Elon Musk Is a Modern Henry Ford. That's Bad.
(Bloomberg View) -- The idea that Silicon Valley could reinvent the auto sector the way Apple reinvented mobile phones is an appealing one, and by some metrics Tesla has done just that. The Silicon Valley automaker's distinctive product features -- blistering performance, long-range batteries and slick touchscreen interfaces --have beguiled legions of fans and investors, giving the impression that the future of the auto industry had suddenly arrived.
But recent reports call that glowing future into question. After 15 years, it's increasingly clear that Tesla has nothing to offer in the area that, as the tech analyst Horace Dediu puts it, is where "almost all meaningful innovation occurs": the production system.
Throughout its history, Tesla has been plagued by poor manufacturing quality and missed production deadlines. And now, CNBC's Lora Kolodny has the scoop on Tesla operations tasked with "reworking" and "remanufacturing" poor quality cars and parts, illustrating a deeper problem than the poor quality itself. By reworking vehicles after they come off the line at its Fremont, California, assembly plant at a dedicated remanufacturing facility in nearby Lathrop -- and even reportedly in its service centers -- Tesla is taking automotive manufacturing back to dark ages.
Once upon a time, this was the standard practice for Detroit's automakers. Driven by logic derived from Henry Ford's manufacturing system, U.S. automakers kept production cranking in order to maximize efficiencies of scale, and then repaired defective cars after they rolled off the line. Though many factors contributed to the decline of the Big Three in the 1970s and 80s, the inefficiency and apathy entrenched in company culture by this approach to quality was one of the most important.
In contrast, Toyota's cars may not have had the dramatic, chrome-draped designs or V8 performance of American competitors, but the legendary Toyota Production System (also known as TPS, or "lean") did away with rework, and its dependable, high-quality cars eviscerated Detroit's market share. By systematically eliminating all forms of waste -- "muda" -- from its manufacturing, Toyota found that both capital efficiency and quality benefited enormously from building cars right the first time.
For example, Toyota created the "andon" system, installing a cord above every workstation. All employees were empowered pull it whenever they spotted a defect, bringing the entire factory to a stop while a root cause analysis traced the defect to its source.
This practice reflects the systematic approach of the TPS philosophy: rather than trying to more efficiently repair defects, which by their nature vary wildly and thus confound standardized processes, the Toyota way emphasizes fixing the cause of the defect. Better to stop production until the root cause of the defect has been fixed than foster indifference by telling workers that defects will be fixed later by someone else.
Tesla seems either uninterested in or oblivious to the historical lesson here. On last quarter's earnings call, chief executive Elon Musk told analysts that Tesla doesn't see TPS as a model for his company, even as he reiterated his goal of "productizing" Tesla's factories.
As reports of quality problems with the new Model 3 continue to roll in, Tesla is beefing up its service operation to repair the problems that evaded even its rework operation. As is usual for the company, the launch of a new car is being accompanied by an expansion of the mobile service teams that drive to customer homes to perform repairs. This service, now up to 230 vehicles, helps pump up customer satisfaction data through its personalized service, but it also show how uninterested the company is in getting things right the first time. If history repeats itself, Tesla will roll back this inefficient mobile service operation once sales of Model 3 take off, again leaving customers with a long drive to service centers that are already fixing a high volume of vehicles both before and after they are delivered.
Musk's hubris and willingness to throw auto industry orthodoxy out the window has clearly resonated with the public. And if Tesla aimed only to build a premium niche brand, giant touchscreens, YouTube-able acceleration and "falcon-wing" doors would be enough.
But as Tesla pursues lower retail prices and higher volumes, its ambivalent attitude toward the principles of mass production of modern cars seems increasingly likely to sabotage its powerful brand. Because TPS emphasizes the fundamental role of culture in high-quality manufacturing, and because culture takes so long to change, Tesla could be facing the kind of multi-decade effort that it took to bring Detroit up to competitive quality standards.
Silicon Valley's decades-long hot hand in everything from smartphones to software seems to have blinded Tesla to the importance and difficulty of manufacturing, just as Detroit's cultural and consumer power coming out of the roaring 1950s and '60s blinded it to the threat posed by Toyota's stodgy manufacturing excellence.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Edward Niedermeyer, an auto-industry analyst, is the co-founder of Daily Kanban and the former editor of the blog The Truth About Cars.
To contact the editor responsible for this story: Tobin Harshaw at tharshaw@bloomberg.net.
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