Will Tesla’s Model 3 help save or sink Elon Musk?

ON July 1, Elon Musk went home to sleep. The chief executive of the electric carmaker, Tesla, had been camping out at his electric car factory in Fremont, California, for much of the week.

Will Tesla’s Model 3 help save or sink Elon Musk?

By Tom Randal, Josh Eidelson, Dana Hall and John Lippert

ON July 1, Elon Musk went home to sleep. The chief executive of the electric carmaker, Tesla, had been camping out at his electric car factory in Fremont, California, for much of the week.

He’d been sleeping on a couch, or under a desk, as part of a companywide push to get out of what he calls “production hell”, by manufacturing at least 5,000 of Tesla’s new Model 3 saloons in a week.

“I was wearing the same clothes for five days,” Musk said in an interview with Bloomberg Businessweek. “My credibility, the credibility of the whole team,” was at stake.

Musk initially promised 200,000 Model 3s by the end of 2017. He planned an unprecedented investment in factory robots, calling the production line “the machine that builds the machine.”

Elon Musk
Elon Musk

He’d said it would look like “alien dreadnought”, a manufacturing process so futuristic, unstoppable, and cost-effective that it would seem extraterrestrial.

It hasn’t worked out that way. Tesla ended 2017 having made 2,700 Model 3s. As of the end of June, it had made 41,000, and some analysts doubt it will ever be able to show a profit on the car, and Tesla hasn’t even started selling the $35,000 base model.

Tesla has $10bn in debt and suffered a credit downgrade in March. It’s spent a billion dollars more per quarter, on average, than it has taken in over the past year, and the cost of a recently announced factory in China is still unknown.

Tesla is running out of cash when competition is heating up — Volkswagen, BMW, Daimler, and others plan to release dozens of electric-car models.

In early June, at Tesla’s annual meeting, Musk tried to project calm, but seemed close to tears. “This is like — I tell you — the most excruciatingly hellish several months that I have ever had,” he said, before noting that Tesla’s assembly lines were being further upgraded, making the company “very likely” to hit the weekly goal of 5,000.

He also said that he’d asked employees to build a third general assembly line that would be “dramatically better than lines 1 and 2”.

A week later, Musk posted a picture of the new facility on Twitter. There were no fancy robotic systems, nor fixed walls, even — just a large tent outside the factory, built from scrap from the other lines.

The automotive world winced. “Insanity,” said Max Warburton, an analyst with Sanford C. Bernstein & Co, in an email. “I don’t think anyone’s seen anything like this outside of the military trying to service vehicles in a war zone.”

The tent sufficed. “I think we just became a real car company,” Musk wrote in a July 1 email to employees, announcing that Tesla had made 5,031 Model 3s the previous week.

Tesla Model 3
Tesla Model 3

Even so, it’s unclear whether Musk has put Tesla on a path to lasting greatness or just staved off collapse. The company is the most shorted US stock, and a higher percentage of Wall Street analysts give TSLA a sell rating than for all but one stock on the S&P 500.

The story of Tesla’s sprint to release the Model 3 (based on interviews with 20 members of Tesla’s design and engineering teams, suppliers, and dozens of current and former workers) is a case study in brilliant design and unbelievable hubris.

The prize for Musk is enormous: If he gets the Model 3 right, he will remake a trillion-dollar industry and do more to reduce carbon emissions than any person on the planet. But it may turn out that mass-producing cars is the one challenge that defies him.

In early 2015, Musk had convened a meeting of his top engineers, in a windowless conference room at the factory. There were 12 people, including experts in batteries, design, chassis, interiors, body, drive systems, safety, and thermodynamics. Musk, who did not attend, had gathered them to figure out what the Model 3 would be.

The engineers filled a whiteboard with dozens of requirements, including a range of at least 200 miles and an affordable price. The last of these criteria made the project especially daunting.

Even scarier, Tesla would begin selling it in mid-2017, giving the company two-and-a-half years to design, test, and build a new vehicle. A traditional automaker would take five years.

Creating a low-cost electric car is about maximising range. For instance, Tesla’s designers added plastic covers, costing $1.50 each, to hide four pads on the underside of the car where a jack goes.

The decision reduced wind-resistance and improved the car’s range by three kilometres.

They also opted for four-piston, mono-block calliper brakes, which are usually reserved for more expensive cars. But since the brakes are lightweight, they lower the car’s battery requirements and overall cost.

