
Tesla will not be able to scale its manufacturing capacity - Osiris30
http://www.bloomberg.com/view/articles/2016-05-06/tesla-needs-more-than-elon-musk
======
jblow
First it was "electric cars are not viable technologically, they have no
range, there is no charging infrastructure, etc."

Then it was "electric cars are too expensive, they are rich peoples' toys, and
mainstream consumers will never want them anyway."

Now it is "Tesla will not be able to scale up to meet all the demand."

The fact that EV naysayers have been forced to cycle through this spectrum of
responses in less than 10 years should be a clue of some kind.

~~~
erk__
Teslas are still "rich peoples' toys" some places, model s cost 120000 USD for
the cheapest model.

~~~
orik
Tesla's are really affordable cars in other places (Norway), due to tax
incentives for electric vehicles over vehicles.

~~~
dagw
Not really, the basic no frills model S starts at over $80k. Sure that's a lot
cheaper than other cars in the same performance class, but that's a far cry
from being affordable.

------
yincrash
It should be clarified that this is an op-ed. The author does not cite any
hard facts, and the primary argument seems to be that the author believes that
only Toyota's methods are the methods that work, and because Tesla isn't doing
what Toyota did, but has ambitious goals, it will fail.

~~~
tacos
Yeah yeah. But does anyone here with a history of building something more
complicated than a Rails app want to bet real money that Musk will put a
Dragon on Mars AND ship 500,000 Teslas in 2018?

He's not exactly known for hitting his ship dates or volume targets.

~~~
qaq
Reminds me of Louis CK rant "..cause now we live in, in an amazing, amazing
world and it's wasted on the, on the crappiest generation of just spoiled
idiots...". The dude disrupted 3 major industries and all we can do is
complain that he is not hitting ship dates or volume targets let's just stone
him for this horrible transgression.

~~~
sschueller
The issue is that people will jump ship especially since the reservation fee
is refundable. By 2018-19 other manufacturers will have alternative electric
vehicles ready to ship.

~~~
chambo622
It's been years and there is no credible competitor to the Model S. Maybe it
will be different with the Model 3, but until an equivalent car is on the road
I'm not sure I agree with your statement. The Bolt - a nice car, and I've test
driven it - is just so clearly sub-par compared to what Tesla is aiming for
with the Model 3 that I would not consider it a true alternative.

------
maxander
So Tesla has two problems, according to the article:

\- They can't ramp up production fast enough to keep up with the demand
indicated by pre-orders.

\- Pre-orders are likely to be overstating demand substantially, since they
are refundable and therefore vulnerable to speculation.

...Either one of these problems by itself could be a threat, but both
_together_ seem somewhat less worrying.

~~~
pgwhalen
If you interpret "can't ramp up" as "can't ramp up without extreme cost/risk,"
one could envision both being a problem. They could go all in and fail to see
the demand they were expecting.

------
Animats
Tesla's two top manufacturing execs quit just before Musk announced that he
wanted volume production of the Model 3 in 2018 instead of 2020. You can
imagine the discussions that went on. Perhaps in time details will surface.

Tesla now faces transitioning from a low-volume high-margin manufacturer to a
high-volume low-margin manufacturer. That's hard. HP, IBM, and Xerox tried
that, and didn't do too well; all eventually exited the low end and downsized.
Even Intel is exiting the low end; they're giving up on the tablet and phone
market, as a YC article pointed out a few days ago.

Tesla is trying for good, fast, and cheap at the same time. Tesla's track
record is that they can do "good", but late and at a high price. (Space-X has
"good" and "cheap", but is about two years behind announced schedules. Their
competition is even slower, so that's OK.)

Tesla looks like they're doing a good job of manufacturing, but their Fremont
plant has 3,000 employees for 50,000 cars a year. That's 125 labor hours per
car. They can't make a $35K price point with that. The big manufacturers are
in the 15-30 hour range.[1] That's the big problem. Tesla needs to learn how
to reach Toyota levels of production efficiency, and they have a long way to
go.

