Supply Chain Matters provides an additional update relative to our previous commentary regarding the Tesla Motors Model 3 Product Unveil that occurred several days ago.
Yesterday, Tesla delivered an update relative to its Q1 FY16 operational and delivery performance. The update indicates, among other items that the electric powered automotive provider delivered a total of 14,820 completed vehicles in Q1 consisting of 12,420 Model S and 2,400 Model X automobiles. While the statement indicates that Q1 operational performance was almost 50 percent more than the year earlier period, equity analysts were expecting an output number of upwards of 16000 vehicles. 
Tesla further indicates that it is on-track to deliver 80,000 to 90,000 new vehicles in 2016.
The statement further indicates that deliveries were impacted by severe Model X supplier parts shortages in January and February that extended longer than planned. According to the update, build rates for the Model X in March rose to 750 vehicles per week once the parts shortages were resolved, but many of the vehicles were built too late to be delivered to owners before the end of the quarter.
Of more interest was a candid admission that the root causes of the parts shortages was:
“Tesla’s hubris in adding far too much new technology to the Model X in version 1, insufficient supplier capability validation, and Tesla not having broad enough internal capability to manufacture the parts in-house.”
First and foremost, Supply Chain Matters applauds Tesla for its direct candor.
There are very few automotive manufacturers, and for that sake, other industry manufacturers that would publically state such candor even though internal operations was well aware of the challenges that were encountered and the efforts required to make the numbers. Tesla clearly indicates that the operational details disclosed for Q1 were provided because of: “unusual circumstances of this quarter and will not typically be provided in quarterly delivery releases going forward.”
We none the less, applaud this action because it provides the broader industry supply chain community another important learning relative to the importance of design for supply chain practices, where product design and product management teams work collaboratively with supplier sourcing, procurement and manufacturing operations teams to insure that product design and manufacturing specifications can adequately meet production volume scalability requirements. Obviously there is learning relative to supply chain risk mitigation, having back-up contingency plans in-place to account for supplier snafus or shortcomings.
Supply Chain Matters continues to admire Tesla’s boldness and embrace of modern supply chain and manufacturing practices and such public lessons are indeed learning that even the best can encounter a snafu.
When product design boldness outpaces the realities of the current supply chain, something will give. Apple, among other supply chain leaders, have previously stumbled in new product releases because of design for supply chain factors not addressed in the initial product launch and release cycle.
Tesla indicates that it is addressing root causes to insure that these mistakes are not repeated in the Model 3 launch. We raised that possibility in our prior commentary.
Time will eventually tell the final outcome.
Earlier this week, Tesla indicated that customer reservation orders for the new Model 3 had surpassed 276,000 orders. At current production rates of the Model X of 750 vehicles per week, that order backlog is the equivalent of 368 weeks or roughly 7.36 years of production at current volumes. That gap alone represents the critical tensions of elegant or leading-edge product design contrasted to customer delivery and experience expectations. The end-to-end supply chain becomes the important difference in meeting such expectations.
© 2016 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
Bob – Completely agree! I love that they were upfront about this challenge. I think it’s always important to keep your customers up to date with any potential delivery issues you are facing. Most importantly though they have to capture lessons learned!