Deep Dive - Tesla's Automation Strategy
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Introduction
In 2018 Tesla was on the brink of bankruptcy. They had invested billions into a new factory filled with robots that hardly worked and couldn’t meet production quotas. Today Tesla is the 6th most valuable company in the world and its heavily automated production process is ten years ahead of competitors. How did they build themselves back from the brink and turn robotics from strategic failure to success?
This article will review how Tesla’s automation strategy has shifted over the last five years. By investigating where Tesla made mistakes and where it excelled, the reader will benefit from Tesla’s hard-earned lessons and gain an understanding of how to build an automation strategy.
In this article, we will cover -
- The Context - How Tesla differs from other car manufacturers and their 2016 goals for the Model 3
- Tesla’s 2016 Automation Strategy - How integral automation was to their production goals and why it failed
- Tesla’s updated Automation Strategy - How Tesla improved their approach to automation and became best in class
The Context
A detailed introduction of Tesla and its famous/infamous founder Elon Musk shouldn't really be required. Tesla is one of the best known car manufacturers and basically kicked off the electric vehicle revolution.
Their success has been due as much to marketing and fundraising as their engineering innovation. Tesla's approach has always been to make impossible plans in public and successfully follow through. This strategy has led to great success and - as we'll see, has also taken them to the brink of bankruptcy.
The bold predictions started in 2006. When Tesla was still a start-up they published a “Top Secret” plan for making electric vehicles the industry standard -
- Build a sports car
- Use that money to build an affordable car
- Use that money to build an even more affordable car
- While doing the above, also provide zero-emission electric power generation options [1]
This memorable strategy highlights their marketing ability but underplays all of the challenges that an early-stage start-up would face developing a new car from scratch, let alone a new car built around a novel power system.
Making Cars is Harder than Rocket Science
Modern automotive production is complicated. Cars have thousands of sub-components sourced through complex global supply chains. Integrators must invest in expensive and specialist equipment requiring high production volumes to ensure affordability for consumers.
As the Founder of SpaceX, Musk is well placed to know cars may be more difficult to produce than rockets. Rockets are obviously an extreme challenge in their own right but they are made slowly, in low volumes and can be checked meticulously by hand. In comparison, automotive production lines spit out a new car every minute. These vehicles need to be faultless and capable of surviving decades in all weathers and environments. Even minor failures can result in catastrophic loss of life. As a result, automotive manufacturing is traditionally the domain of large, established companies.
Rather than seeing this as a deterrent, Musk saw a bloated industry filled with stale incumbents and even staler processes - all ripe for disruption.
An Industry Ripe for Disruption
Musk has become famous for using a First Principles approach to problem-solving. First-Principals thinking refers to the methodology of boiling down a problem into its core assumptions and questioning anything that doesn’t conform to fundamental physics [2]. The assumption that cars had to run on petrol and only established players were suited to automotive manufacturing was thrown out the window. Tesla even questioned the standard way of building vehicles with its complicated network of suppliers and integrators. Instead, they decided to follow an Apple-like strategy of vertical integration. This meant designing and producing as much of the car in-house, the exact opposite of the industry orthodoxy.
The advantages they hoped to gain from this approach included -
- Improved customer experience - Controlling more of the process leads to greater control of the quality and the ability to ensure components are optimised to work together in a way that delights users
- Increased profit margins - Eating away at the activities of suppliers, or ‘barnacles’ as Musk calls them, turns their profit margins into Tesla’s
- Reduced bottlenecks - In-housing slow to source or often unavailable components like batteries allows Tesla to find solutions to supply chain issues. Tesla has taken this to the extreme by mentioning that lithium mining may one day be part of their remit.
This approach worked successfully for Step 1 of the secret plan. The earlier models - Roadster, Model S, and Model X are all luxury vehicles produced at lower volumes with the ability to use manual labour to ensure high quality was maintained. Sidestepping many of the challenges of automotive mass production.