Making 500,000 cars a year isn't in itself an obstacle. The Mercedes A-class
production line cycles every 40 seconds. That's 720 cars per shift. If that
line ran 2 8-hour shifts (you need a shift for maintenance) and 7 days a week,
it could build over 500,000 cars in a year. That's just one production line.

It's getting that production line built, working, thoroughly debugged, and
running at a low labor cost that takes some time. Tesla is going to need
people who've done that before.

[1]
[http://www.autonews.com/assets/PDF/CA2018861.PDF](http://www.autonews.com/assets/PDF/CA2018861.PDF)

~~~
csours
Ways Tesla can scale up:

1\. Add a lot of automation. Costs would be excessive.

2\. Add a lot of people. Cost would be quite high.

3\. Improve production process. A 10x improvement in production rate in two
years would be incredible to see.

4\. Add another factory. See points 1 and 2; also could not happen in 2 years.

5\. Partner with another OEM. This seems to me the most viable way to Musk's
goals in his timeframe. We shall see...

6\. Suspend building Model S and Model X vehicles; concentrate all resources
on the Model III.

------
DennisP
Something they don't mention is lithium supply. According to the Financial
Times[1], that's a big problem for them:

> Tesla will need about 24,000 tonnes annually of lithium hydroxide, according
> to Benchmark Mineral Intelligence, out of a market last year of 50,000
> tonnes.

> more than 70 per cent of which is found in Chile, Argentina and Bolivia. Due
> to growth in demand for electric batteries, the global lithium market is
> approaching a shortage, with no new supply coming on stream next year, say
> analysts. At the same time, battery factories being built in China are set
> to increase demand for lithium.

> So far two companies have announced supply deals with Tesla, and neither is
> expected to produce substantial amounts of lithium until after 2020.

> “The current strategy seems to be no direct investment but leveraging the
> Tesla name by signing ‘contingent’ contracts at unachievably low prices with
> junior mining companies who have never produced lithium chemicals,”

> Albemarle of Baton Rouge, FMC Lithium of Philadelphia and SQM of Chile, the
> big producers of lithium, have not been willing to supply at the prices
> Tesla has demanded.

[1]
[http://www.ft.com/intl/cms/s/0/4a924a64-99df-11e5-987b-d6cde...](http://www.ft.com/intl/cms/s/0/4a924a64-99df-11e5-987b-d6cdef1b205c.html#axzz47yGaYlgt)

(To get around paywall, google "lithium supply tesla" and take the top
result.)

~~~
lorenzhs
Lithium is abundant, the question is just how well it can be extracted. For
example, there is more Lithium in sea water than humanity can ever use to
build batteries, but we still need to commercialize the extraction. So it's
not that there isn't enough of the stuff, it's that there currently isn't that
much of a need for it, so only the most easily accessible reserves are being
tapped. That might cause supply issues in the short term, but long term,
there's no shortage.

~~~
DennisP
In the long term future of humanity, sure. I'm talking about the next few
years for Tesla, since that's the topic of OP's article.

Production is increasing, but slowly, and even if Tesla were offering a price
sufficient to motivate faster increases, it takes time to bring new projects
online. Aside from building facilities, you eat a couple years just waiting
for brine to evaporate:
[http://www.bloomberg.com/news/videos/b/3abb52e4-ea59-4ed9-85...](http://www.bloomberg.com/news/videos/b/3abb52e4-ea59-4ed9-8525-80e5765c701c)

------
vox_mollis
Based on title, expected to see the article analyze lithium mining capacity,
packaging constraints, limits to manufacturing efficiencies, P&L analysis of
growth capital requirements, etc.

Got "Toyota is better" instead.

------
pbreit
"shows how badly Musk fails to understand what he's up against"

Lines like this is why writers write and doers do.

------
jcfrei
Tesla has yet to transition from a product first to a manufacturing first kind
of company. Entry level cars are much more shaped by manufacturing
possibilities rather than consumer demand. It's not unreasonable to assume
that the Model 3 will be sold at a loss and then it will be a question about
how much longer investors are willing to pour money into Tesla rather than how
many cars they can sell. I'd buy a Tesla - it's a bargain. Unlike the stock.

------
ArcticCelt
Worst case scenario, wouldn't it be conceivable that the guy who built a car
and space rocket company from scratch now creates/buy a lithium mining and/or
battery making company to be able to supply Tesla different projects (cars,
powerwall)?

