Last week, Tesla founder and CEO Elon Musk penned a blog posting that essentially updated the master plan for the company that called for a broader product development thrust into hybrid trucks and buses. This places a far broader emphasis on the firm’s supply chain ramp-up challenges, one with the implication that Tesla will, by our view, have to seriously consider adding to existing final assembly production capacity beyond its current Fremont California facility.
The commentary itself not only provides an argument for why the electric car company must merge with SolarCity, but a further expansion of the master plan that includes:
- Create stunning solar roofs with seamlessly integrated battery storage
- Expand the electric vehicle product line to address all major segments
- Develop a self-driving capability that is 10X safer than manual via massive fleet learning
- Enable your car to make money for you when you aren’t using it
New product offerings were described as a new form of pick-up truck, and beyond the consumer vehicles market, an innovative heavy-duty trucks and high passenger density urban transport vehicle. Regarding the latter, Musk envisions a smaller footprint of urban busses with a transition from the role of individual bus driver to one of fleet manager. Both are noted as in the early stages of development at Tesla and should be available for unveiling next year, and will follow the availability of the more affordable Model 3 currently due in 2017.
Supply Chain Matters previously highlighted efforts of truck maker Nicola Motor Company in developing a Class 8, 2000 horsepower electric powered semi-tractor truck that will be named the Nicola One. This manufacturer has to-date booked 7000 reservations, each accompanied by a $1500 deposit, totaling more than $2.3 billion in cash to secure a reservation for this new vehicle, hence the sense of urgency for Tesla to enter such a market.
To state that the latest master plan is audacious or ambitious is an understatement. It places a far more concentrated focus on whether product development and the supply chain can rise to the challenge in such a short timeframe.
As noted, our last Supply Chain Matters commentary on Tesla concluded that the company remains challenged by supply chain ramp-up issues as it strives to meet aggressive short and long-term production and supply chain needs of existing announced vehicles. Musk has literally accelerated by two years, his goal to have the California final assembly facility output 500,000 vehicles per year. In his latest blog post, Musk once again re-iterated that this will be addressed as a function of engineering:
“What really matters to accelerate a sustainable future is being able to scale up production volume as quickly as possible. That is why Tesla engineering has transitioned to focus heavily on designing the machine that makes the machine — turning the factory itself into a product.”
The adding of commercial vehicles with more innovative hardware and software designs implies no choice but to accelerate capacity, strategic commodity and supply chain wide resources. Just today, The Wall Street Journal reports (Paid subscription required) that Tesla’s new $5 billion “gigafactory” near Sparks Nevada to produce the combined company’s battery component needs is currently one-sixth of its planned future footprint. Currently, 1000 construction workers are working two shifts per day, seven days per week to prepare for 2017 needs in the output of lithium-ion cells. Primary battery supplier Panasonic admits to the current challenges of finding qualified production workers, and with the addition of even more models of transport vehicles, the scale of the battery plant’s capability become crucial. But so does final assembly and distribution as well, in an area that is noted for rather expensive real estate and distribution space.
Thus, any experienced or even entry level supply chain and manufacturing professionals that enjoy an environment of fast-paced innovation and creativity in business process and physical supply chain processes best route your resumes to Tesla. We anticipate a razor-like focus that harnesses the fusion of engineering, product development and supply chain management into a kaleidoscope of expansion that will test current norms and thinking.
This blog commentary is a side note to our prior Supply Chain Matters published commentary related to first-half delivery performance for both Airbus and Boeing reflecting continued supply chain challenges.
A secondary competing competitor in the single aisle commercial aircraft program category has been Bombardier’s C-Series aircraft which has been challenged by extended financial, program and supply chain setbacks. A major milestone has finally occurred with the recent announcement that the first CS100 entered operational service at Swiss International Airlines.
The maiden commercial flight of the CS100 was a Zurich to Paris flight. During the first-half of 2016, Bombardier secured firm orders for 127 C Series aircraft. Transport Canada has further awarded type certification to the larger CS300 model aircraft and the delivery of this model to airBaltic is currently scheduled for Q4.