In 2016 Tesla decided it was time to move to Step 2 and develop a more affordable, high volume car, bringing itself into the “real car company” club. They launched a wildly successful presale for its sedan style Model 3, generating 325,000 orders ($11.4 billion). To meet these orders, Tesla was promising to produce 5000 cars/week by 2018[3]. Putting this into perspective, this was a commitment to build a new and relatively untested car filled with innovative features at a rate of 1 car every 2 minutes. To complicate matters, Musk was also set on completely changing how these cars were being made - which is where automation comes in.
Tesla’s 2016 Automation Strategy
Tesla’s production strategy for the Model 3 can be broken up into two core facets -
1) The “Alien Dreadnaught”
“Our internal code name for the factory, the machine that builds the machine, is the alien dreadnought, when our factory looks like an alien dreadnought, then we know it’s probably right.”
To meet Tesla’s uncompromising production goals, Musk settled on an equally uncompromising production strategy - full automation, no ifs, ands or buts. The goal was to remove every single human operator and only stop when the facility looked like an alien spaceship. The logic was that increasing the volume and velocity of vehicle production required moving from “people speed to robot speed”. Using First Principles, Musk reasoned that if mechanisms can undertake tasks faster, more consistently and more accurately - then Tesla should aim for as much automation as possible and do so as quickly.
2) Build Hardware Like Software
Musk came up as a software entrepreneur and his approach to hardware is heavily influenced by agile software development. Silicon Valley essentially runs on the Lean Startup approach, rather than building something alone in a dark basement, the goal is to get a product into customers’ hands as quickly as possible to understand their needs through tangible experience and iterate your product to meet these needs. This is ideal for software as it’s quick and easy to update a product and redistribute it without costs or friction. Reid Hoffman, the founder of LinkedIn & Musk’s colleague at PayPal, epitomised this approach by saying -
“If you are not embarrassed by the first version of your product, you’ve launched too late”.
For Tesla, following this approach meant shortening development cycles, forgoing trial production runs and diving straight into full-scale production. That is, full-scale production of a cutting edge product at the edge of feasibility, at volumes 100X higher than they had experienced, using a new and untested production approach. Unfortunately, they don’t call it hardware for nothing... the same rules do not apply.
The Result - ‘Production Hell’
In late 2016 Musk set about converting an old GM / Toyota factory in Fremont, California, into his Alien Dreadnaught. Tesla gave the Model 3 engineers free rein to redesign the site for mass production. They invested in developing in-house robotics capabilities by acquiring two automation companies, Grohmann & Perbix.
With the vision of creating an alien spaceship firmly set, Tesla set about automating everything in sight. They purchased over 1,000 robots including 6-axis arms from Kuka and Fanuc and automated vehicles from Omron. They applied them across the process tackling relatively routine tasks such as welding or painting through to entirely novel tasks like wire harness assembly.
To illustrate how ambitious Tesla's goals were let's look at wire harness production. Wire harnesses are essentially bundles of individual wires that transmit power and data across the vehicle and there is a reason they're almost exclusively made by hand. As you can imagine, manipulating a wire is challenging for a mechanical system - they're small, thin and flexible. This is made even more challenging when you consider the wires need to be cut to different lengths, stripped, crimped and joined by various types of connectors. To make matters worse a single harness can be made from 1,000s of wires. Automating this process would be a feat of engineering if it was a company's sole focus.
By April 2018, everything was not going to plan. The company was far behind schedule, only producing an average of 2000 cars/week and haemorrhaging $100 million dollars a week. Amid mass resignations, health and safety incidents and general public ridicule, Musk dubbed the period “Production Hell”.
The robots were not panning out as hoped. They struggled to achieve the required throughputs and weren't hitting quality requirements. Small inefficiencies compounded and resulted in substantial delays. As a stop-gap, Tesla hired 100s of temporary workers to pick up the slack.
