Tuesday, December 18, 2018
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The Predicament of Tesla’s Model 3 Production Line


Source: motor.elpais.com

Since its Initial Public Offering (IPO) in 2010, Tesla has struggled to return a profit on a quarterly basis. According to MacroTrend’s graph of Tesla’s historical net income, the company has been bleeding cash at an increasing rate since 2014. In an attempt to correct this trend, Tesla unveiled the new Model 3 in 2016, featuring significant improvements over the previous Model S and Model X. For a short period of time afterwards, Tesla managed to reverse its negative profitability trend after receiving a large number of advanced preorders for the recently unveiled vehicle. Despite this, Tesla’s profitability has plummeted to negative $2.3 billion in the first quarter of 2018 ever since the first batch of Model 3 deliveries in July of 2017, compared to only a net loss of $0.7 billion a year prior. Tesla’s inability to manufacture Model 3s at a quick pace has been largely to blame for this, even as, according to a graph published by The Atlas, Tesla’s investment in manufacturing technologies has tripled since the production of Model 3s.

According to Berstein Research, a London-based research company, Tesla’s problems lie mainly in the over-automation of its production line. The analysis claims that Tesla’s automation of the entire production line has ultimately hurt the company. Specifically, automation of the final assembly process – in which the various parts are put together into a vehicle – seems to be giving Tesla the most trouble. Furthermore, the report assesses the economic feasibility of an all-automation approach, asserting that the investment of significant capital in terms of robotic apparatuses and human resources needed to maintain them only slightly outweighs a combination of human and robotic labor. It seems that Tesla has drastically overestimated the capabilities of automation and has failed to consider other, more reasonable, approaches. Just a month ago, Tesla CEO Elon Musk got hands-on with the Model 3 problems by sleeping at the Fremont factory. In a tweet, he stated, “I’m back to sleeping at factory. Car biz is hell.” The multibillionaire has often expressed disdain for humanity’s over reliance on technology, in the form of AI, robots, and automation. It is ironic that Tesla has defied its CEO’s philosophical principles and overly invested in the automation of its production line. Musk claims that Tesla will soon be profitable, tweeting that, “Tesla will be profitable & cash flow positive in Q3 & Q4.” However, it isn’t clear how the CEO plans to achieve those goals.

As Wall Street continues to invest heavily in Tesla, some shareholders worry about Tesla’s ability to return a profit. These doubts have been reflected in Tesla’s Annual Meeting of Shareholders in June of this year. According to TechCrunch, shareholders will be able to vote on several proposals, one of them being replacing Musk as the Chairman with an independent director. With the Annual Meeting of Shareholders coming up in less than a month, it is not clear how Tesla will untangle itself from this mess. However, if Tesla cannot begin proper Model 3 production soon, it will undoubtedly find itself in an increasingly precarious financial position.

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