Elon Musk, the visionary entrepreneur who launched a Tesla convertible into outer space on Feb. 6, is nothing if not audacious.
So when he told investment analysts the next day that his Silicon Valley company would out-Toyota Toyota when it comes to lean manufacturing, he no doubt believes it will happen.
He might be the only one who thinks so.
Brushing aside production problems that have delayed by at least six months the launch of Model 3, Tesla’s first mass-market car, Musk confidently predicted: “The competitive strength of Tesla long-term is not going to be the car; it’s going to be the factory.”
By simplifying car design to make them easier to manufacture, installing more robots and packing cars more densely on the assembly line, Musk is convinced Tesla can build as many as one million vehicles a year in a single factory — four times the output of a typical auto plant and greater than even the world’s busiest factory, Volkswagen’s flagship plant in Wolfsburg, Germany.
“The car industry thinks they’re really good at manufacturing and actually they are quite good at manufacturing. But they just don’t realize just how much potential there is for improvement. It’s way more than they think,” said Musk, calling the pace of today’s auto factories slower than “grandma with a walker….Why shouldn’t it at least be jogging speed?”
But ask most lean manufacturing experts and they’ll say Musk’s vision of a fully automated factory cranking out a million cars a year is a wasteful folly that will gobble up billions of dollars in capital and ultimately fail.
For one thing, it ignores consumer demand. Musk implausibly aims to build one million copies of his next car, the Model Y crossover, at a yet-to-be-announced factory. That’s more than Ford’s wildly popular F-Series pickup, which isn’t likely to be dethroned as America’s best-selling vehicle anytime soon. Production should be dictated by what customers want to buy, not what a factory is capable of making when stretched. Tesla has infatuated many with its electric cars, but it is about to get swamped by a wave of EVs from competitors. Are there buyers for all those plug-ins? Maybe in China, where the government wants to phase out fossil fuel cars. So far, the demand for EVs has been muted, to say the least. A factory jammed with idle robots is like setting a pile of money on fire.
“If he were to install all the robotic equipment to implement his vision, it would be a disaster,” says Jeffrey Liker, the retired University of Michigan professor whose 2004 book, The Toyota Way, outlined the principles of lean manufacturing that have influenced an entire industry. Ultimately, however, Liker believes that disaster will be averted “because smart people around him will discover (his ideas) don’t work.”
Liker was reacting to assertions Musk made during a Feb. 7 conference call with Wall Street analysts to review Tesla’s 2017 performance, resulting in a $2 billion net loss.
Pressed to say when the Model 3 might reach full production levels and achieve promised 25% gross margins, Musk peeled back the curtain a bit on Tesla’s current woes, while offering a glimpse into his longer-term manufacturing plans.
Musk acknowledged that Tesla had been “a little overconfident, a little complacent” in its ability to crank up production volume for battery packs – its specialty – at its massive battery gigafactory near Reno, Nevada. New automation equipment arriving in March should fix that, he said, but in the meantime, humans are bridging the gap – and quite effectively, he noted. “It has to some degree renewed my faith in humanity that the rapid evolution of progress and the ability of people to adapt rapidly is quite remarkable” – which, ironically, is kind of the whole point of the vaunted Toyota Production System.
“The next constraint” toward full production, Musk said, is a sophisticated automated parts-conveyance system at Tesla’s Fremont, Calif., assembly plant, formerly a joint venture between Toyota and General Motors, and a showcase for lean manufacturing techniques in its heyday. Musk called the conveyor system “probably the most sophisticated in the world,” adding that it “appears to be on track.” The system, built a level below the assembly line, carries parts from a warehouse to the point of assembly and is likely aimed at eliminating the mounds of half-filled cardboard boxes crowding the aisles alongside the assembly line that FORBES observed on a 2016 visit to Fremont.
But that’s just the beginning. Musk said he is considering a subterranean conveyance system that would carry seats and other sub-assemblies from nearby facilities to the assembly plant via new tunnels dug by The Boring Company, Musk’s newest company.
“These things get increasingly difficult, but they’re all doable,” he said. “But I can see a path where we get to, say, 600,000 Model 3 production and 100,000 S and X, so maybe 700,000, which should be like almost 50% more than GM or Toyota got out of the plant. I mean that seems achievable.”
During the call, Barclays analyst Brian Johnson pushed Tesla executives to benchmark their manufacturing prowess against Toyota and explain how their approach is different, especially when it comes to optimizing human efficiency, the core of Toyota’s Production System.
“The most fundamental difference is thinking about the factory really as a product, as a quite vertically integrated product,” said Musk. “It’s treating it as more of an engineering and a technical problem as well,” added Chief Technical Officer J.B. Straubel.
“Which is the Toyota Production System,” replied Johnson.
“Yeah, we don’t think so,” countered Musk.
“I think that generally, it’s more of an optimized operational problem, being extremely lean and really managing the flows of materials and the supply chain,” said Straubel. “They’re great at it, but this is, I think, a different approach, looking at it really from a deep technical lens in terms of automation, robotics, process.”
Ironically, as Tesla is ramping up the automation in its factories, Toyota is headed in the opposite direction.
“They went back to their mantra: simple, slim and flexible,” said Liker. “Their new generation of technology, which they are installing right now in all their global factories, is really lower tech than the previous generation.”
Toyota’s idea of efficiency now is a factory that can produce about 200,000 units annually, including up to eight different models on common platforms with common parts. The lines will be modular and flexible so they can be changed in a weekend. Difficult tasks are minimized, making it easier to operate and maintain the plant. It’s not about speed. It’s all about staying flexible and responsive to changes in the marketplace, which, according to Toyota, saves money in the long run.
For his part, Musk remains remarkably sanguine about the manufacturing challenges that lie ahead.
“I’m hopeful that people think that if we can send a Roadster to the asteroid belt, we could probably solve Model 3 production.”