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April 24 (Reuters) - Tesla Inc Chief Executive Elon
Musk took many risks with the technology in his company's cars
on the way to surpassing Ford Motor Co's market value.
Now Musk is pushing boundaries in the factory that makes
Most automakers test a new model's production line by
building vehicles with relatively cheap, prototype tools
designed to be scrapped once they deliver doors that fit, body
panels with the right shape and dashboards that don't have gaps
Tesla, however, is skipping that preliminary step and
ordering permanent, more expensive equipment as it races to
launch its Model 3 sedan by a self-imposed volume production
deadline of September, Musk told investors last month.
Musk’s decision underscores his high-risk tolerance and
willingness to forego long-held industry norms that has helped
Tesla upend the traditional auto industry. While Tesla is not
the first automaker to try to accelerate production on the
factory floor, no other rival is putting this much faith in the
production strategy succeeding.
Musk expects the Model 3 rollout to help Telsa deliver five
times its current annual sales volume, a key target in the
automaker's efforts to stop burning cash.
"He's pushing the envelope to see how much time and cost he
can take out of the process," said Ron Harbour, a manufacturing
consultant at Oliver Wyman.
Investors are already counting on Tesla’s factory floor
success, with shares soaring 39 percent since January as it
makes the leap from niche producer to mass producer in far less
time than rivals.
There are caution signs, however. The production equipment
designed to produce millions of cars is expensive to fix or
replace if it doesn't work, industry experts say. Tesla has
encountered quality problems on its existing low-volume cars,
and the Model 3 is designed to sell in numbers as high as
500,000 vehicles a year, raising the potential cost of recalls
or warranty repairs.
"It's an experiment, certainly," said Consumer Reports' Jake
Fisher, who has done extensive testing of Tesla's previous
Models S and X. Tesla could possibly fix errors quicker,
speeding up the process, "or it could be they have unsuspected
problems they'll have a hard time dealing with."
Musk discussed the decision to skip what he referred to as
"beta" production testing during a call last month with an
invited group of investors. Details were published on Reddit by
an investor on the call. (https://www.reddit.com/r/teslamotors/comments/5zrb7t/tsla_investor_call_notes/).
He also said that “advanced analytical techniques” – code
word for computer simulations - would help Tesla in advancing
straight to production tooling.
Tesla declined to confirm details of the call or comment on
its production strategy.
The auto industry's incumbents have not been standing still.
Volkswagen AG's Audi division launched production of a new plant
in Mexico using computer simulations of production tools – and
indeed the entire assembly line and factory - that Audi said it
believed to be an industry first. That process allowed the plant
to launch production 30 percent faster than usual, Audi said.
An Audi executive involved in the Mexican plant launch,
Peter Hochholdinger, is now Tesla's vice president of
MAKING TOOLS FASTER
Typically, automakers test their design with limited
production using lower grade equipment that can be modified
slightly to address problems. When most of the kinks are worked
out, they order the final equipment.
Tesla’s decision to move directly to the final tools is in
part because lower grade, disposable equipment known as “soft
tooling” ended up complicating the debut of the problem-plagued
Model X SUV in 2015, according to a person familiar with the
decision and Tesla’s assembly line planning.
Working on a tight deadline, Tesla had no time to
incorporate lessons learned from soft tooling before having to
order the permanent production tooling, making the former's
value negligible, the source said.
"Soft tooling did very little for the program and arguably
hurt things," said the person.
In addition, Tesla has learned to better modify final
production tools, and its 2015 purchase of a Michigan tooling
company means it can make major equipment 30 percent faster than
before, and more cheaply as well, the source said.
Financial pressure is partly driving Tesla’s haste. The
quicker Tesla can deliver the Model 3 with its estimated $35,000
base price to the 373,000 customers who have put down a $1000
deposit, the closer it can log $13 billion.
Tesla has labored under financial pressure since it was
founded in 2003. The company has yet to turn an annual profit,
and earlier this year Musk said the company was "close to the
edge" as it look toward capital spending of $2-2.5 billion in
the first half of 2017.
Tesla has since gotten more breathing room by raising $1.2
billion in fresh capital in March and selling a
five per cent stake to Chinese internet company Tencent Holdings
Musk has spoken to investors about his vision of an "alien
dreadnought" factory that uses artificial intelligence and
robots to build cars at speeds faster than human assembly
workers could manage.
But there are limits to what technology can do in the
heavily regulated car business. For example, Tesla will still
have to use real cars in crash tests required by the U.S.
government, because federal rules do not allow simulated crash
results to substitute for data from a real car.
(Editing by Peter Henderson and Edward Tobin)