~~~
chmaynard
Tesla is probably pursuing a partnership with a company like Toyota that can
already mass-produce autos. If GM can do it, why not Tesla? (The author didn't
mention that possibility, which makes me suspicious that he has an axe to
grind against Tesla.)

------
agumonkey
What Tesla has, are Musks shoulders. He went pretty deep and pretty low to
make this happen when it was nothing. Not to make him a supernatural being,
but now that his ventures are stable and growing I expect him to be able to
handle pressure and find solutions way easier than when Tesla almost went
bankrupt.

------
karmicthreat
This is probably the only direction available to Tesla. They can grow or lose
market share over 5 years as the legacy automakers catch up.

The biggest threat to Tesla now is that their logistics teams will be able to
source sufficient materials. I think getting the manufacturing lines up and
running will be a challenge, but one Tesla has met before.

Financially can Tesla do it? I'd say yes, and they probably won't even have to
do any fundraising to do so. They will probably be able to fund it completely
through debt instruments. They are a good bet by any measure at this point.

------
xiphias
Most silicon valley startups try to learn from the Toyota manufacturing
process and improve on it. While Toyota got stuck, Tesla gets rid of the most
inefficient part of manufacturing process: humans

~~~
daughart
Humans play an important role in the continuous improvement process.

~~~
voicesarefree
Absolutely. Continuing with the Toyota example, more direct human involvement
with the manufacturing process has been reintroduced [1]

