Tesla Motors loses top production executives just before ramp up. Is this a bad omen?
No one can say that Elon Musk doesn’t think big.
Hot on the heels of the remarkable 400,000-unit pre-order binge for the new Tesla Model 3 sedan, Musk announced the intention to ramp production up from the current level of approximately 80,000 cars per year, to 500,000.
And what is the timeline for this big expansion? According to Tesla, production levels will reach a million units annually by 2020.
You heard that right: a six-fold increase in production, in just two years.
Is this even possible?
In my opinion, Tesla has about a snowball’s chance in Hell of reaching this level of production, although Musk is commendably giving it the old college try, and is literally sleeping on a cot beside the assembly line to speed along the changes.
How big is this challenge? Consider these issues facing Tesla:
Loss of Key Manufacturing Execs
The company has just lost two key manufacturing executives: Josh Ensign, previously the integrated supply chain VP at Honeywell, and Greg Reichow, formerly the VP of operations at solar power systems manufacturer Sunpower.
It’s damned odd to lose key production managers just as the company is ramping up to produce the most talked-about consumer product of the decade. This project should be a once in a lifetime opportunity for any manufacturing professional. It’s curious timing.
Hiring from Outside the Industry
Ensign and Reichow didn’t come from inside the auto industry. Yes, they are both proven commodities in manufacturing, but one of the reasons for hiring from within the auto industry is the connections these people bring with them. This includes supplier relationships, knowledge of auto industry best practices and the great unspoken asset: the ability to poach great people from the organization they’ve just left.
I suspect that Musk is attempting to do it differently by hiring outside the auto industry. It’s a risky move.
The Battery “Gigafactory” is Still Pending

Tesla’s other big project, the battery “gigafactory” being built in Nevada, is not in production yet. At this point, even if Tesla could make half a million chassis per year, it’s not certain if the battery supply could keep up.
Battery pricing is also a major issue. Economies of scale could drop prices, or shortages could drive prices up. No one knows which way this could go.
Musk Will Need a Billion Dollars of Capital Investment
A ramp up like this is going to require serious investment, and Musk will have to go to the markets to raise capital. He will probably need a billion dollars – or more.
As Tesla continues to burn cash, this increases pressure on the manufacturing team to get product out the door, while maintaining acceptable quality levels. A recall, or series of recalls, could be fatal to the brand at this stage. This means Quality Assurance is under a lot of pressure too.
Is This Strategy Even a Good One?

Lastly, here is the big question: is Musk’s strategy even a good one?
The concept of disruptive innovation in manufacturing is about breaking away from an old, stagnant paradigm in order to make things in new ways. Disruption assumes that the old, established players can’t or won’t innovate, therefore leaving an innovation gap that Musk can metaphorically drive an electric car through.
But what if he’s wrong? What if Toyota, Honda, Ford and the others are already on the leading edge of auto manufacturing technology? The current best practice is to outsource as much of the vehicle design and manufacturing as possible to Tier One suppliers, and when they do build, they do it at greenfield sites in new facilities built close to their supplier base.
Tesla manufactures everything in-house, and builds in an old auto plant once abandoned by GM and Toyota. On top of that, the plant is located in California; possibly the most difficult state in the union in which to run a manufacturing operation. You have to wonder why Musk made this choice…
What Does This Mean for Musk and Tesla?
Automaking is a notoriously low margin business.
Fiat/Chrysler’s Sergio Marchionne has been looking for a dance partner for years, and has finally found one in Google.
GM is partnering with Lyft to leverage their recent purchase of San-Francisco based Cruise Automation, and they claim that they’ll have self-driving electric Chevy Bolt taxis on the street in a year.
And yet, Tesla’s market cap is more than $30 billion, compared to Fiat Chrysler at around $10 billion. Fiat Chrysler is profitable and produces annual sales of more than $130 billion, while Tesla produces revenue of only $4 billion – and loses money on every car they build.
Despite massive consumer interest in their products, Tesla is still very much a longshot. But Musk and the Tesla engineering team deserve a lot of credit for getting this far.
Let’s hope it’s a storybook ending.