Cost of Manufacturing Problems – Part 1 Tesla Motors

 

Suppliers are a critical component of any company’s ability to deliver a product. Tesla Motors is no exception with their cutting edge manufacturing technologies used in their electric cars. Since the beginning for the company, Tesla has been know for delays in delivering their cars. Their initial Roadster was delayed 6 months from original estimated delivery of October 2007 to actual delivery in March 2008. This was due to manufacturing issues and design & performance improvements. How much this cost Tesla at the time is hard to say as they were a private company.

 

Tesla’s second car, the Model S, faired no better. In this case, they brought much of the manufacturing in house and bought the old NUMMI plant. But to build the final car, they depended on many different outsourced suppliers. As Elon Musk put it, “you can only make cars as fast as your slowest component.” During their production ramp up, under performing suppliers had to be replaced. One such supplier was for the chrome plating of the door handles. They were unable to make them without pitting so they were replaced. 5,000 Model S Sedans were suppose to be delivered during the first year of production, only 2,400 were delivered. Besides missing out on an estimated $260 Million of revenues, their stock also dropped by 10%.

 

Now with their third car, the Model X. The general kinks of automotive manufacturing should be iron out. The much heralded Model X suffered a 2-year delay. Unfortunately, as Tesla continues to innovate, manufacturers seem unable meet production demands. In this case, it is for the middle row seats. Supply limitations is causing Tesla to once again miss delivery numbers. Tesla stock tumbled 14% on the news or a loss of $4.6 Billion. The delay is also expected to hurt their Model S production and sales as well, compounding the cost to Tesla.

 

While you may argue that blaming the entire production delays on contract manufacturers is unfair, this was mainly to highlight how costly the delays can be. Choosing the right manufacturer is a hard and difficult process. If you have not used them before, you really do not know how they will perform. There is a large risk and you should do everything you can to mitigate it as much as possible. We all do our due diligence as best as we can when vetting a vendor. But also take the time to find someone you know who has used them before. Online reviews are also  great to allow for you to see how they performed in the past for their other clients.

 

Please also see Part 2 of this series looking at cost of manufacturing mistakes in the medical device world.