Subverting a century-old traditional craftsmanship! Musk's ambition may be the key to Tesla's return to the top

Tesla (TSLA.US) has previously stated its plans to launch a $25,000 electric car to fend off price competition from the Chinese market. However, before this, the electric car manufacturer must completely reform the 100-year-old manufacturing process pioneered by Henry Ford.

According to the Wise Finance app, the company is transitioning to what it calls the "Unboxed Assembly Process," which does not follow the traditional four processes of stamping, welding, painting, and final assembly in the automotive industry. Instead, the entire vehicle components are divided into 6 modules, each module is produced separately, and then the body is stamped and assembled, resembling the process of assembling a box. Tesla stated that this change could reduce the manufacturing footprint by over 40%, allowing the automaker to build future factories at a faster pace and lower cost.

Tesla has mentioned that if the new assembly process is successful, it could cut production costs in half. This would be crucial in producing an affordable car to stimulate demand. Recently, the slowdown in market demand has put pressure on the stock price of this electric car manufacturer. Year-to-date, Tesla's stock price has fallen by 28%, while the S&P 500 index has risen by 10% during the same period.

Lars Moravy, Vice President of Vehicle Engineering at Tesla, stated at the Investor Day in March 2023, "If we want to scale the way we want to, we have to rethink manufacturing."

The current issue lies in the fact that despite significant cost reductions by Chinese automakers and Detroit automakers refocusing on cheaper models, investors have yet to hear more details on Tesla's progress since then.

During the company's latest earnings conference call in January this year, CEO Musk has been vague, only mentioning that Tesla's progress in producing cheaper cars is "going very well," with plans to start production by the end of next year. Although he mentioned a new "revolutionary manufacturing system," claiming it to be "far more advanced than any car manufacturing system in the world," he did not elaborate further.

Musk is notorious for missing deadlines and making excessive promises, leading some on Wall Street to doubt whether he can meet the delayed timeline – he first proposed a $25,000 electric car back in 2020, let alone the cost reduction target. Furthermore, Tesla's unproven approach could lead to inefficiencies and risks. A recent analysis by Bloomberg Intelligence estimates that the new modular manufacturing process can only reduce costs by 33%, not the claimed 50% by Tesla Tesla did not respond to requests for comment.

However, in the absence of details, some industry insiders have begun to study the effectiveness of the system on their own. Mathew Vachaparampil, CEO of engineering and automotive benchmark company Caresoft, said his company's engineers spent 200,000 hours building a digital replica of Tesla's unboxing process. They found that Musk's ambition is technically feasible, and Vachaparampil said that if achieved, it would have "significant economic implications."

Ford's "Legacy"

For now, most mass-market automakers largely adhere to the basic setup Henry Ford used when producing the Model T in 1913.

However, Tesla executives say this process is inefficient. Moving a car-sized "box" around the factory takes up a lot of space. Painting the entire machine, rather than just the necessary panels, is both time-consuming and energy-wasting. Working on a bulky frame means only a few people can assemble parts in a given time.

In contrast, the unboxing process does not require a large machine frame to move around the factory. Workers are divided into teams, working on various parts of the vehicle simultaneously, then assembling them together at a single point in the final assembly.

Vachaparampil said the potential cost savings are huge. Caresoft believes that investing only in the paint shop of a new factory has reduced costs by at least 50%.

For a long time, painting has been the most expensive part of all car factories: the high temperatures required for car painting are energy-intensive and have strict emission requirements. Experts in car factories say that the output of the paint shop largely determines the total output of the factory.

A typical car body is 6 feet (1.8 meters) wide and 15 feet long. Tesla does not need to send the entire rectangular body to the paint shop, but paints the actual panels before assembling the car.

Unverified Process

Nevertheless, the unboxing process itself still carries many risks, with the main one being unverified, requiring the workshop to switch to new assembly processes, which could lead to production delays.

However, this is not the first time Tesla has made significant changes to improve its long-standing manufacturing practices.

For example, with the Model Y, Tesla no longer stamps various parts of the car, but has turned to integrated casting technology, eliminating the need for hundreds of parts and welds.

Other US automakers are also working to resist the competitive threat posed by Chinese cars. For example, Ford (F.US) is developing a compact electric car that uses cheaper batteries.

But compared to traditional automakers, Musk's company has an advantage in adapting to new, potentially cheaper manufacturing technologies. Tesla's factories are newer than most, some have not even started construction, so it can more easily and affordably adjust its facilities to adopt cutting-edge manufacturing methods However, this does not mean that this matter is very simple. Tesla has warned investors that as the demand for the Model 3 and Y - both of which have been on the market for several years - peaks, the company is in between "two major growth waves." Tesla delivered 1.8 million vehicles last year, but the goal is to deliver 20 million vehicles by 2030. To achieve this, the company needs a more affordable new car