“Every single decision like that was put back into the context of an electric car,” says Doug Field, a former Apple vice-president, whom Musk recruited as a top engineer in 2013. In other words, electric cars require new ways of thinking about cost and performance.

Musk decreed that the Model 3 would have a single, central screen for all controls and information, which would both cut costs and allow Tesla to push the front seats forward to allow more rear legroom. Tesla’s design chief, Franz von Holzhausen, spent the 2015 Christmas holiday figuring out how to design a car interior without a traditional dashboard. Musk didn’t want visible air vents. “I don’t want to see any holes,” von Holzhausen recalls him saying.

Von Holzhausen paired engineer, Joseph Mardall, with designer, Peter Blades, to figure that one out. Blades’s sketch called for a recessed gap across the entire width of the car, from which the air would flow, with a long strip of wood instead of the dash.

Mardall pointed out that to make the approach work, the ventilation system would need to be redesigned. “Are we serious about this?” he recalls asking.

Musk was serious, but a second problem soon appeared: The wooden strip, just below the air gap, worked like an airplane wing, sucking cold air down and shooting it into the driver’s lap.

Mardall, an aerodynamics specialist, proposed adding a second, hidden gap, from which air would shoot straight up, lifting the main blast of cold air above the piece of wood and away from the driver’s crotch. “It was one of those eureka moments,” Blades recalls, still in awe of the elegance of the solution. “The spine still tingles.”

What Blades and Mardall designed combines all the components of a standard HVAC system into a single, basketball-size glob of moulded plastic tucked under the hood, which Tesla calls the Superbottle. The glob is stamped with a logo of a bottle wearing a superhero cape.

Blades and Mardall relay all this with pride. “I had to negotiate with my wife: I’m going to do seven days a week for the next half-year,” Blades recalls. “And that’s not just me — everybody’s wives or partners — it’s just part of the story of Tesla. At this company, if you don’t ask those silly questions and ask to do something crazy, then it’s not really the right place for you.”

If such loyalty seems extreme, it’s partly the result of Musk’s reputation for defying odds (and, some would say, common sense). He was mocked in 2002, when, as a 31-year-old software entrepreneur with no aerospace training, he founded SpaceX. It now launches more rockets a year than any other company.

Mass-producing a car isn’t rocket science; in some ways, it’s harder. Rockets can essentially be built and checked by hand; a perfect car must come off the production line every minute or so, if you have any prayer of keeping pace with the world’s leading manufacturers.

Cars are composed of tens of thousands of individual parts and have to withstand snow, potholes, and motorway speeds, performing flawlessly for years. They are the largest purchase most people make, besides a home, and they’re also heavily regulated, lethal weapons that contribute to more than a million deaths each year.

At a typical plant run by Toyota, widely seen as the most capable car-maker, a new car requires about 30 hours of labour. Even with all the robots, Tesla spends more than three times that number of hours on each car, says Michelle Hill, a manufacturing expert at management consulting firm, Oliver Wyman.

And Toyota would never, as Musk has, try a new manufacturing system and all-new workforce on a never-before-built car. Successful car-making is “the orchestration of so many things that have to play together in unison,” she says.

Musk’s disregard for precedent, of course, is part of his appeal. In the weeks before the March, 2016 public unveiling of the Model 3 design, employees took bets on how many prospective buyers would pay a refundable, $1,000 deposit to reserve one.

The most optimistic prediction was around 200,000; the actual number was twice that. Field recalls opening his staff meeting the following week with a warning: “You are now working at a different company,” he said. “Everything has changed.”

According to one supplier, Tesla had said it expected to spend 28 months to reach large-scale mass production, but after seeing demand for the car, Tesla moved up the timeline by 15 months. It had previously said it would build 500,000 cars per year by 2020, a goal skeptics called outlandish. But in May, 2016, Musk said the plan was to do that in 2018.

In an unconventional move, Musk restructured Tesla, assigning the engineers who designed the Model 3 to invent its manufacturing process. He put Field in charge of the factory and gave him the budget to automate as much of the car assembly as possible.

Tesla bought two robotics companies, Grohmann Engineering, in Germany, and Perbix, in Minnesota. Field’s team invented dozens of industrial processes. One involved a tool called the golden wheel, an apparatus that automatically breaks in suspensions and aligns cars in one step, without humans.

Automakers generally rely on thousands of suppliers, from windshield-wiper makers to electronics manufacturers. But Musk has long-argued that the traditional supplier model led to cost overruns and mediocrity.

