Producing the Tesla Model 3

Everybody knows that Elon Musk has a “problem” – how to ramp up production sufficiently to fill the nearly 400,000 orders for Tesla’s new Model 3 in a timely manner. The production rate increases required are comparable to Henry Ford’s “problem” –ramping up Ford Model T production a century ago.

One post from May 2016 compared Musk’s “problem” with Ford’s “problem”. A subsequent post elaborated on plans for Model 3 production. They are both reprised below, to provide some prospective when the hype builds up around the start of actual Model 3 production, expected in the third quarter of this year (2017).


Henry and Elon (From 1 May 2016)

I’m writing this post just one month after Tesla Motors’ Model 3 electric automobile was introduced and made available for advance orders. As you may have heard, in the first week following that introduction, Tesla received more than 325,000 orders, with $1,000 deposits – reportedly a record for any product, ever! Now, a full month from launch, the order book reportedly totals around 400,000.

The question now is “can Tesla produce enough cars to fill those orders before the folks in the queue get tired of waiting and demand their fully refundable deposit back?” Sounds like a fair question, especially considering: (a) that Tesla produced only about 52,000 cars in all of 2015, (b) that Tesla will want to continue to produce their existing Model S and Model X cars, presumably in increasing volumes, and (c) that lots of additional Model 3 orders will keep rolling in. As a practical guess, let’s rephrase the question this way: “can Tesla deliver a cumulative 400,000 Model 3 automobiles by the middle of 2019 without retarding growth of their other product offerings?”

Henry Ford’s Model T

Let’s start to answer the Model 3 production question by considering Henry’s Model T of a century ago. Ford introduced the Model T as a practical and affordable automobile for everyman in late 1908 and started deliveries in the 1909 – 1910 model year. Here are the production figures:

Ford Model T Production Figures

1910 Ford Model TStarting at zero, it took Ford about four and a half years to produce the first 400,000 Model T Fords. Unlike Tesla, Ford did not start with 400,000 orders in hand. Henry Ford had no idea, from the start, how many he would be able to sell: “everyman” had not even dreamed of owning an automobile in 1908. So, Ford didn’t know how much manufacturing capacity he would need, nor did he know how raw materials would be sourced in sufficient and timely quantities.

For Ford, it was necessary to vertically integrate from iron ore deposits to metals castings all the way through finished vehicles in order to assure adequate supplies of all of the components necessary to keep production going. Tesla has integrated vertically to build a “gigafactory” sufficient to mass produce batteries in the quantities that Model 3 production will require. The “gigafactory” is already in operation, although far from full capacity.

Compared to Ford and his Model T, Tesla has a century of manufacturing technology to draw on, along with the infrastructure that supports an industry that can produce about 15 million vehicles annually. With 400,000 orders in hand (and the $400,000,000 from the deposits), Musk and Tesla are certainly in a much better position to find financing for the facilities and capital goods necessary to produce the Model 3 than Ford was in 1908.

Building and operating a 21st century automobile factory that can produce 400,000 automobiles by the middle of 2019 is a big job. The manufacturing technology is impressive, but it’s not rocket science. By the way, Elon Musk is a rocket scientist – he is the Chief Technical Officer of SpaceX, maker of 21st century rockets.

Will the Tesla Model 3 deliver fast enough? Bet on it!


7 May 2016 – Additional Comments

On 4 May 2016, Elon Musk and Tesla’s management team held a conference call for business analysts and the financial community. Model 3 production planning was a primary area of discussion. Here are a few points that build on last week’s post:

Production Rate: Musk announced that Tesla intends to reach the 500,000 cars per year rate in 2018, instead of 2020 as previously indicated. I take that to mean total production of all three models, not Model 3 alone. The blue line on the graph labeled Model T Production indicates that Ford significantly exceeded the half million cars per year production rate in the 1914 – 1915 model year. The production rate in 1910 – 1911 was 53,192. So, within four years Ford increased production by more than ten times. Now, Tesla says they will do almost exactly the same thing – from about 52,000 in 2015 to about 500,000 in 2018 – in three years rather than four.