What caught our attention was a Business Insider blog posting titled: Airbus and Boeing’s greatest threat just arrived. That posting observes:
“Over the next few years, several manufacturers from around the world will launch aircraft aimed to compete with Airbus and Boeing. But Bombardier is the first to enter service and the only one that will compete head-to-head within one of their most important market segments.. Not since the demise of McDonnell Douglas and its MD-80 and MD-90 in the late ’90s has there been a third major player to challenge the Airbus-Boeing duopoly.”
“What Bombardier has going for it is the fact that the C-Series is widely viewed as a great plane — receiving critical acclaim for its fuel efficiency, range, and advanced technology.”
If readers have been following our stream of Supply Chain Matters commentaries related to the C-Series program for the past few years, you would have discerned another important advantage from a supply chain perspective. To provide readers just two examples, you can view our original commentary published in 2010 and a subsequent 2013 commentary posing the question: can a disruptor compete with giants. If the program had not encountered such setbacks from its original goal to enter the market in 2013, it would have entered operational service much earlier and provided evidence to major airline carriers that it could be a viable alternative to current extended delivery schedules for single aisle aircraft. Now, Bombardier will likely have to deal with the industry-wide supply chain constraints that exist, including availability of the newly designed Pratt & Whitney PurePower® PW1500G engine.
One could classify this as opportunity lost, but then again, only time will tell the ultimate determinant.
For airline and leasing customers, it is indeed good to have choices and options for new commercial aircraft. Both Airbus and Boeing sales teams have been rather aggressive in insuring that airline customers would not consider such an alternative option. But now, when the industry as a whole is constrained, than the most innovative program and supply chain management processes and consequent decision-making can well become the ultimate differentiator as to what airline customer elect to do in their buying choices.
We welcome additional reader viewpoints as well.
© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved
First-Half 2016 Delivery Performance for Airbus and Boeing Reflect Continued Supply Chain Challenges
As the commercial aircraft industry moves into the second-half of 2016, it is time for our usual Supply Chain Matters six month industry review of performance. Reflecting on delivery performance thus far, there are continued signs of industry supply chain supply challenges.
Let’s begin with Airbus which reported the booking of a total of 227 confirmed orders in the first six months of the year. That number may be somewhat understated since at the industry’s recently completed Farnborough Air Show, Airbus achieved bragging rights for announcing orders and commitments for 279 commercial aircraft, more than half originating from a single airline customer, that being AirAsia who ordered 100 A320neos.
Airbus recorded the delivery of a total of 298 aircraft in the first-half, which consisted of the following:
- 160- Single aisle aircraft (Variants of A319, A320, A321)
- 38- A330’s
- 27- A350’s
- 2- A380’s
In the above, tell –tale signs of supply disruption are reflected in two key aircraft. There were only 8 completed deliveries of the brand new A320neo, no doubt reflecting the ongoing catch-up in delivery of the brand new Pratt & Whitney geared turbofan engines. Airbus had delivered just 5 A320neos in Q1 meaning that just 3 were delivered in Q2. As noted in our prior commentary, nearly a dozen of completed A320neos have been reported as lined-up on factory adjacent runways and parking areas awaiting Pratt to deliver completed engines. The exiting delay is associated with fixing the engine’s cooling design through a combination of software and component modifications. Pratt engine deliveries were not expected to catch-up until after June and there are continued reports that Pratt’s supply chain remains strained. The other new engine offering, the new LEAP model from CFM International is expected to be available in the second-half of this year as-well. With a stated target to have a production level of 50 A320neo’s per month by 2017, there is a lot more planning and execution remaining.
A further problematic area acknowledged by Airbus has been supply and bottleneck challenges associated with newest model A350 production, and first-half completion of 27 reflects that ongoing challenge. Supply challenges have been noted as interior seating and structures and Airbus senior management has expressed public frustration regarding ongoing supply glitches.
