TESLA CARS ARE TURNING OUT TO BE DEFECTIVE NIGHTMARES

What's behind Tesla's manufacturing woes? It could be something as simple as steel.

Based on details in a Wall Street Journal report and in a video of the production line posted on Twitter by Tesla CEO Elon Musk, experts say the electric vehicle maker appears to be struggling with welding together a mostly steel vehicle, as opposed to the primarily aluminum bodies of the Model S and Model X.

The company fell short of its third-quarter production target for the Model 3 — the lower-cost vehicle intended to mark Tesla's entry into the mass market.

With an influx of competitive EVs on the horizon, Tesla must iron out its manufacturing problems in the next few months or risk losing its competitive edge before the Model 3 reaches a larger audience.

"Before, there was only Tesla. Now, there's going to be dozens of alternatives," said Ron Harbour, a manufacturing consultant at Oliver Wyman. "They're going to have to get really efficient at manufacturing. They have to be cost competitive and price competitive to stay in the business."

Sparks flying

Details in the Oct. 6 Wall Street Journal report suggest the delay may stem from Tesla's inability to get the Model 3 production line up and running. The report said the Model 3 assembly line was still being built as late as September, while employees put together cars in a separate area of the factory.

The Model 3's aluminum and steel body requires more welding rather than the adhesive and rivets in aluminum bodies, experts say.

Harbour described the difference between the body of the Model 3 and those of the Model S and Model X as "partly cloudy vs. partly sunny." The change in materials would require processes new to Tesla.

"There's a big difference there. They haven't been doing a lot of spot welding on the first two vehicles because they're all aluminum," Harbour said. "The learning curve is pretty steep."

After the Journal report, Musk tweeted a of the Model 3 production line, which was operating at one-tenth of its potential speed. In the video, sparks fly as two robotic arms assemble parts of the vehicle frame. He followed with another on Wednesday, Oct. 11, showing body panel stamping at full speed.

"Resistance welding should make a little smoke, but when you see stuff popping out like that, that's called expulsion," automotive manufacturing consultant Michael Tracy of Agile Group in Howell, Mich., said of the first video. "It's symptomatic of weld spots getting too hot because they're poorly planned, or in this case, the metal not being pulled all the way together."

Poor welds can increase the damage to a vehicle in an accident, and can lead to rattling and squeaking as the car ages, Tracy said.

'Production hell'

In its third-quarter sales report, Tesla said it built 260 Model 3s, a number "less than anticipated due to production bottlenecks." The automaker had targeted output of 1,500 cars in the third quarter, with production of 20,000 vehicles per month by December. By sometime next year, Tesla expects to build 10,000 vehicles a week.

"We are deep in production hell," Musk tweeted after announcing that the unveiling of a Tesla semitruck would be delayed to November so the company could focus on the bottlenecks.

A spokesman for Tesla issued a statement saying that the Model 3 is being built on a fully installed production line that is increasing in automation.

"As we've always acknowledged, it will take time to fine-tune the line for higher volumes, but as we have also said, there are no fundamental issues with Model 3 production or its supply chain, and we are confident in addressing the manufacturing bottleneck issues in the near-term," the statement read. "There's a reason it's called production hell."

Tracy said slowed assembly lines do little to prove production is running smoothly because lines perform differently when running at full speed.

"At this point, you would only be running it slow if you were having troubles and you were afraid the welds you were going to make weren't going to be good," Tracy said. "It has to be able to run at rate for acceptance testing."

The types of problems Tesla is dealing with are normally worked out long before the assembly line is expected to be working at capacity, Harbour said.

"This is something a plant typically goes through four to six months in advance of a production launch," Harbour said. "This raises the question: 'Is the expertise there?'"

Mark Platshon, managing director of Icebreaker Ventures, said he sees the slow production ramp-up as a sign Tesla is ensuring that everything is working before it hits the mass market.

"Given the number of new parts, the multilevel supply chain and the new automation at the factory being debugged, I am not surprised by the slow ramp," wrote Platshon, an early Tesla investor, in an email. "They are being careful to get it right before shipping a lot."

No matter the cause for the production delays, Tesla has a tight window to ramp up Model 3 production before luxury competitors such as BMW, Mercedes-Benz and Volvo Cars introduce more electric offerings.

The Model 3 is expected by many industry watchers to bring about Tesla's "iPhone moment," when a new product is shown to have revolutionary potential, as Apple's iPhone had in the mobile phone industry. But the more competitive products become available, the less revolutionary the affordable EV appears.

"The Model 3 ramp could be dragged into the second half of 2018 or even 2019, when the competitive threat will likely become more imminent," wrote Barclays analyst Brian Johnson in a note to investors. "And in the face of increased competition, the 'iPhone moment' appears less certain."

Since July, automakers have been one-upping each other on plans to electrify their lineups. Volvo said it would introduce only electrified vehicles starting in 2019. Jaguar Land Rover said it would offer electrified versions of all of its vehicles by 2020. BMW expects to be able to mass-produce EVs by 2020, offering 12 models by 2025. Mercedes said it will electrify its lineup by 2022.

Detroit also has been turning its attention to electrification. Ford Motor Co. plans to introduce 13 electrified vehicles in the next five years, including a crossover with 300 miles of range. General Motors introduced the Chevrolet Bolt last year, with at least 20 all-electric or hydrogen fuel cell vehicles coming by 2023 — two such vehicles will be introduced in the next 18 months.

Ending credits

In addition to approaching competition, Tesla is close to running out of federal tax incentives, which can shave $7,500 off the price of an EV. The credits begin to phase out once an automaker has sold 200,000 EVs. In July, Edmunds estimated Tesla had about 79,000 credits left.

If the credits run out on sales of the Model S and Model X before the Model 3 reaches full production, Tesla could lose its lower-budget buyers to growing competition, Tracy said.

Yet Tesla has succeeded in growing and maintaining a loyal customer base since its founding nearly 15 years ago — as shown by the 455,000 Model 3 deposits the company reported in August. The slow production ramp could be another bump in what has been a consistently bumpy road for the company.

"They will solve all these niggling problems," Platshon wrote. "I suspect very few of the early preorder customers care if their car is a month or three months later than hoped."