[1] [http://www.bloomberg.com/news/articles/2014-04-06/humans-
rep...](http://www.bloomberg.com/news/articles/2014-04-06/humans-replacing-
robots-herald-toyota-s-vision-of-future)

~~~
xiphias
It's probably the way not to do things if you want to get to affordable
supercars. The only way is to program robots to manufacture the cars from
start to finish, and the development should be in software (teaching the
robots to work better)

------
pbreit
Headline is misleading. Current source headline: "Tesla Needs More Than Elon
Musk". Vs HN headline: "Tesla will not be able to scale its manufacturing
capacity"

------
csours
Disclaimer: I work for a Tesla competitor, any opinions are solely my own.

I've noticed several questions on this thread about manufacturing. Since I
have worked in auto manufacturing, I will share some thoughts in the following
areas: __EV Assembly is Simpler; Humans are inefficient; Musks ' Desk by the
End of the Assembly Line; and Tesla is Smarter than Toyota. __

This is intended as a VERY high level overview, expect many details to be
glossed over.

 __EV Assembly is Simpler __: Electric vehicles are slightly simpler than
Internal Combustion engines. This does make EV Assembly _slightly_ simpler...
but not much.

Automotive Assembly plants consume parts and make finished vehicles. Assembly
plants have three main areas: Body, Paint, and General Assembly. Tesla's
Fremont plant has these 3 areas.

What is because Tesla makes EVs? Not the Body Shop, not the Paint shop. Is
General Assembly simpler? Not by much. GA is split in two areas - Trim and
Chassis. Trim no less complex on an EV than ICE. Part of the Chassis process
is simpler.

So, part of 1/2 of 1/3 of the Assembly process is easier in the Assembly
plant; call it 10% less complex (1/6 = 17%, but only part of that 17% is
simpler).

 __Humans are Inefficient (also, Four Function Robot): __* Efficiency, and
engineering is all about trade-offs. In my opinion Musk will not be able to
automate his way to 500k vehicles per year.

Humans are often perceived as inefficient because: software engineers (and
most of the people reading this) tend to value their time highly and strongly
dislike repetitive tasks. The perception is that if the task is automated, it
is a better use of a persons' time. This can be true. This is why all auto
OEMs have some automation in manufacturing.

Humans, however are better in a number of ways: humans are great at learning
new tasks quickly and cheaply, humans require much lower capital expenditure
to hire (they may be more expensive in the long run, but 2 years _is not the
long run_ )

Automation can also be inefficient depending on the parameter chosen. At one
point Tesla had a multi-function robot that changed it's "hand" for each
vehicle to perform different task. Changing the hand takes time, which Tesla
cannot afford if they want to build 500k vehicles/year. Yes, you can simply
add more robots, but that costs money.

As Tesla has been setting up its manufacturing process, it may have in mind
future expansion and speed-up; but it has been solving current problems.
Automation in particular can be troublesome to speed up (most definitely
following the 80/20 rule). Portions of the assembly line may have to be re-
structured to allow parallel operations, which can be expensive and time
consuming.

Also, the assembly operation(s) in question have to be engineered with
automation in mind (else it will be amazingly expensive). This is entirely
possible, but I don't see a major breakthrough in 2 years alongside a major
vehicle launch.

 __Musks ' Desk by the End of the Assembly Line (and Tesla is Smarter than
Toyota): __This item in particular makes me shake my head in disbelief. On a
recent earnings call, Musk said that his desk is next to the end of the
production line [desk]. This suggests that Musk is attempting to inspect his
way to quality. Do you know who tried to inspect their way to quality? GM
(among many others). Do you know who has a good reputation for quality?
Toyota. [quality]

In addition (and more pertinent to the speed-up question), quality has a
quantity all its own. If you use high quality parts, you can put them together
more quickly and more reliably, and thus in higher numbers. If you produce
high quality vehicles, you can ship them more quickly, and again, in higher
numbers.

In other words, the defects are not being added to the vehicle at the end of
the assembly line, and they cannot easily be removed at the end of the line.
Can you test your way to high quality software? Can you inspect your way to
high quality vehicles?

[desk]: [http://qz.com/676127/no-need-to-worry-elon-musks-desk-is-
rig...](http://qz.com/676127/no-need-to-worry-elon-musks-desk-is-right-at-the-
end-of-the-tesla-production-line/)

[quality]: 1. Musk is certainly doing more than just inspection, but his words
send a very naive message. 2. GM and other companies perceived as low quality
have actually caught up to, and surpassed Toyota.
[http://www.jdpower.com/press-releases/2015-us-initial-
qualit...](http://www.jdpower.com/press-releases/2015-us-initial-quality-
study-iqs)

------
whoisthemachine
It's interesting because the software development strategy of break things
fast is based off of agile methodologies developed by Toyota. If any place is
primed to be the birthplace of a car company that emulates Toyota, then SV is
it. And there's no reason tesla can't be one of those companies.

~~~
apalmer
whoa whoa whoa... the foundation goal to which Toyota's strategies have been
focused for the last 50 years have been explicitly towards improving quality
of the vehicle once it leaves the factory... The time to market focus at the
cost of quality that is a rational viable model in software is the antithesis
of the toyota way...

------
lazylizard
how does tesla compare to byd?

[http://www.europeanfinancialreview.com/?p=5603](http://www.europeanfinancialreview.com/?p=5603)
[http://www.byd.com/news/news-313.html](http://www.byd.com/news/news-313.html)

i think byd had pretty big claims when they started out into cars too..but
went quiet after awhile...but somehow they'd survived and its been more than
10yrs since they started...

------
Etheryte
What a boringly one-sided article.

------
sunstone
This article is wrong headed in one very important way. Electric cars are
fundamentally a much BETTER way to make cars. And that's why Musk (and other
electrics with decent engineering) can count on selling all of his production.

