Why Applying Silicon Valley Culture To Making Teslas Hasn't Worked. Yet.

What works in software development may not work in auto manufacturing - and vice versa.

The point is not that one is better or worse - or right vs wrong. It's that leaders have to determine what works best to produce the product or service for which they are responsible.

Success requires pragmatic adaptation in tech and traditional industries. While experimentation and iterative processes may not be the optimal approach in the short term, in an era dominated by the emergence of artificial intelligence, generating the data to help machines learn may provide competitive advantage in the long term. The challenge Elon Musk faces is whether those financing his innovations will patient enough for the lessons to be productively learned. JL


Timothy Lee reports in ars technica:

Car designs are worked out years in advance, and companies do extensive testing—both of car prototypes and of manufacturing equipment—before launching a new car. This runs counter to the ethos of Silicon Valley. Because software is so easy to modify and distribute to customers, the software industry tends to value creativity and rapid iteration. It's clear that Tesla's pace of experimentation is not the most efficient way to produce cars in the short run. However, it might be the best way to learn the lessons Tesla needs to produce efficiently in the long run.
Building cars at scale is one of the most complex and capital-intensive manufacturing tasks in the world. To cope with these challenges, carmakers tend to have a highly regimented process for designing and building cars.
Car designs are worked out years in advance, and companies do extensive testing—both of car prototypes and of manufacturing equipment—before launching the main assembly line for a new car model. Employees are expected to scrupulously follow policies and procedures to avoid disrupting the plans of their colleagues.
This runs directly counter to the ethos of Silicon Valley. Because software is so easy to modify and distribute to customers, the software industry tends to value creativity and rapid iteration. Musk, who earned his early millions in the software industry, naturally tried to bring this same agile approach to the car business.
"Everything about Tesla is supposed to be fast, the car, the development process, the launch process," said John Shook, an auto industry veteran who got his start at NUMMI, in a recent podcast. Shook summarized Tesla's approach as "let's start to build the thing before we've actually finished designing it. Because what we're building even for cash-paying customers is actually betas."
"The idea is we can go fast by leaving out steps, and we'll just iterate our way to something really good. But what we can see is that actually creates a lot of problems."
This kind of rapid iteration works well in the software industry because a programmer can change one line of code and then re-build the entire project with the click of a button. But physical manufacturing isn't like that. Car design decisions have to be translated into physical tooling that takes months to build and fine-tune.
And rapid iteration is a nightmare for suppliers, Shook added.
"I talked to a supplier and asked 'who's your worst customer'" Shook said. "The answer was Tesla. How can you be a good supplier when you don't know when you're supposed to deliver?"
"I was giving a talk at a tooling group," said David Cole, an analyst at the Center for Automotive Research. Veteran toolmakers there told Cole that most automakers do prototype tooling when they're designing a vehicle. "They make some vehicles so they can test them and find out if the tooling is good. They said that that was standard procedure at every auto company except for Tesla."
At Tesla, he said, "they take their prototype into production."
"I think what we're seeing is a lack of basic manufacturing experience," Cole added.

Don't count Tesla out yet

Enlarge / Tesla's Model X SUV.

Of course, the obvious response to this is that if Musk had listened to the experts, he probably wouldn't have started Tesla in the first place. Conventional wisdom in the mid-2000s was not very bullish about the prospects for battery electric cars. And there was widespread skepticism that it was even possible to start a new, independent automaker. After all, no American company had managed to break into the car business in many decades.
Musk ignored the conventional wisdom, and he has gotten much further than anyone expected. He has sold hundreds of thousands of cars and has hundreds of thousands more people eager to buy the Model 3 as soon as it's available. Moreover, Tesla has had a huge influence on the broader car industry, forcing every major carmaker to take battery electric vehicles seriously.
It's clearly true that Tesla's frenetic pace of experimentation is not the most efficient way to produce cars in the short run. However, it might be the best way to learn the lessons Tesla needs to learn to produce cars more efficiently in the long run. Tesla hasn't produced very many Model 3 cars over the last nine months, but Musk and his team have learned a lot about how to produce cars efficiently—lessons they'll be able to carry with them in future manufacturing projects.
Musk likely could have spared himself a lot of short-term headaches if he had relied more heavily on auto industry veterans to warn him against repeating mistakes made by other car companies in previous decades. But if he had done that, he would also be less likely to discover ways to optimize the manufacturing process—particularly optimizations that work particularly well for a company specializing entirely in electric vehicles.
The big question, however, is whether Musk will be able to apply the lessons of the last nine months in a disciplined way in the future. Whatever the value of experimentation in the early months of Model 3 production, Tesla is going to have to run its manufacturing efforts more like a conventional automaker in the long run if it wants to produce cars with competitive prices and quality. That won't be easy.
At the same time, Tesla has unique strengths. It has unrivaled expertise in batteries and software. It has an intensely loyal fan base. And it has Musk himself, one of the world's most talented marketers. All of which means that—like Apple—Tesla may be insulated from the intense margin pressures most other carmakers face. A lot of people may be willing to pay a premium to say they drive a Tesla, which means that the company may be able to turn a profit even if its manufacturing process isn't quite as efficient as its more established rivals.