Internal documents revealed by Business Insider disclose that Tesla had to re-work over 4,300 of the much discussed 5,000 Model 3 vehicles it built in the last week of June, and later touted as a production target milestone. The milestone was closely watched and was of keen interest to Wall Street in determining whether Tesla is able to scale its business model.
The same report also gives those closely following the Tesla saga additional color what the term "factory gated" could mean. One would guess that Musk can't put most of these 5,000 vehicles - about 20% of which were built in Tesla's GA4 assembly tent - on the road, when more than 86% of them need to be reworked. Internal documents revealed that these reworks came during the week of June 23 and that each one took about 37 minutes to complete.
As we noted previously when we discussed Tesla's 5,000 Model 3 accomplishment, today's report would confirm that the company sacrificed quality in order to boost quantity. As a result, instead of 5,000 new vehicles out on the streets, most were likely "factory gated". In other words, they needed to be fixed.
This comes after the company claimed in its most recent shareholder letter that "The layout and processes of GA4 [the tent] are similar to those of the Model S and X assembly line, while quality and cost of production are roughly equal to those of GA3."
Perhaps, in addition to explaining the "factory gated" term, this can also possibly explain why thousands of Model 3 vehicles were sitting out in fields across various parts of California – a question that we raised back in July when we wrote this report.
Tesla's extended PR machine over at electrek tried to explain these stockpiled vehicles as follows:
There’s literally zero news here. We already knew that the number of Tesla vehicles in transit would increase significantly with the production rate. That will be reflected by much higher inventory at the end of the quarter.
It’s no surprise considering Tesla roughly doubled its overall production rate over a quarter.
When it was making 2,000 cars per week, Tesla was able to use parking lots around the factory as loading areas to ship out the cars.
It had to expand to other lots as the production rate increased and it recently spiked to 7,000 vehicles per week with the recent 5,000 Model 3’s in a week milestone.
Therefore, it’s normal that Tesla has new parking lots for vehicles in transit.
What is also troubling is that the company's "first pass yield", or the number of vehicles that made their way through the manufacturing process without needing rework, was anemic.
The normal range for the auto industry is between 65% and 80%, according to experts cited in the BI article. Using the numbers provided, Tesla's first pass yield was less than 14%. Obviously, the extra use of resources and cost of labor due to the rework were likely not only well above industry best practices, but could have been pushed higher than Wall Street analyst estimates. The report noted that most reworks were because of failed manual tasks and cosmetic issues.
Tesla, of course, went on record by noting that reworks can also include minor issues.
"Our goal is to produce a perfect car for every customer. In order to ensure the highest quality, we review every vehicle for even the smallest refinement before it leaves the factory. Dedicated inspection teams track every car throughout every shop in the assembly line and every vehicle is then subjected to an additional quality control process towards the end of line. And all of this happens before a vehicle leaves the factory and is delivered to a customer," the spokesperson said.
In any case, these surprisingly inefficient numbers provide yet another glimpse into "production hell" for a company that was supposed to have top-of-the-line autonomous manufacturing that was going to challenge best practices in the industry and possibly create a new standard. That notion now seems laughable.
However, most grandiose expectations of the "alien dreadnaught" performing with any type of efficiency had already been slammed back to reality over the last 18 months, when numerous production issues were reported and a meaningful rework of Tesla's production facility and procedure needed to be put into place.
If the company can only produce vehicles up to their quality standards at a rate of just 14%, maybe it’s time to think about reworking the production facility again - or putting up another tent.