Tesla Compared To Theranos After Musk Halted Critical Brake Test To Boost Output

Update: Tesla has responded to the facts below that it stopped a crucial safety test during "production hell" of the Model 3, confirming it did indeed not do the brake test, however justifying this by saying that every car is tested after production on a test track.

“Every car we build goes through rigorous quality checks and must meet exacting specifications, including brake tests. To be extremely clear, we drive *every* Model 3 on our test track to verify braking, torque, squeal and rattle. There are no exceptions.”

The response did not explain why the test was necessary in the first place. It certainly did not help the shares.

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One of the biggest mysteries to emerge from Tesla's mad dash scramble over the past week to hit its 5,000 Model 3 production quota in a week, was the question: what is a "factory gated" model and why are so many of the Model 3s produced by Musk not quite "production quality."

In addressing this question yesterday, Vertical Group's Gordon Johnson offered this explanation:

TSLA mentioned that it reached 5,031 Model 3 cars of “factory gated” production in the last week of June; while the company said it has used the “factory gated” terminology all along, we were not able to find this term in any SEC filings or public transcripts; however, looking to Linkedin, it seems “factory gated” may mean cars that require further testing and quality inspection upon leaving the factory floor (Exhibit 1) – this would mean these cars are likely not “full production vehicles” in the traditional sense of auto industry terminology;

Exhibit 1: Linkedin Review Suggests “Factory Gated” Produced Cars
May Require Further Inspection/Testing

The implication of the above is that in its rush to produce as many Model 3s as possible, Tesla was slashing quality control corners, and not producing fully QC-compliant units, which while perhaps permissible when producing less sophisticated goods, is clearly controversial to say the least when the product in question is a car that already has a spotty record of crashes and safety.

But while Johnson's speculation sounds accurate, is that really what happened?

Now, courtesy of Business Insider, we not only have confirmation but also evidence that Musk's quality control transgressions were especially acute: according to the report, which was based on internal Tesla documents provided to BI by what appears to be a whistleblower, "Musk appears to have asked engineers at his Fremont, California factory to remove a standard brake test, called the brake and roll test, from the tasks Model 3 cars must complete in order to move through production."

In order to maximize output and hit the company's weekly output quota, Musk went all out, eliminating what he considered non-critical "tests" to push out as many cars as possible:

The test was apparently shut down before 3 am on Tuesday, June 26, according to a person familiar with the matter. It's unclear why this particular test was halted.

And while Musk clearly thought the test was redundant, or at least of secondary importance, others disagree and according to one industry expert, the brake and roll test is a critical part of the car manufacturing process, taking place during its final stages.

The test ensures that the car's wheels are perfectly aligned, and it also checks the brakes and their function by taking the vehicle's engine up to a certain RPM and observing how they react on diagnostic machines.

To validate its reporting, BI notes the following screenshot of what the test looks like in Tesla's production system.

Source: Business Insider

Here is the report's explanation of the screengrab above:

 The far left column shows what step the car has reached in the manufacturing process and what tasks must be done there. In this step, the car undergoes a brake and roll test.

The two key columns here are the ones labeled "Critical" and "Blocking." According to an employee at the company, they show that it is apparently no longer necessary for the car to undergo this test before it leaves this step of the manufacturing process.

On the far right are all the descriptions of the tasks that should be performed at this station. However, since the criticality is off and the blocking is off, the car can leave the station whether those tasks are performed or not, the employee said.

It's not clear how many, if any, cars have left the station without this test being undertaken.

Quoting industry experts, BI then explains just why this test is of such significance in the production process:

 Ron Harbour, a consultant at Oliver Wyman and the co-author and founder of "The Harbour Report," a worldwide guide to manufacturing, told Business Insider that after everything is installed in a car during the manufacturing process, a manufacturer would have to be very lucky if everything on a car was in alignment.

"If you just abandon that [the test] you could potentially have a lot of quality issues with your customers," he said. "Every plant does that ... it's part of finishing the build of the car."

Harbour told Business Insider he was unaware of any test that could adequately replace the brake and roll test on a manufacturing line.

When asked about this apparent "corner-cut" Tesla told Business Insider that every car goes through "rigorous quality checks" including brake tests. "To be extremely clear, we drive *every* Model 3 on our test track to verify braking, torque, squeal and rattle. There are no exceptions," Tesla spokesperson Dave Arnold said in a statement.

However, when pressed on whether or not Musk himself gave the order to remove the brake and roll test, Arnold said: "I don't have anything further beyond the statement."

