The Supply Chain Matters blog provides another installment of continuous highlights of Tesla Motors operational performance. This week’s announcement of Q1-2019 operational performance was indeed disappointing and signifies that operational challenges remain to be addressed.  Tesla Model 3

Wall Street and investors are once again reeling from a Tesla Motors quarterly missed milestone. This time, it involves a shortfall in expected Q1-2019 vehicle deliveries, which were reported as 63,000 vehicles for the quarter. That is far lower than revised analyst expectations. Total vehicle production was 77,100 vehicles for the quarter.

The company attributed the latest sub-performance to its vehicle delivery distribution system for the Model 3 sedan which began global-wide deliveries to include China and Europe this past quarter, which were described as five times more than prior quarters.

Specifically, for the Model 3, Tesla reported 62,950 cars produced, down from the 61,394 produced in Q4-2018. Yet, only 50,900 were actually delivered to designated customers. This difference represents cars in-transit, and Tesla’s accounting policies call for recognizing revenue only when a customer takes physical delivery of a vehicle. The Q1 production number was again below the stated milestone of producing 5000 Model 3 vehicles each week, declared last year. Upwards of half of the entire quarter’s vehicles were completed a mere 10 days before quarter end.

The infamous Tesla “hockey stick” performance lives on, as are supply network challenges.

At the end of Q4-2018, Tesla reported 1010 Model 3’s. 1897 Model S and X vehicles as in-transit, which implied that they would be included in Q1 delivery reporting. The Q1 in-transit number amounted to 10,600 vehicles, an indication of a growing bottleneck process.

Tesla’s stated goal is to deliver between 360,000 to 400,000 vehicles in 2019. With first quarter delivery performance as noted, the auto maker is already in a deep hole.

 

Supply Chain Matters Perspectives

In previous Supply Chain Matters commentaries related to Tesla’s manufacturing and supply chain capabilities, including our Q4 operational performance commentary, we have been direct, namely that this manufacturer needs a fresh outlook and renewed focus on operational consistency and capability.

It is rather obvious that the electric automaker has struggled with consistent performance in manufacturing, and in a new vehicle global distribution system that continues to strain.

A series of recent headcount reductions and a significant turnover of executive and operational management is obviously taking a visible toll.

After the announcement of the Q4-2018 operational results, equity analysts tracking Tesla began to take a longer view perspective relative to Tesla’s operational and financial growth. Today, the company’s stock is in a tailspin, and has declined 20 percent year-to-date. Adding to the this day’s dismay was CEO Elon Musk appearing in a Manhattan courtroom in response to a Securities and Exchange Commission charge for alleged contempt.

As we and others have stated, there is little question that Elon Musk is a brilliant inventor and innovator, and Tesla vehicles and Space X rockets remain a testament to this brilliance. However, overseeing automotive volume manufacturing and supply networks, the stated “manufacturing hell”, are the purview of seasoned operations senior executives.

By our view, Tesla needs to quickly move away from the culture of ‘we know best’ to that of what other successful global automakers have learned in manufacturing, supply chain and quality focused process discipline.

Industry competitors will soon make their market presence and the window of opportunity will be closing.

 

Bob Ferrari

© Copyright 2019, The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.