Tesla Inc. (TSLA, Financial) has won widespread acclaim for its pioneering work in bringing electric vehicles into the mainstream, as a growing number of legacy automakers bring their own electrified offerings to market, the company appears to be increasingly under pressure.
One of the key supports undergirding Tesla’s still-vaunted share price is the idea CEO Elon Musk has built a “different kind of automaker” that eschews the long timelines and conservative product development cycles that define the established competition.
But Tesla’s Silicon Valley-style management has ultimately failed to disrupt the core tenets of auto manufacturing. Indeed, Musk’s efforts have already cost the company dearly, with more pain still to come.
So long, alien dreadnought
It seems as if many Tesla watchers have forgotten Musk once promised to revolutionize the auto manufacturing process. Indeed, his vision of an “alien dreadnought” factory in which “machines would build the machines” was supposed to mark a new standard of automotive assembly speed and efficiency. These claims were still in full force as recently as February 2018:
“The competitive strength of Tesla long-term is not going to be the car, it’s going to be the factory. We’re going to productize the factory.”
This was no isolated incident. In 2017, Musk boasted that, thanks to extreme automation, the Tesla auto assembly line would have to factor in air friction.
The premise that Tesla was going to be able to blow away the Toyota Production System via extreme automation never held water with serious auto analysts or industry players, but they were never the target of Musk’s grandiose pronouncements. He was talking to the investors who had bought into the idea Tesla was a tech stock, and they lapped it up.
Unfortunately, Musk could not maintain the charade in the midst of the “production hell” that afflicted the ramp up of Tesla’s Model 3 sedan. Indeed, by April 2018, Musk was forced to backtrack publicly, admitting his “excess automation” was misguided. Tesla ended up ripping out a lot of expensive robotic equipment in favor of good old-fashioned human workers.
Moving fast and breaking things
Tesla’s rapid design process has won it plaudits from some observers. Musk has frequently highlighted the industry-defying speed at which the company brought the Model 3 from design stage to full-scale production.
Yet, as the horrors of production hell revealed, there is a cost to the Silicon Valley approach of “moving fast and breaking things.” Insufficient cold weather testing, for example, led to widespread complaints from owners last winter, many of whom suffered such troubles as unexpected battery degradation or even being entirely frozen out of their cars. General reliability issues have mounted to the point that Consumer Reports felt compelled to rescind its recommendation of the Model 3.
Another example of costly Muskian hubris is offered by the huge display screen that was - and still is - unique to Tesla’s Model S luxury sedan. Rather than ask why other automakers did not use conventional laptop displays in their vehicles, Musk decided to storm ahead. He claimed the company’s engineers had determined the chosen laptop displays to be sufficiently robust, despite being far below the standards used by the wider automotive industry. Ultimately, Tesla paid for this rejection of industry standards, as auto analyst Edward W. Niedermeyer observed:
“Tesla's decision to use a large display that wasn't tested to higher automotive grade standards had fairly predictable results. First the Model S and X screens were plagued by a bizarre problem that was clearly caused by thermal issues: bubbles would form on the sides of the displays and eventually leak a gooey adhesive material into the car's interior.”
Other automakers take a long time to design cars because it takes a while to design and test them to meet their exacting standards. Tesla has argued repeatedly that it neither neglects essential testing, nor accepts laxer standards. But these arguments fly in the face of observable reality.
Verdict
Tesla managed to sell the market on the idea that the Silicon Valley approach to business, which successfully disrupted many fast-paced and capital-light industries, could replicated in the plodding, hard-nosed world of auto manufacturing. But auto manufacturing is not software. It is a challenging business at the best of times thanks to is capital intensity, market cyclicality and fierce industry competition.
Far from overturning the industry order, Tesla’s many costly missteps have actually offered a key lesson in just how important the rigorous design and manufacturing approach championed by the world’s leading automakers has been to their success.
Disclosure: Author is short Tesla.
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