Sounds like a tacit admission, which may come as very bad news for all those Model 3 buyers who are about to receive not only a Model 3 unit that was made not in sterile, high-tech conditions, but may have major drivability and comfort problems.

Business Insider also provided the needed internal color on what factory gating means:

The employee Business Insider spoke with said that the factory gate distinction is important. It means that the company likely reached its goal by finishing cars that had already been through the production line the previous week, but were held back for rework, and readying them for factory gating, the source said.

In other words, of the slightly more than 5,000 cars produced in that last, torrid week, Tesla rushed out production at any cost, even if it meant that countless units had to be QC-tested and checked, at the cost of numerous man hours.

It also means that had Tesla actually followed protocol, it would never have been able to hit its quota and would disappoint the market.

Business Insider's mole had one more troubling disclosure:

Tesla also announced that it made 28,578 Model 3s in the second quarter. However, BI has viewed internal documents that show that as of June 27 the company had planned to hit 36,020 Model 3s in the second quarter. Tesla declined to comment on this figure.

At that point the carmaker had made under 11,000 cars in the month of June and just under 26,000 cars in the 2nd quarter, putting it on track to fall below its plan of 36,020.

This means that even after building a tent and slashing quality-control "corners", Tesla was still unable to hit its internal bogey.

Needless to say, all of the above greatly dilutes Musk's triumphant message that he had managed to hit his production target. It also should be a concern to Tesla buyers: just what quality car are they getting from a company that was far more focused on pumping out a certain number of cars, than making sure it is not another patented Tesla burning deathtrap. 

Worse, however, are growing accusations from various prominent Tesla skeptics, that Musk is now openly engaging in the same practices that led to the collapse of Theranos, warning that "this company is sounding more and more like Theranos every passing day. What other safety-related shortcuts are possibly occurring here?"

Perhaps the regulators should be tasked to answer that quesiton.

But the biggest problem for Musk is that, just like in the case of Theranos, there now appears to be a very motivated whistleblower within the organization alerting the media about the company's production flaws, operations transgressions, and - if the glove fits - outright lies.

Unless Musk is able to catch this leaker, or as he called him two weeks ago - saboteur, the Tesla story may have one more similarity with that of Theranos: the ending.

Zoom in on the left, via the @NYtimes

One wonders if this is why Tesla's chief engineer Doug Field finally quit yesterday...

Comments

So Close Quantify Tue, 07/03/2018 - 11:08 Permalink

So either Musk is so desperate to get the cars of the line he is willing to cut safety corners... or a fella that made 2 generations of the world's best rocket scientist look like amateurs knows what he is doing.  You be the judge.  If you choose the first option... is it also true you were in the never 1k a week, and never 2k a week, and never 3k a week, and never 4k a week, and now the never 5k a week club?  Will you also be in the never 6k a week club?  What will you say to yourself when Tesla goes cash flow positive and then profitable?   Some folks insist on pissing on the electric fence over and over.  Comparing Musk to Theranos given there is a Tesla Roadster on its way to Mars that was launched by the biggest rocket flown since the Saturn V  (and it was built and developed by a private company mind you.) is just fucking stupid.  But hey... YouTube is filled with videos made by folks sure as hell the Earth is flat.   

In reply to by Quantify

Hugh_Jorgan So Close Tue, 07/03/2018 - 11:08 Permalink

Tesla's sort-of "making their goal" is not a sustainable manufacturing process. This was was a one-shot, hang-it-all-out-there, save face, make the boss happy, just-this-once deal.

What happens next month?

In reply to by So Close

Hugh_Jorgan bamawatson Tue, 07/03/2018 - 13:09 Permalink

Cog, it's love/hate. Half of us feel we could have done better than Musk, and we're simply envious of some cool stuff he's done. (We're also probably incorrect in thinking we could do as well.)

The reality is Musk has spread himself too thin, by relishing his role as a magician more than he should. "Yay! for Elon Musk!... next trick please!" Too much, too fast and playing it all very fast and loose.

We also hate what is being done to our country right now and the root of all the good stuff he's doing is absolutely dependent on Obama-era, green government largesse.

Personally I give huge props to SpaceX. They have done some amazing work, but they doen't exist without Tesla which I think is in an existential crisis right now. The wave has crested and will fall. If he's smart he goes back to building better high zoot e-cars for the next 5 years and packing money away to build the new mass-assembly facilities with cash. Then strike when the world (and Tesla) is actually prepared to move forward with a proper footing. Otherwise, Musk is just channeling his inner-Hunt Stevenson in yet one more zany, spoof movie made real by our time of social and economic insanity.

