Tesla's Dirty Secret: It Was Banging Out Parts Of The Model 3 By Hand

As it turns out, Elon Musk’s warning earlier this year that the Tesla Model 3 roll out would be “production hell” was an understatement.

In a damning – if unsurprising – report, the Wall Street Journal revealed Friday that Tesla managed to produce only a tiny fraction of the 1,500 Model 3 sedans that it promised customers because key parts of the cars are still being assembled by hand, far away from the assembly line at the company’s Fremont factory. As of a few weeks ago, the advanced assembly line that Tesla has long boasted about - and which it had spent billions upon billions in capex to build -  wasn’t ready and the company was working frantically to try and finish it, while keeping the arrangement a secret from purchasers and investors.

More apropos, the report strongly suggests that Tesla’s Monday warning about “production bottlenecks” might not be its last as Elon Musk’s dream of building millions of the "everyman’s electric car" melts before his eyes. 

Unknown to analysts, investors and the hundreds of thousands of customers who signed up to buy it, as recently as early September major portions of the Model 3 were still being banged out by hand, away from the automated production line, according to people familiar with the matter.

While the car’s production began in early July, the advanced assembly line Tesla has boasted of building still wasn’t fully ready as of a few weeks ago, the people said. Tesla’s factory workers had been piecing together parts of the cars in a special area while the company feverishly worked to finish the machinery designed to produce Model 3’s at a rate of thousands a week, the people said.

As one analyst quoted by WSJ snydely pointed out, “that’s not how mass production vehicles are made.”

Automotive experts say it is unusual to be building large parts of a car by hand during production. “That’s not how mass production vehicles are made,” said Dennis Virag, a manufacturing consultant who has worked in the automotive industry for 40 years. “That’s horse-and-carriage type manufacturing. That’s not today’s automotive world.”

When called for comment by WSJ, an angry Tesla spokesperson delivered a statement that could have been taken right out of Trump"s playbook, slamming what Tesla described as a "decade-long campaign of misleading reporting" by the WSJ.

In a statement, a Tesla spokeswoman declined to answer questions for this article and said, “For over a decade, the WSJ has relentlessly attacked Tesla with misleading articles that, with few exceptions, push or exceed the boundaries of journalistic integrity.

While it is possible that this article could be an exception, that is extremely unlikely.” The Journal disagrees with the company’s categorization of its journalism.Musk has staked Tesla’s future (not to mention the company’s massively inflated valuation) on the success of the Model 3, which was intended to be Tesla’s first attempt at building an electric vehicle for “mass market” consumers, priced at a relatively affordable $35,000 a car.

As WSJ pointed out, a memorable statement made by Musk during the July launch event for the Model 3 has proven unusually prophetic. Given Musk’s warnings about “production hell”, it’s surprising that the company’s investors are only now learning about the primitive methods employed by the company.

Tesla introduced the Model 3 at an event outside the company’s factory in July, when Chief Executive Elon Musk drove a shiny red Model 3 onstage as hundreds of his employees cheered the first sedans rolling off the production line.

Within minutes of stepping out of the new vehicle, Tesla’s leader warned his engineers and designers the coming months would be challenging. “Frankly, we’re going to be in production hell. Welcome, welcome!” he said to laughter. Behind the scenes, Tesla had fallen weeks behind in finishing the manufacturing systems to build the vehicle.

Or, as the philosopher said, hell is other people, not other conveyors.

Last Monday, Tesla announced it had produced only 260 of the promised 1,500 sedans, an average of only three cars per day. Musk blamed unspecified “production bottlenecks” for the shortfall. That unconscionably charitable characterization of the company’s production problems has now been exposed as totally misleading.

“Although the vast majority of manufacturing subsystems at...our California car plant...are able to operate at high rate, a handful have taken longer to activate than expected,” the company said at the time.

Then on Friday, Musk came up with another excuse, when in the late afternoon, he tweeted that Tesla was ramping up production of its solar-powered Powerwall home batteries, ostensibly to deliver them to Puerto Ricans in need – which is now the reason for both the Model 3 delay and the delay in the unveiling of the Tesla Semi; furthermore it is also an attempt by Musk to cynically use the tragedy in Puerto Rico as cover for his company"s production failure.

Tesla Semi unveil now Nov 16. Diverting resources to fix Model 3 bottlenecks & increase battery production for Puerto Rico & other affected areas.

— Elon Musk (@elonmusk) October 6, 2017

Worse, as the WSJ points out, although Tesla has struggled with production issues in the past – most notably during the rollout of its 2015 sports-utility vehicle – the obstacles facing the Model 3 are far more threatening to the company’s long-term financial health.

Tesla’s rollout of the Model X sport-utility vehicle in 2015 also was plagued by quality and design issues that left suppliers scrambling and hourly workers having to rush to meet lofty goals. And with employees at the company’s Fremont factory telling WSJ that it could be another month before the assembly line is ready, the production problems plaguing the Model 3 could pose a much bigger threat to the company’s long-term financial health.

Painting a comical scene of primitive, ad hoc production methods more appropriate for some Lada factory deep in the bowels of Russia and certainly not the pinnacle of modern production, the WSJ described a factory where workers struggled to perform tasks typically reserved for heavy machinery as they strained to piece the cars together.

One worker who spent time in the Model 3 shop—dubbed by some as Area 51 because of the limited access and secretive nature—described watching young workers in September struggling to move large pieces of steel to weld together instead of using robots as is traditionally the case.

“In place of the robots…you’ve got two associates lining up with a big, old spot welder hanging from the ceiling by a chain, and you’ve got one associate kind of like balancing it and trying to get the welder in position, and you’ve got another welder with his arm guiding it,” this worker recalled seeing. “Sparks go flying.”

It almost makes one wonder where all those billions in capex spending are going?

Finally, the report also contradicts a claim Musk made while speaking to analysts in August that the Model 3s would be “full production cars.”

In August, Mr. Musk told analysts that the Model 3s coming out of the factory were “not engineering validation units.”

“They’re fully certified, fully DOT-approved, EPA-approved production cars,” Mr. Musk said, referring to the Department of Transportation and the Environmental Protection Agency. “These are not prototypes in any way. They’re not validation anything. They are full production cars.”

The bottom line is that as much as we’re sure Musk would "love" to help the good people of Puerto Rico rebuild their devastated energy grid - especially if it involves billions in US taxpayer subsidies - he’s not the savior that the Isle of Enchantment needs right now. And while we are confident that Tesla shareholders will soon get what they deserve, we look forward to what the next inevitable "mule with a spinning wheel" product will be...