In the last Tesla post on Musk fans and naysayers, I had expressed cautious optimism about Tesla’s Model 3 production growth.
There are some legitimate concerns about the process management within the Tesla Fremont plant. Much of the production planning problems have become opaque and also a matter of academic and practice debate (kanban cards and micro-management), ever since Tesla’s move away from Toyota Production principle. In any case, it seems that Tesla’s gradual transition to the make-to-stock model of production continues unabated.
Tesla’s Q3 Sales figures from 2018 (Source: Wired) in a snapshot view, look very good. They finally appear in the top-20 models sold in the US and rank fourth in the luxury car segment. In fact, the sales came at an average transaction price of $67K which augurs well for the future volume vs. average revenue tradeoff.
It is reasonable to wonder if this momentum in sales can be maintained, especially given the claim among the skeptics that this exciting Q3 performance is possibly an aberration.
To re-frame the question, the doubt seems to be about whether the production of Model 3 could be continued at this rate. (Note – Due to the waiting line of customers, production rate or throughput at the Fremont plant is the bottleneck for final sales in the whole supply chain). There is also an entirely separate question about the sunk costs in automation and ROI realization time on those costs.
I have previously stressed about the fact the operational problems take time and operational improvements due to better engineering and production solutions, are gradual but steadily accumulating. In fact, this is the heart of the Kaizen principle – the principle of continuous improvement.
I believe that the numbers are improving — this is good for Tesla, and in general, good for sales of electric cars. Personally, as an Operations academic, I would not focus my worries on the external deadlines on production targets Musk seems to be setting (and often missing).
As long as customers are willing to wait, I think these problems can be addressed in time. Essentially, this is the bet that Tesla has made.
In my view, it is best to judge Tesla by the production numbers trajectory and not solely on whether they meet “deadlines” before a quarter, although there is an aspect of messaging and market relationship that constrains Tesla’s finances.
Endnote:
1. I am just through the Kara Swisher interview with Elon Musk — but I will collect my thoughts on that in a future post.
Here is the link: Musk Interview