Turning to Boeing, the aircraft producer reported the booking of a total of 321 orders in the first-half. At the completion of the Farnborough event in July, Boeing was able to announce orders and commitments for 182 aircraft but just 20 actual new firm orders.
Boeing further recorded the delivery of a total of 298 aircraft reflecting its previously announced scaled-down expectations for delivery cadence this year. The breakdown was:
- 3- 747’s
- 5- 767’s
- 51- 777’s
- 68- 787 Dreamliners
In the above, a challenged area remains completed deliveries of Dreamliners although the cadence has improved slightly beyond 10 per month. There is still a long way to go in ramp-up and lots of internal pressures remain since the program remains cash negative until delivery performance dramatically improves. Both Boeing’s Seattle and South Carolina assembly facilities are now producing completed Dreamliners.
With current order backlogs of nearly ten years for Airbus and over seven years for Boeing at current production cadence levels, both manufacturers have been concentrating on increased production automation and longer-term strategic supplier agreements. In June, key suppliers urged both manufacturers to move cautiously on demand noting that there are definitive restrictions on the ability to ramp-up the industry supply chain to expected volume output cadence. Another growing concern is the ability of aircraft engine producers to be able to support higher output volumes given the increased technical sophistication of the new generation engines. Pratt alone is in the midst of managing five different new engine models and with both commercial aircraft dominant manufacturers continuing to book further orders and explore newer model introduction, the pressure builds.
Again, only time will prescribe the course of events in an industry that is clearly reflecting supply chain distress.
© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved
Reports that U.S. Volkswagen Dealers are Growing Restless Regarding the Ongoing Diesel Emissions Scandal Fixes
The ongoing brand crisis involving Volkswagen and specifically its customers and dealers over the diesel engine emissions alteration admission continues to take on new dimensions.
Last week, The Wall Street Journal reported that VW dealers across the U.S. are fuming regarding the receipt of specific guidance regarding the estimated 12,000 diesel powered autos that they are not allowed to sell. These unsold and currently prohibited stop-sale vehicles have been sitting in lots for over 10 months while VW and U.S. regulators traverse a legal process for determining next steps. According to this report, U.S. VW dealers are now sitting on approximately 107 days of finished goods inventory of which 12 percent represent currently non-saleable models.
Not wanting unsellable inventory to be clearly visible, many dealers have reverted to moving stop-sale inventory onto adjacent or off-site storage lots. While VW is currently compensating dealers for additional financing and needs for periodic servicing of this large amount of unsold and un-positioned inventory, dealers are not apparently making up the difference in new sales volume because of a lack of new saleable inventory. The long awaited family-sized sport-utility vehicle is not expected to be introduced in the U.S. until early 2017 while anew Alltrack small station wagon is due to be introduced in the next several months adding to dealer frustrations for more models to sell. Plans are very unclear as to whether the new family-sized SUV model will be offered with any diesel powered options as previously planned.
Last week, California regulators rejected a proposed VW fix for cars with the larger 3.0 liter diesel power plant. VW executives indicate that they have a fix related to the 2.0 liter diesel engines but regulators also need to approve this process as well.
In its report, the WSJ quotes one specific VW dealer executive as indicating that the scandal, compounded by the current glut of unsaleable inventory has soured his view of VW senior management. This executive further indicates that VW should take the unsold diesel vehicles back to Germany or some other location in the world where they can comply with emission standards.
On Friday, VW U.S. executives met with 150 Northeast U.S. dealers to review what was termed as a TDI Settlement Program, and pledged additional compensation to dealers. While the details of such restitution still are not known it was the first time that VW indicated that the dealers themselves will receive direct compensation.
A detailed timeline was reportedly outlined regarding the proposed buyback and repair program across the U.S., one that is expected to extend through the end of 2018. According to a subsequent report from the WSJ, a software fix would be made available for third-generation diesels by October, followed by a combination hardware and software fix for first-generation diesels beginning in January 2017, and a software update for second-generation diesel powered vehicles in February 2017. VW further indicated that it expects to have a hardware fix ready for third-generation diesels by October 2017.