Operating Leverage: In a discussion on costs, Elon Musk mentioned that “our operating leverage means fixed cost relative to variable cost is going to improve dramatically”. How much is “dramatically”? The red line on the graph labeled “Model T Production” indicates the per vehicle selling price. For the 1910 – 1911 model year, Ford charged customers $780 for a Model T. The price was reduced to $550 for the 1914 – 1915 model year. That 29.5% price reduction was made possible through Ford’s increase in operating leverage.

Ford was selling the Model T into an entirely new market. Each time he reduced the price, he created an entirely new customer segment. Ford used price to keep his production rates increasing and the improvement in operating leverage funded the price reductions – with some left over for Ford and his Company.

 “Hell-bent on becoming the best manufacturer on earth”: Musk pointed out:

“Thus far, I think we’ve done a good job on design and technology of our products. The Model S and Model X are generally regarded by critical judges as technologically the most advanced cars in the world. We’ve done well in that respect. The key thing we need to achieve in the future is to also become the leader in manufacturing.”

Excellence in manufacturing operations results in high product quality levels and high throughput rates – hence strong operating leverage. It worked for Ford a century ago. It is working for Tesla today.


Everybody in manufacturing should read (or re-read) Henry Ford’s autobiography. The parallels between what Ford said and did with what Musk is saying and doing are truly remarkable. Of course, it goes without saying that a century does make a difference and a Tesla Model 3 isn’t a Ford Model T. Learn from Ford anyhow.

By the way, last week Elon Musk’s SpaceX recovered (landed) a rocket on a barge at sea, at night. SpaceX designed and manufactured that rocket. SpaceX will reuse the rocket, reduce the price for future satellite launches, and increase their throughput and their operating leverage. Musk and his crowd do know how to do things well.

Chuck & Joan in ParisThoughtful comments are always welcome.

…  Chuck Harrington

(Chuck@JeraSustainableDevelopment.com)

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome.

Model T Photo: Creative Commons via Wikipedia

 

A Tale of Two Innovators

Henry Ford and Elon Musk

I’ve been reading My Life & Work, an autobiography of Henry Ford. The book was originally published in 1922, during the heyday of the famous Model T. The Model T, its manufacturing technology and the business philosophy behind it revolutionized personal transportation a century ago. The Model T’s story suggests parallels to Elon Musk’s unfolding Tesla revolution today.

Henry Ford and the Model T

1910 Ford Model TThe opening decades of the 20th century were alive with revolutionary ideas. Some of them, like Einstein’s theories, were truly fundamental. Many more were technical advances, across a number of fields – not just mechanics. Sometimes technical advances converge. That’s what happened with Ford’s Model T.

Converging Technologies:

Electrification: Electricity came to industry in the early 1900’s. Electricity provided the power and the practicality necessary for the development of large – scale manufacturing facilities, for automation and for moving assembly lines.

Texas Oil Boom: The gusher of crude oil at Spindletop Hill in 1901 began the Texas Oil Boom, making cheap petroleum a product needed a volume application.

Internal Combustion Engines: Gottlieb Daimler is credited with the first commercial automobile in 1892. Daimler’s vehicle used a four cycle internal combustion engine that was powerful enough, portable enough, light enough and rugged enough for an automobile. Henry Ford built and used a similar engine to power his first “gasoline buggy” in 1893. The gasoline engines that power most of today’s cars at direct descendants of those Daimler and Ford used.

Vanadium Steels: Vanadium steel alloys were first used around 1900. Vanadium alloys are much stronger than conventional steels, so metal parts could be designed to be smaller, lighter and stronger than the conventional steel parts they replaced. Vanadium steel parts were used extensively in the Model T’s frame, before other automobile manufacturers were even aware of its existence.

Scientific Management: Fredric Taylor made a science of the role of people in manufacturing. Taylor divided production into discrete tasks, measured the time and human effort necessary to perform each task and, practically speaking, invented the concept of productivity. Henry Ford applied Taylor’s ideas in his high volume, low cost manufacturing methods.

