Tesla has been parking hundreds and hundreds of cars at lots and industrial buildings in Burbank, Antioch, and Lathrop, Calif, reports The New York Times (Oct. 2, 2018). Last week, a batch of about 100 Model 3s turned up in Bellevue, Wash., with smaller collections in Chicago, Dallas, Las Vegas and Salt Lake City. The parked vehicles were discovered over the last two months by amateur detectives who closely follow the company stock.
Elon Musk recently acknowledged that the company was having difficulty shipping cars to customers, saying Tesla was in “delivery logistics hell.” He attributed the problem to a shortage of trucks to haul cars around the country. But the Auto Haulers Association says it is not aware of any shortage of car haulers, and that other automakers that are not having shipping troubles.
Is Tesla simply gathering cars together before shipping them to customers, or bringing cars with defects together to repair them before delivery? If the former, it suggests Tesla failed in a critical task: It didn’t set up an efficient way of delivering hundreds of cars a day as it was scrambling to produce 5,000 a week. A more worrisome problem would be if Tesla built these cars and now doesn’t have customers willing to take them. Musk had long promised that the Model 3 would be available for as little as $35,000. But the least costly version available now starts at $49,000.
In some cases, cars have been marked — with a bar-coded sticker or with grease pencil on the windshield — to indicate that they are inventory vehicles, meaning they have no customers awaiting them. Some markings indicate repairs required before the cars can be sold. In the rush to ramp up Model 3 production, Tesla has faced growing issues with vehicle quality. Some customers have complained that cars arrived with scratches, loose parts and other manufacturing defects. And a new headache has cropped up: severe shortages of replacement parts. Owners needing repairs have complained of waiting a month or longer for parts.
Classroom discussion questions:
- What is Tesla’s biggest OM issue?
- Why is the company only producing high-option models of Tesla 3?
1. Tesla’s biggest OM issue
Tesla’s main Operations Management issue is the mismatch between production and delivery logistics. The company rapidly increased Model 3 production, but its distribution and delivery system was not ready, causing many cars to sit in parking lots. The fast production ramp-up also created quality and spare-parts problems.
2. Why is Tesla producing only high-option Model 3s?
Tesla initially focused on higher-priced versions of the Model 3 because:
They provide higher profit margins
They improve cash flow
They make production simpler during ramp-up
Early customers often prefer premium versions
Therefore, the $35,000 base model was delayed until production became more efficient.