In reply to by bamawatson

economessed Hugh_Jorgan Tue, 07/03/2018 - 17:49 Permalink

Hugh_Jorgan,

 

I generally like what you had to say there.  I can appreciate many of the technical problems that SpaceX has solved, but I disagree that they are dependent on Musk or Tesla.  The company is dependent on Fed.Gov for sustainable funding.

 

Musk has become a despicable figurehead.  He's not a leader, he's an opportunist.  And now one that is willing to jeopardize the safety of his customers to satisfy shareholders.  That is a pure play on greed.  I sure as hell wouldn't buy what he's selling in any shape or form. 

 

If we're ever going to make America great again, we need to make the worlds best, high quality products that satisfy customers, not shareholders.

In reply to by Hugh_Jorgan

Buckaroo Banzai Cognitive Dissonance Tue, 07/03/2018 - 11:41 Permalink

SpaceX is the only one of those companies that's worth a damn. If Musk had stuck to selling luxury cars to virtue-signaling retards who have more money than sense, Tesla would be doing just fine. But he went and fucked that up, didn't he.

The Musk innovation I'm excited to see brought to fruition is his Jew-bashing media-accountability project. For that idea alone, Musk automatically becomes the good guy. Come on Elon, don't let us down.

In reply to by Cognitive Dissonance

jcaz Branded Tue, 07/03/2018 - 14:22 Permalink

Tis true.  Edison ripped off my great-great Grandfather for the patent to the tungsten-filament light bulb.  Edison's whole game was to take advantage of a simple-minded patent system staffed by corruptible DC bureaucrats-  hmm, wonder what that reminds me of........

In reply to by Branded

DCFusor Stuck on Zero Tue, 07/03/2018 - 16:11 Permalink

While maybe not as evil as Sarnoff at RCA, he'd have deserved it.  More litigation than innovation.

While otherwise a "mostly harmless' whack job, it was Tesla who made AC motors and generators a theoretical thing - others made them really work, and guess who changed the world more? Got DC coming out of your outlets?  Incandescent lamps?

Even as an off-grid solar guy, I change the DC from the panels/batteries to AC to use it better.n  Which includes, yeah, charging my electric car, though I couldn't afford one of Tesla's.

In reply to by Stuck on Zero

So Close Cognitive Dissonance Tue, 07/03/2018 - 11:44 Permalink

"We" like the thankless, worthless, basement dwelling, lazy, can't change our own oil let alone gap a spark plug, ankle biters that "we" are, can't stand to see someone accomplishing so much in such a short time because it causes "us" to realize just how fucking pathetic "we" are...  but now that "we" can share "our" worthless, baseless, continuously proven wrong (over and over again) opinions anonymously on the internet, and get a short term dopamine kick everytime one of "our" worthless ankle biter brothers in arms upvotes "our" latest inane pandering, which is laser focused towards the very lowest common denominator, "we" revel in the short term glee it brings "us", until that too fades into less than nothingness, and like the miscreant junkie "we" are, "we" must feverishly search for a way to debase "ourselves" even further insearch of "our" next fix. 

In reply to by Cognitive Dissonance

I Claudius So Close Tue, 07/03/2018 - 12:06 Permalink

Hey Elon, thanks for trolling.  You fail to understand that we do respect you.  Who else has been able to scam the federal gov't out of as much money as you have?  God knows, your companies would not be in existence were it not for government subsidies and tax breaks directed specifically to your companies.  Not sure if you're an entrepreneur . . .  or a community organizer. 

Regardless, a little word to the wise:  Focus on ONE thing and one thing only.  You appear to be unable to multitask.  Having space travel and automobiles under your leadership seems to have created some cross engineering - FYI, cars are not supposed to fire up like a rocket ship.

In reply to by So Close

NurseRatched So Close Tue, 07/03/2018 - 12:40 Permalink

Boot-licking hero-worshipers attempt to add meaning to their pathetic lives by becoming devoutly rabid followers of self-anointed saviors like Musk. 

We all know Musk has to parse his words in order to keep lying to his minions; and that is why he creates his own language; his own accounting system, and and his own way of declaring victory no matter how big his failure.

The worst part about Musk is not his constant lying; his shoddy cars or his perpetual handouts from taxpayers.  The worst thing about Musk is his legion of pathetic, smug, fanboi worshipers  believing that He has given meaning to their shallow lives.