Starting in 2015, he told employees he wanted to make even the thorniest parts of his supply chain in-house. In late 2015, he appointed a recently hired car-interiors expert, Steve MacManus, to build a seat factory near the main plant in Fremont.

Seat assembly is labour-intensive and is outsourced by every major car company to the lowest-paid workers. “Your job is to get us out of seat hell,” MacManus recalls Musk telling him.

And so, in one area of MacManus’s Model 3 seat line, more than a dozen robots rapidly piece together the front seats, including tiny motors, hinges, heaters, and frames. Tesla claims this is the world’s first front seat assembly line in which no humans are involved.

The plan is eventually to use Musk’s tunnel-digging venture, the Boring Co, to dig an underground passageway to bring seats to and from the main Fremont factory, about two kilometres away. They already have a spot in mind.

Musk keeps trying to bring other parts of Tesla’s supply chain in-house. In an email to employees this spring, he also announced he would fire all contractors and consultants, unless a Tesla employee personally vouched for them.

“We’re going to scrub the barnacles,” he said, during the company’s earnings call in May. “It’s pretty crazy. We’ve got barnacles on barnacles. So there’s going to be a lot of barnacle removal.”

To critics, Musk’s description of contractors as parasitic crustaceans is revealing. He is maniacally committed to Tesla’s mission of saving the world from global warming, but, at times, Tesla has seemed to fall short of more prosaic obligations, such as making sure its workers are safe.

On November 18, 2016, eight months before Model 3 production began, a factory employee heard a scream coming from just outside the main building at the Fremont plant. He saw a colleague, quality-control lead, Robert Limon, writhing on the blacktop and grabbing at his leg, which was “bleeding like crazy,” the worker says. The specifics of this incident haven’t been previously reported.

Limon’s co-workers gathered around him. Someone used a belt to tie a tourniquet around his leg. The witness, who declined to be named, out of concern for adverse consequences from Tesla, says management offered counselling for people who had seen what happened — and the witness took the company up on it, because it was traumatic.

Limon later told this co-worker he’d been hit by a forklift driver, who’d been doing doughnuts on the property for fun. Limon didn’t respond to requests for comment for this story, but according to people who saw and spoke to him in the following days, and as depicted in photos seen by Bloomberg Businessweek, the injured leg was amputated.

Dozens of current and former Fremont workers, many of whom requested anonymity, say there’s a larger pattern in which a company hellbent on making lots of cars tolerates unsafe conditions.

A 2017 analysis by Worksafe, a nonprofit, said that serious injuries at Tesla’s plant in 2015 and 2016 were well above industry averages. Tesla, which is a non-union company that has been targeted by the United Auto Workers, points out that Worksafe has ties to labour.

It says injury rates in 2017 fell 25% and were about the same as the industry average. In June, Musk said Tesla’s 2018 injury rates so far were 6% below the average, even as Model 3 production increased.

Tesla’s safety records were questioned again earlier this year, when the Center for Investigative Reporting reported that Tesla had misclassified work-related injuries as personal medical issues, which made the plant seem safer than it is.

Tesla says automation on the Model 3 line is making the factory safer. But when robots break down, employees have to pick up the slack. For instance, an enormously complex robotic conveyance system for bringing parts to the line had to be removed, and teams of human workers wound up doing the work.

(Parts of the conveyance system, which had included 500 machines to lift parts, were used to build the new manual production line under the tent.)

Today, Tesla has about 10,000 workers at its Fremont plant. GM and Toyota had less than half that and produced more than 400,000 cars at the plant’s peak in 2006.

Tesla argues that a larger workforce is justified, given that more of the car is manufactured in-house, but interviews with workers suggest the company has stretched to ensure that there are enough workers on the floor. Current and former employees describe 12-hour shifts as common, with some as long as 16 hours.

To battle exhaustion, employees drink copious amounts of Red Bull, sometimes provided free by Tesla. New employees develop what’s known as the ‘Tesla stare.’

“They come in vibrant, energised,” says Mikey Catura, a Tesla production associate. “And then, a couple weeks go by, and you’ll see them walking out of the building, just staring out into space like zombies.”

Four current employees say the pressure they felt to avoid delays forced them to walk through raw sewage, when it spilled onto the floor.

Dennis Duran, who works in the paint shop, says that one time, when workers baulked, he and his peers were told, “Just walk through it. We have to keep the line going.”

Tesla says it’s not aware of managers telling employees to walk through sewage and that plumbing issues have been handled promptly. It also notes that Duran and Catura have publicly supported unionisation efforts at Tesla.

