik portal. In it, Musk announced the suspension of production for three to five days at the car plant in Fremont, California, and at the Tesla Gigafactory (it produces lithium-ion batteries) in Nevada. Production was halted to “conduct a series of comprehensive upgrades.” According to Musk, “this should bring Tesla to a Model 3 production capacity of 3,000-4,000 cars per week as early as next month.
These figures are much higher than Tesla’s current Modelµ3 production figures, which only recently, after 10 months of considerable effort, brought Model 3 production to 2,000 cars per week. When production of electric cars resumes, plants will work 24 hours a day to make up for lost time. According to Ilon Musk, subsequent upgrades will take place from the end of May to bring Tesla to a production volume of 6,000 cars per week by the end of June. In a recent interview on the CBS morning program This Morning, Ilon Musk admitted that he had placed too much faith in the increased automation of production and not enough faith in skilled workers. In his Twitter account, the billionaire said, “Yes, the over-automation at Tesla was a mistake. More specifically, my mistake. People are undervalued.
The Model 3 electric car was the biggest challenge for Ilon Musk. Since 2006, Musk had dreamed of launching large-scale production of a Tesla electric car available to the mass consumer market. Such a car would have taken the company to a new level, because Tesla electric cars, such as the Model S and Model X, can only be purchased by wealthy customers who are willing to pay $100,000 or more for a car. Nevertheless, the Model 3 launched in July 2017, and there are still no affordable $35,000 electric cars on the road. The company’s priority is to produce more high-end cars priced around $50,000. It’s still unclear exactly when Tesla will be able to fulfill the roughly 500,000 pre-orders that hit the company two years ago.
Given the decline in Model 3 production over the past few months, it’s hard to know if the numbers Musk announced in the letter are achievable. Certainly, some investors perked up when Tesla stock rose nearly 2 percent on the NASDAQ on Wednesday. They may also have been encouraged by Elon Musk’s announcement that it was time to cut costs and bring the company to profitability.
“Critics from outside are rightly condemning Tesla. In their view, Tesla will not become a real company until it begins to make a profit, that is, until revenues begin to exceed expenses. This was out of the question until we reached large production volumes, but now we have reached this level,” Elon Musk wrote in an address to the company’s employees. Tesla’s finance department has been given the task of cutting costs, “the cost of which is hard to justify.” In addition, purchases over $1 million will be frozen until Elon Musk personally approves them.
Strict cost controls are important for all manufacturers, but the tough measures taken by Tesla executives came at a time when investors grew concerned about the company’s growing debt and long-term financial health. Since the company went public in 2010, Tesla has only managed to turn a profit in two quarters. The losses increased significantly last year when Tesla invested heavily in manufacturing facilities, a worldwide network of charging stations for electric cars, its own stores and service centers, and acquired energy company SolarCity. In addition, the company’s management promised to introduce new models, such as the Semi electric truck, another small crossover, and a new version of the Roadster car. In March, rating agency Moody’s further downgraded Tesla’s credit rating.
Saving money is the right thing to do. In the letter, Elon Musk urges employees to have shorter meetings, and this may indeed benefit Tesla. However, Musk seems to be picking on the company’s suppliers and contractors again.
“I was quite disappointed when I found out how many contractor companies Tesla works with. Often, to finally find out who does the direct production, it is like taking apart a Russian matryoshka of contractor, subcontractor, sub-subcontractor, and so on. This leads to a huge number of intermediaries, whose participation in the production process only increases costs, but does not bring any benefits, – wrote Elon Musk in an appeal. – The performance of contractors varies greatly: some work perfectly, while others are worse than drunken sloths”.
It is rare to hear of an automaker blaming suppliers and contractors for its problems. However, at Tesla’s earnings meetings, the topic has recently become a recurring topic of discussion. And, judging by Ilon Musk’s letter, nothing has changed. “All contractor companies should view the coming week as their last opportunity to demonstrate high performance,” Musk wrote. – Contracts with those contractors whose work does not meet Tesla’s quality standards will be terminated on Monday.”
Tesla executives may have previously chosen the wrong contractors. Elon Musk still maintained a somewhat unusual curmudgeonly leadership style and was very clear about the goals he wanted to achieve. Based on his comments in the press and the turnover of high-level engineers at the company over the past few years, one might conclude that he is the only permanent member of Tesla’s leadership team since the Model S started production at the Fremont plant in 2012.
If this is indeed true and he is still constantly finding flaws in Tesla’s operations, it will take more than a couple of temporary production stoppages, shorter meetings, and budget cuts to solve all the problems.