In reply to by So Close

Branded So Close Tue, 07/03/2018 - 13:31 Permalink

And the fact that your shit company can't make it without endless taxpayer largess, brought to you by The Magical Marxist Nigger, really says it all.

Stick with video games, fag - instead of panhandling the taxpayer. The only thing you know how to gap are B-List high-mileage whores.

With your fucking soft hands, I wouldn't trust you with a grease gun under my FJ Cruiser.

Fuck you and your overpriced mobile cremation units, brought to you by us, the tax payer - who will be paying the interest and principle on your fucking boondoggle for decades to come.

In reply to by So Close

GoingBig Branded Tue, 07/03/2018 - 18:17 Permalink

Brought to you by the taxpayer? WTF? You don't know what the fuck you are talking about. Nobody,  especially not you, is paying a dime for these. Do you even fucking know what a tax credit is? 

 

Endless taxpayer largess? I see you read about as much as Trump. Good job. You get the stupidity award for all of your bad information. Taxpayers haven't paid anything towards Tesla. Tax credits are offsets against income. It's not like the US is paying them money. Get a fucking clue. 

In reply to by Branded

Branded GoingBig Tue, 07/03/2018 - 23:40 Permalink

Wrote all that sucking your own dick, did you?

You may like your criminal government using your labor to fund & backstop very speculative venture capital initiatives, but I do not - especially as they have been such shrewd money managers in the past with 'green projects'.

With them funneling billions to a single Deep State drone (elevated by shit media collusion to cult leader) at below market risk premiums; i don't give a shit if he paid them back, he didn't pay what the capital was worth in terms of risk.

I got news for ya', if I'm on the hook for the loan, then I don't care who's giving you the cash - it's my money.

Go ahead, speculate how many pockets got lined along the way, much less how many other government funded 'green initiatives' have been just flat out theft, asshole.

If he's such a fucking genius, then the capital still should be pouring in from private sources - instead, project after project has become a punchline in the financial press.

Can't wait for him to build his monorail.

Here some golden oldies, twit:

http://www.slate.com/articles/business/moneybox/2013/05/tesla_is_worse_…

https://www.rt.com/usa/264065-musk-tesla-government-subsidies/

In reply to by GoingBig

not dead yet GoingBig Wed, 07/04/2018 - 02:04 Permalink

If the credits were not given the company would pony up cash for taxes. Tax credits are reductions on taxes paid not offsets on income. In the case of Musk he is so desperate for the cash he is legally SELLING his tax breaks so other companies can avoid paying taxes. What people tend to forget is the biggest direct largess to Tesla is that every "polluting" new car sold in Commiefornia must buy a permit to be sold. The cali boys allow Tesla to generate and sell these pollution credits and keep the proceeds or ICE mfg buy them from the state which then funnels the cash to Tesla. Awhile back the payments from the state were far too small for Elon's taste and he went on a public rant. Bingo, drastic increase in payments to Tesla. You buy an ICE car and you pay for the honor but you buy a powered by an external polluting source Tesla the government allows the buyer to legally pay less taxes. Whether it goes direct to Tesla or the well heeled buyer it's money that the treasury would have received. When Tesla reaches 200,000 US buyers the total loss to the US treasury is at least $1.5 billion, could be more if it puts the Tesla buyer in a lower bracket. That's not counting losses to state treasuries who also gave credits to Tesla buyers. Somebody has to make up the shortfall and it's the taxpayers.

Everywhere on the planet when buyer subsidies for Tesla's disappear sales tank huge. Yet your pal Musk declared awhile back that those same buyer subsides hurt Tesla's sales. Lying POS.

In reply to by GoingBig

GoingBig So Close Tue, 07/03/2018 - 13:56 Permalink

the best post of the day. Most on here decry accomplishment, whine about millennials doing nothing, and then get mad and shout racial slurs about everyone that doesn't look like them. It is pathetic and weird at the same time. But again, fear is a very powerful emotion and this board is full of people that fear change, fear other races, and fear their next-door neighbors. 

In reply to by So Close

just the tip GoingBig Tue, 07/03/2018 - 14:29 Permalink

but most of all we fear elmer gantry.  and/or their type.  that use taxpayer funds to support their private lifestyle.  i had some pretty good ideas back in my engineering days.  and i have no doubt, that, had i asked the feds to take the money out of your pocket to fund my ideas, you'd be on your knees squealing like ned beatty on a creek bank.  that previous line was a motion picture reference in case you didn't pick up on it.

In reply to by GoingBig