Tesla Motors’ out-spoken chief Elon Musk told a customer frustrated over delays in getting their Model 3 sedan delivered that the company has gone from “production hell” to “delivery logistics hell,” and to please bear with him and the company.
It’s been a rough summer for Musk who seems to be drinking enough espresso to move the needle on Brazil’s gross-national product. It began in June when Tesla erected “circus tents” outside its Fremont, CA assembly plant to create the assembly line to produce the Model 3 electric vehicle. Wall Street analysts that track Tesla shares were appalled. The facility is actually a temporary, open-air at the ends, rigid-roof structure, but it appears tent-like in photographs.
Then, he suggested he would take the company private, but he was just shooting from the hip out of frustration with the demands of being a public company and daily scrutinized by the government, Wall Street and the media.
Tesla shares were trading up on Monday, up over 1% to $298.00. On August 7, shares traded at around $380.00.
Musk has gone from being the Steve Jobs of the transportation sector to a modern-day Preston Tucker, the auto industry maverick who briefly seized the stage after World War Two. Tucker, too, was known for improvising to get cars built and being a one-man band. Not having a humidity, temperature-controlled facility to assemble cars raises concerns about quality, as well as eyebrows. And so does so casually not understanding the rules of the Securities and Exchange Commission concerning public comments by the officer of a publicly traded company. He is being sued by shareholders in a class-action suit.
The customer complaining publicly, Megan Gale, tweeted “There are 42 Tesla’s sitting at the Union Pacific Railroad in SLC. My car is one of these. I’ve been told I was getting delivery the 8th, then the 15th, then the 20th, then the 22nd, and now my delivery has been delayed indefinitely.”
Musk responded: “Sorry, we’ve gone from production hell to delivery logistics hell, but this problem is far more tractable. We’re making rapid progress. Should be solved shortly.”
The Model 3 is meant to be the first Tesla to reach scale, priced at $49,000 before tax credits for electric vehicles are applied. Tesla reached the production velocity it needs by producing 5,000 cars a week under the “tents.” Indeed, Tesla sold almost 18,000 Model 3 sedans in August, and is setting an all-time record this year for EV sales. The year-to-date sales in August was 55,882. The closest any company has come to that level was when the Nissan Leaf sold 30,200 in 2014.
Tesla is taking some four months to deliver a Model 3. After ordering the car in one of the company’s Design Studios, the car is custom-built for the buyer, and then it gets delivered to one of the Tesla Service Centers. One of the problems Tesla is facing is the geographical issue when people from all over the country are ordering custom cars. The Model 3 production and sales success has forced Tesla to scale up to handle eight times as many cars per month as it was handling before. That’s a lot of car-carrying trucks and logistics to manage.
Most car buyers today in the U.S. buy new cars from existing inventory held on dealer lots. Even if the car the customer wants is not at their local dealership, dealers swap cars all the time, and either eat the transportation costs or pass it on to the consumer. There is very little “custom” ordering in the U.S., and what there is of it is centered on luxury brands like Mercedes-Benz, BMW, and ultra-luxury brands like Bentley, Rolls Royce and the like. Custom ordering is much more prevalent in Germany, and those companies are more wired to handle the logistics, even in the U.S.
Few doubt the efficacy of the Tesla technology itself. What comes into doubt by Wall Street and industry onlookers is Musk’s ability to hold on to the right people who can manage the complex logistics of building more than 15,000 cars a month, delivering them all over the country, taking care of customer service properly, feeding a network of sales studios and service centers. In many ways, building the cars is the easy part.
“You can’t just focus one thing at a time in what is a highly complex business,” says Kristin Dziczek, director of the industry, labor and economics group at the Center for Automotive Research in Ann Arbor. “I don’t think Tesla, and Musk, are prepared yet operationally for what it takes to reach the company’s goals.”
On the bright side, Tesla seems to be cracking the code on mainstreaming EVs like no other car company has been able to do. That’s quite a feat of marketing. But the auto business is also about a lot more than creating a slick, compelling story for customers.