Musk and many Tesla employees dispute that workers are unhappy or unsafe.

“There’s always going to be challenges, from a safety standpoint and from a production standpoint. That’s all manufacturing,” says Dexter Siga, who started as a technician in 2011 and is now a manager.

He adds that Tesla has “had our fair share of challenges”, as a young and rapidly growing company, but it treats safety as “an overriding priority.”

For his part, Musk says Tesla demands hard work, but that’s because it’s the only way to survive as a US car manufacturer.

“I feel like I have a great debt to the people of Tesla,” he says, his voice cracking with emotion.

“The reason I slept on the floor was not because I couldn’t go across the road and be at a hotel. It was because I wanted my circumstances to be worse than anyone else at the company. Whenever they felt pain, I wanted mine to be worse.

“You know,” he continues, “at GM, they’ve got a special elevator for executives, so they don’t have to mingle with anyone else.” (“Typical Elon, deflecting from the real issue, which is the ability to mass-produce at scale and with quality,” says GM spokesman, Ray Wert.)

“My desk is the smallest in the factory, and I am barely there,” he says. “The reason people in the paint shop were working their asses off was because I was with them. I’m not in some ivory tower.”

In July, 2017, Musk delivered the first Model 3s, at a raucous party in Fremont. The car was celebrated by reviewers (“Driving Tesla’s Model 3 Changes Everything” was Bloomberg’s take), but it was almost immediately apparent that Tesla could never deliver it in the numbers Musk promised.

The first problem involved the batteries. Tesla and Panasonic, which jointly operate a battery factory in Nevada, had designed cells that were slightly larger than the standard, 18650 cells used in previous Teslas.

The new batteries were better, but the automated manufacturing line for packing thousands of them together didn’t work, and the task had to be done by hand, for a time. A new system, made by Grohmann, was eventually built and flown in.

In November, Musk told analysts he was “really depressed”, but doing his best to fix the battery-packing issue.

Other problems emerged, and Tesla had to shut down the Fremont plant for five days in February.

In retrospect, Musk says, trying to automate so much of Tesla’s factory at once was overly ambitious. “We thought it would be good, but it was not good,” he says. “We were huge idiots and didn’t know what we were doing.”

This April, Musk took over manufacturing engineering personally. “I’m back to sleeping at factory,” he tweeted. “Car biz is hell.” Field, who’d been in charge of the factory, took a leave of absence the following month; he later left the company.

In mid-June, Tesla announced it was laying off 9% of its workforce, more than 3,000 people.

Musk turned 47 in late June, during the final sprint to make 5,000 cars a week.

“First bday I’ve spent in the factory,” he tweeted, “but it’s somehow the best.”

On the Friday before the deadline, Musk seemed giddy with excitement about what he expected would be a spike in Tesla’s stock price. He tweeted a music video of the 1958 single, ‘Short Shorts’, by the Royal Teens.

On Sunday, he announced that Tesla had hit the milestone and proclaimed his love for his employees. Tesla’s stock price gained 5% on Monday morning.

The exuberance was gone by lunchtime, and Tesla’s stock finished the day down 2%. It lost 7% on Tuesday.

The “short burn of the century” that Musk had predicted had failed to come to pass, as sceptics pointed out that Tesla’s wild sprint would be unsustainable.

Musk projected confidence during an interview on July 8. “The past year has been very difficult, but I feel like the coming year is going to be really quite good,” he said. He still had “one foot in hell”.

He said manufacturing hell will be over in a month.

At present, the Model 3 is selling more units in the US than any comparably priced midsize saloon, including those offered by Mercedes-Benz, BMW, and Audi. It’s fast and fun to drive.

When you stomp the accelerator, the Model 3 stomps back, and Tesla’s designers tried to replicate the feeling of instantaneous acceleration in every aspect of the driving experience.

“Point and shoot,” says Lars Moravy, Tesla’s director of chassis dynamics.

“There’s no overshoot, and there’s no delay. That’s the essence of the electric motor and our name.”

Of course, quick acceleration isn’t unique to the Model 3; it’s true of all electric cars.

But the fact that there even is a market for these vehicles is, to a large extent, Musk’s doing. He set out to teach the world that consumers would pay for zero-emissions cars in huge numbers.

Whatever happens to Tesla, he’s succeeded in that. Tesla is, as Musk says, “a real car company.” That’s glorious, and it’s also hell.

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