Business Philosophy

Ford’s idea was to provide reliable personal transportation for everybody. To use Ford’s own words:

“I will build a motor car for the multitudes. It will be large enough for the family but small enough for the individual to run and care for. It will be constructed of the best materials, by the best men to be hired, after the simplest designs that modern engineering can devise. But it will be so low in price that no man earning a good salary will be unable to own one – and enjoy with his family the blessing of hours of pleasure in God’s great open spaces.”

Ford’s idea with the Model T was to persistently reduce the price in order to open new strata of demand. Then he continually reduced costs as throughput increased. Cost reductions were through productivity and elimination of waste. In 1914, Ford voluntarily established a minimum wage of $5.00 a day – almost twice the then–prevailing wage rate in manufacturing – heavy Detroit.

Elon Musk and Tesla Motors

Today, a century later, Elon Musk is attempting to upcycle the automobile by replacing the internal combustion engine with electric motors. Electric automobiles are not a new idea – Studebaker, for example, produced electric vehicles from 1902 to 1912, before being overwhelmed by Model T’s. However, like Ford, Musk lives in a time of new and converging ideas. These converging ideas may well change everything.

Converging Technologies

Lithium – ion Batteries: The exploration of space and the advent of mobile electronic devices like cell phones has fostered an avalanche of innovations in battery technology. Lithium – ion batteries are the current favorite due to high storage capacity, long battery life and low weight to storage capacity ratio. Tesla has partnered with Panasonic to build a gigafactory to mass produce lithium – ion batteries for Tesla automobiles and other uses. The gigafactory is expected to start production in 2016, with the ability to produce enough batteries for 500,000 automobiles at full initial design capacity.

Variable Speed AC Motor Drives: Until recently, heavy, expensive DC motors were necessary for variable speed, constant torque applications like automobiles. Today, stable, reliable variable frequency drives allow the use cheap. Light, efficient AC motors in those applications.

Environmental Concerns: Internal combustion engines burn fuels under conditions of high pressure and temperature. Environmentally undesirable by-products, including oxides of carbon, sulfur and of nitrogen, are present in the engine exhaust. Electric vehicles have no exhaust emissions.

Robotics: Advances in computer – driven robotic technology are making significant product quality and productivity contributions to manufacturing. Tesla makes increasingly extensive use such technology.

Business Philosophy

Musk and Tesla propose to build no compromises, fully electric vehicles. “No compromises” means that customers enjoy the advantages of clean, quiet electric propulsion without compromising safety, performance, reliability, cost to operate, internal space or any other characteristic that matters.

To accomplish this, Tesla is engaged in a three step program of commercial development and introduction. The first step was a high price, low volume sports car that provided proof of concept. Tesla’s produced and sold 2,250 Roadsters in 31 countries between 2008 and 2012 at more than $100,000 each.

Tesla Model SThe second step is a premium priced, medium volume sedan and SUV that brings sales volume up sufficiently to confront the realities of everyday driving in many countries. The $70,000+ Model S sedan and the slightly higher priced Model X SUV are expected to sell a combined 55,000 units in 2015.

The third step is a smaller, more popularly priced model that will challenge the heart of the automobile market in developed countries. Tesla’s Model 3 is expected to begin production in 2016 or 2017, priced starting around $35,000. Combined volumes for Models S, X and 3 are forecast at 500,000 units per year by 2020.

If 500,000 vehicles sounds like a very big number, consider that, in 2015, about 15 million automobiles will be sold in the U.S. alone. Also consider that over 15 million Model Ts were produced and sold over its 19 year production run a century ago. Consider as well that the population of the U.S. today is three times what it was in 1920. It could well be that Tesla may be that one gigafactory isn’t enough.


Chuck - Austrian AlpsThoughtful comments and experience reports are always appreciated.

…  Chuck Harrington

(Chuck@JeraSustainableDevelopment.com)

P.S: Contact me when your organization is serious about pursuing Sustainability … CH

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome. New blog posts are published weekly.

Photo: 1910 Ford Model T – Creative Commons via Wikipedia

Quotation: My Life & Work, Henry Ford’s autobiography, originally published in 1922