Musk pushing the envelope in the Model 3’s production strategy

Earlier Musk had spoken about his vision to investors with the production line working like an “alien dreadnought” factory in which robots and artificial intelligence are predominantly used to build cars. The vision will however take a while to materialise given that the car industry in the U.S. is heavily regulated.

Having mitigated a series of slippery and risky areas on the way to surpassing Ford Motor’s market value, Elon Musk, Tesla Inc’s CEO is now pushing the boundaries of automobile manufacturing while trying to build a production line for its upcoming mass market Model 3 sedan.

Conventionally automakers have relied to building a relatively cheap production for their prototype test model, Musk has however decided to take the path less travelled by: he has scrapped that entire model and has instead ordered a more permanent setup for the Model 3 production line.

Last month Musk disclosed to investors that the more expensive option could potentially save cost in the long run as Tesla races to meet a self-imposed Model 3 volume production deadline by September.

This strategic decision essentially underscores Musk’s risk appetite and risk-tolerance along with his willingness to forego long established industry norms and forge ahead with is new idea.

Although Tesla is not the first auto manufacturer to try and accelerate its productions, however it wouldn’t be inaccurate to say, no company has ever put this much faith in production strategy.

Musk’s strategy revolves around boosting the Model 3 production to volumes that are almost 5 times its current annual sales. Although initially it will burn through cash, in the long run, it could make Tesla’s production more cost effective.

“He’s pushing the envelope to see how much time and cost he can take out of the process,” said Ron Harbour, a manufacturing consultant at Oliver Wyman.

Investors are also not shying away from Tesla’s risky factory floor strategy, with its shares surging by 39% since January.

Nevertheless, Musk will have to overly cautious during putting the production equipment together. As per industry experts, the expensive equipment could be expensive to replace or fix. In the past Tesla has encountered quality related issues on its existing low-volume production lines. Tesla expects to produce 500,000 Model 3s a year which potentially raises the cost of warranty repairs or recalls.

“It’s an experiment, certainly,” said Jake Fisher from Consumer Reports who has in the past extensively tested of Tesla’s Models S and Model X.

Musk discussed his decision to altogether skip the “beta” production testing of the Model 3 with a select group of investors the details of which can be seen here.

Musk also disclosed that “advanced analytical techniques”, code for computer simulations, will help Tesla to jump straight to production tooling.

This decision can be partly attributed to the fact that disposable lower grade equipment, “soft tooling”, had ended up complicating the debut of its Model X SUV in 2015, said a person familiar with Tesla’s decision and its assembly line plane.

The source also revealed that Tesla also leaned to better modify final production tools after it acquired a Michigan-based tooling company in 2015 which can effectively make major equipment turnaround 30% faster and significantly cheaper.

The other reason for Tesla’s haste is financial pressure: the faster it can deliver the Model 3 to 373,000 customers, who have put down a $1000 deposit for the car, the quicker it can log $13 billion.

Categories: Creativity, Entrepreneurship, HR & Organization, Strategy, Sustainability

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