- Tesla Motors
- In a letter to employees announcing layoffs earlier this month, Tesla CEO Elon Musk also said the company would be working on ‘manufacturing design improvements’ to the Model 3 to reduce production costs.
- Industry experts told Business Insider that so-called cost-down efforts are common in the auto industry but can take up to a year to implement.
- Former Tesla engineers we spoke to said that Tesla lacked a process for manufacturing improvements and that it could lead to confusion on the factory floor.
- A Tesla representative told Business Insider that the company has detailed tracking processes to manage changes to its products, be they design or manufacturing updates.
A mass layoff, the building of a new factory in China, and plans to begin manufacturing the Model Y indicate a new phase at Tesla.
And based on a recent letter to employees from CEO Elon Musk, the new Model 3 vehicle will not be left untouched, as the company hopes to sell to sell mid-range version of the Model 3 in all markets by May in effort to lower costs enough to eventually sell a $35,000 vehicle.
Here’s how Musk put it to employees as he announced layoffs earlier this month (emphasis ours):
“We unfortunately have no choice but to reduce full-time employee headcount by approximately 7% (we grew by 30% last year, which is more than we can support) and retain only the most critical temps and contractors.
“Tesla will need to make these cuts while increasing the Model 3 production rate and making many manufacturing engineering improvements in the coming months.
“Higher volume and manufacturing design improvements are crucial for Tesla to achieve the economies of scale required to manufacture the standard range (220 mile), standard interior Model 3 at $35k and still be a viable company. There isn’t any other way.”
On a call with investors at the end of January, Musk said a “standard range Model 3… sometime by the middle of this year.”
Three former Tesla engineers who spoke with Business Insider on the condition of anonymity said this meant scouring every piece of the Model 3 and its manufacturing process to find ways to significantly reduce costs. The changes could come from anywhere.
One former Tesla vice president told us that it “likely means changing part design to buy the parts cheaper and make them quicker to install, driving down labor at the factory.”
And like all things at Tesla, the former employees said, the company would want to do this rapidly.
A Tesla representative told Business Insider that it is always working to iterate its designs to maximize efficiency and apply what it has learned in the manufacturing process so it can offer more affordable cars.
“This is as true with Model 3 as it is with every product we’ve ever made,” the representative said, pointing to rigorous quality and safety checks the cars go through before they’re sold. “We designed our cars to the highest quality and safety standards, and a change is only approved if it meets those standards.”
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Carmakers are constantly looking for “cost downs,” or ways to lower a car’s cost in either product design or the manufacturing process without sacrificing quality. This is especially important for moderately or lower-priced cars that generate thin profit margins.
Part-design changes can take six months to a year to source and implement in the manufacturing process, especially if they require a new die (a tool used to cut or shape material) or a new mold for a part.
In November, according to reports, Musk told his staff that the cost to build the Model 3 was about $38,000. So thousands of dollars would need to be shaved off that.
Sandy Munro, CEO of the manufacturing consulting firm Munro & Associates, said Musk shouldn’t have a problem making the changes he needs to make to the Model 3. In fact, Munro said his company sent Tesla over 200 ideas for how to improve the car after examining the Model 3 in July.
For one thing, Munro said, Tesla could make all the batteries in the Model 3 a uniform size instead of using two different-size batteries. It could also use cheaper materials, replacing vegan leather with cloth or regular leather, and nylon with propylene.
“I think he’s probably going to be able to take $12,000 out of it by doing this and that,” Munro told Business Insider over the phone.
Of course, all those things cost money, and they take time and focus.
“It’s not like you snap your finger and it’s done. It takes about a year to make things happen,” Munro said. “Nothing’s going to happen overnight, zero.”
To Munro, whether the push to lower the cost of the Model 3 is ultimately a success or failure will come down to who Musk has working on redesigns and who he has working on making the factory more cost-effective.
Surmountable or not, this is a “sticky situation,” Munro said, adding that there are only a handful of people at Toyota, General Motors, or Ford who he would hire to get out of a jam like this.
“None of those guys that I would bring in to help me if I was still working for Ford or something, absolutely none of them have been contacted,” Munro said. “I don’t know who he’s hired.”
One engineer who left Tesla a few months ago told Business Insider that Musk’s call to reduce Model 3 costs ASAP reminded him of last spring when overautomation at Tesla’s plants had to be reversed and the Model 3’s manufacturing process simplified.
It was all hands on deck. Everyone, no matter their specialty, had to join in the effort. The engineer joked that Musk would “make you responsible for fixing equipment even if your job is cleaning the bathrooms.”
In other words, when there’s an urgent situation at Tesla, everyone has to stop what they’re doing and join the mission. So it makes sense that – as CNBC reported and sources have told Business Insider – the company is pulling resources from the older Model S and X cars and moving entire teams to work on the Model 3.
Unfortunately, the engineers said, this does not necessarily mean there are specific processes in place to identify, report, and fix each problem, or even specific teams to focus on specific issues. It could also mean hundreds of people could be working on the same problem without communicating, the former employees said.
A Tesla representative told Business Insider that that was not the case and that the company has detailed tracking processes to manage changes to its products, be they design or manufacturing updates.
But the former employees said disorganization could have ripple effects.
One engineer who left in July and who was tasked with resourcing parts in existing cars from his first day on the job said the process was difficult in part because some of the projects he was trying to improve lacked documentation explaining why they had been approved in the first place.
His manager explained that this was because the parts had been approved urgently, to get the parts or tools as fast as possible. This also meant Tesla went with the supplier who guaranteed the fastest shipment.
“They wanted the fastest parts, not the best parts,” he said.
The engineer who worked to de-automate Tesla’s plant last spring told Business Insider that ultimately the biggest obstacle in reducing the Model 3’s cost would be Tesla’s churn of employees. Institutional knowledge is very important when it comes to fixes like this, he said, and even in the short time the Model 3 has been in production, a lot of people who worked on it have left the company.
“I wish them luck on trying to reduce the cost,” he told Business Insider. “But if the turnover remains high in production and they have to keep training new people … getting them up to speed is a lot of time. And it just keeps happening – people keep leaving.”