Making cars is so hard
Amazing how much buzz one of those usually dry notes of a Wall Street analyst can create: The story of the possibly 3,000 unsold Tesla cars, based on research of Merrill Lynch analyst John Lovallo, has thrown the Daily Kanban server into a hyperloop. Up since last Wednesday, the story already bested the Girls of the Tokyo Auto Salon, and this morning, it passed our scoop of Johan de Nysschen abandoning Detroit and moving Cadillac to Manhattan. Only our maiden story of sockpuppeteering GM staffers found more readers – over the time of more than a year. The Tesla story has been up only 5 days.
Thankfully, the Daily Kanban server is not as flimsy as it used to be when we started, and it digested the onslaught without a hiccup. A hot standby in an undisclosed location was never used.
The story, or rather its source, is not without critics. Forbes, where just about anyone can publish, as long as they are content with charging the customary blogger fee ($ zero) for the contents, said that “Lovallo came just short of accusing Musk and company of outright lying during Tesla’s third-quarter conference call.” Then it proceeded “Taking apart the brokerage’s takedown of Tesla.” It didn’t matter. Google “Tesla unsold cars” to appreciate the extent of the carnage.
The Motley Fool came to the aid of Tesla, explaining “Why Tesla Motors, Inc. Isn’t Worrying About Demand.” For that, the fools simply repeated the Words of Chairman Musk, who pronounced that “demand is not our issue.” The story ignored the real issue, at least the issue that is on Musk’s mind. Tesla appears to have problems making cars in the quantity and quality demanded from a real car company. Whereas the selling and branding of cars is generally regarded as a somewhat black art in the industry, production engineering is a cold and unforgiving science. Musk is just beginning to find out.
“People don’t quite appreciate how hard it is to manufacture something. It is really hard,” Musk lamented in the earnings call that triggered Lovallo’s analysis. Musk then expressed “great respect for people who manufacture large numbers of complex objects because there’s like several thousand unique parts in a car.” (The full text of the transcript can be found at Seekingalpha.com. The Daily Kanban will savor it more at a later time, once we have fully recovered. Note to Musk: The number usually used is around 30,000 parts.)
Musk’s moans caused great amusement at OEMs around the world. A German auto executive called me up over the weekend, asking “are you writing for Musk now? He says what you wrote months ago.”
Months ago, the Daily Kanban wrote that Tesla’s biggest challenge is high quality mass production, one of the most momentous and worst understood conundrums of this industry. Like a 9 year old who – while still a bit unsure of the exact details – just fathomed that babies are not delivered by the stork, a flabbergasted Musk pronounced at the earnings call:
“We also learned a lesson in manufacturing that you have issues that are sometimes one out of 100, but unless you make 100 of something, you don’t see it. Then you think the car is all good, but actually randomly one out of 100 is wrong, but you don’t know necessarily which one out of the 100, then you’ve got to go look at all 100 cars.
So just once you get into volume manufacturing there are just these statistically rare issues, but you really need to make a bunch of something in order to know that it’s there.”
If you thought there was an earthquake where you live, don’t worry: These were the groans the quote caused at car manufacturers around the world.
The humor remained an inside the industry joke. Analysts and the general public did not seem to get the comical qualities. When commenters of countless blog posts attempted to explain the supposedly unsold cars, the generally accepted excuse was that the cars are “somewhere on a boat” while Tesla is “filling up the pipeline to Europe and China.”
The commenters forget that in the Tesla process, there shouldn’t be any inventory at all. A customer pays, and makes a deposit. Cars are made to order. Anything on a truck or a boat is supposed to be sold already. Musk confirmed that in the conference call:
“I think there’s an assumption here that we try to fill up inventory, that doesn’t make sense. We don’t have inventory.”
Oh yes, you do, says Consumer Reports. In an article last Friday, CR wrote that “remaining 2014 Model S cars, including showroom display cars, are available at a discount … In checking with a local dealership, such discounted cars appear readily available. Based on our research, you could save thousands.”
In an earlier version, CR wrote that Tesla “has about 2,300 remaining 2014 Model S cars” which the company is trying to sell at steep discounts. The Daily Kanban received similar information last week. A source claimed that the inventory consists of “pre built cars”, “orphans’ , and “service loaners,” that the steep discounts are applicable only to “inventory cars that do not have auto pilot features,” and that most of the inventory cars that should not exist are about 3-4 months old. Apparently under pressure from Tesla’s combative PR department, empowered by the boss to go on a search and destroy mission against any perceived falsehoods, CR watered down its story a few times. Most of the changes are documented in Seekingalpha.
PS: Tesla would not be subjected to such abuse, would it do what usual car companies usually do, namely disclose their production and sales to stockholders and public, split up by regions. In most markets, analysts are forced to guess, and when they do, Musk calls them out on Twitter. Leave it to Europe and Japan, where governments count actual registrations, including cars for test rides and service loaners. In Germany, identified as a core European market in Tesla’s plans, 17 Teslas were registered in October, says the Kraftfahrtbundesamt. (Nissan Leaf: 74. Its Renault sister Zoe: 178.)
In Japan, where an RHD Model S was introduced in September, Tesla so far has failed to register a single entry in the Japan Auto Importer Association’s list of October imports, statistics that are persnickety enough to find 1 imported Unimog and 1 imported Hummer worthy of mention.
