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OM in the News: Tesla’s Sloooow Rollout

January 22, 2018

Tesla charging stations wait to be unwrapped.

When Elon Musk first unveiled the Tesla Model 3 sedan in March 2016, consumers stood in long lines at showrooms to place $1,000 deposits, giving Musk an iPhone moment unprecedented in the auto industry. When people stand in line at an Apple Store, they typically walk away with a new phone; the all-electric Model 3 had yet to be built. Overwhelming demand inspired Musk to announce in May 2016 that he was advancing Tesla’s production plans by 2 years.  It would build 500,000 total cars annually by the end of 2018, rather than 2020—a fivefold production boost in just 2 years. For Tesla, which had no experience manufacturing cars in high volume, it has been a steep production learning curve, writes Businessweek (Jan. 15, 2018).

Tesla delivered only 1,770 Model 3 sedans to buyers in 2017’s second half. In August, Tesla said it expected to achieve a manufacturing rate of 5,000 Model 3 vehicles a week by the end of the year. In November the company back pedaled, saying it would hit 5,000 units a week in late March 2018, citing “production bottlenecks.” Musk stated he was on the “front lines” of production hell.

“They vastly underestimated how challenging it is to mass-produce vehicles, and quality should be their focus,” said one industry exec. On Jan. 3, Tesla delayed the production goal by yet another quarter, saying that it now expects to hit 5,000 units a week by the end of June, with a “focus on quality and efficiency rather than simply pushing for the highest possible volume in the shortest period of time.” Concentrating on quality makes sense for the carmaker. A mass-recall would probably be far more damaging.

(Tesla’s stock, by the way, surged 43% in 2017, despite the factory setbacks).

Classroom discussion questions:

  1. What are the OM issues that Tesla is facing?
  2. Do a quick SWOT analysis on Tesla.
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