This overall timeline, if approved by U.S. regulators will affect the nearly 500,000 existing diesel powered vehicles now on U.S. roads in addition to the unsold inventory of 12,000 vehicles. Thus, it is more than likely that U.S. VW dealer service teams will be very, very busy over the coming months and years. However, VW continues to decline media outlets regarding any specifics related to overall time lines or specific restitution for its dealers. The WSJ report also indicates that for consumers electing to sell their vehicles back to VW, a “third-party settlement specialist” would be inserted to act as an intermediary and direct communicator with dealers.
There is little doubt that U.S. VW dealers face a service management crisis, one that will tax both aftermarket and pre-sales service business segments.
As noted in previous commentaries, VW continues to experience painful lessons regarding its ongoing emissions scandal. A company noted for a somewhat tops-down management style and an engineering-driven culture and among one of the two top global producers will learn some tough lessons as a result of this scandal. The most important when all the dust settles, will be more sensitivity to customer, market and dealer network needs along with implications of being afoul to governmental emission standards.
Once again, all of these challenges in the months to come demand that VW executives move decision-making beyond the halls of Wolfsburg with more emphasis on major geographic based leadership such as VW U.S. The supply chain implications alone place a major emphasis on service management and responsiveness or risk even more erosion to the brand and to customer loyalty. VW needs to think more boldly and more creatively to address fixing the current challenges with non-conforming diesel powered vehicles including the need for augmented resources.
© Copyright 2016 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All Rights Reserved.
Tesla Motors Reports Q2 Production and Operational Results- The Critical Ramp-up of the Supply Chain
Tesla Motors remains challenged by supply chain ramp-up issues as it strives to meet aggressive short and long-term production and supply chain needs.
On Sunday, Tesla announced that the electric auto maker had produced 18,345 vehicles during Q2, a volume increase of 20 percent from Q1. However, in classic “hockey stick” fashion, 5150 completed vehicles were still in-transit to customers at the end of Q2 because production completion was skewed toward the latter part of the quarter. That in-transit number represented double the number reported in Q1 (2615 in-transit), a reflection of Tesla’s unique challenge of supporting a direct to consumer distribution model that adds direct to customer delivery acknowledgement to actual revenue recognition.
The auto maker acknowledged that almost half of the quarter’s Q2 final production occurred in the final four weeks of the quarter which is an obvious sign of component supply and other production challenges. The goal set by Tesla management in Q1 was to produce 20,000 total vehicles in Q2.
Tesla reaffirmed that it is on-track to deliver 80,000 – 90,000 new vehicles in 2016 which implies that production volumes in Q2 and Q3 must continue to ramp-up to deliver 50,000 total vehicles. To that end, Tesla indicated that it excited Q2 at a production rate of 2000 vehicles per week, with milestones of 2200 vehicles per week in Q3 and 2400 per week by Q4. Thus there is little tolerance for any future supply chain disruptions.
As noted in previous Supply Chain Matters commentaries and in the company’s statements to shareholders and customers, Tesla has elected to accelerate plans to ramp annual production volumes to 500,000 vehicles annually by 2018, two years earlier than previously planned. At the recent annual meeting of shareholders, Founder and CEO Elon Musk indicated that Tesla will “completely re-think the factory process.” Musk repeatedly raised the notions of “physics-first principles” and made the point that his team now realizes that where the greatest potential lies is in designing and building the factory. To that end, he disclosed that he now no longer has a Tesla office, instead spending the bulk of his time residing on the production floor and observing. He has challenged Tesla engineering teams to the principles of “you build the machines that build the machine.” In other words, the context is in thinking that the factory is the product, and that you design a factory with similar principles as in designing an advanced computer with many interlinking operating needs.
Further acknowledged was that the Model X design was overcomplicated, perhaps too much to accommodate production volume needs. Going forward with the development of the new Model 3, he indicated that a tighter integration loop among product design and manufacturing would be fostered.
Going forward, Tesla has to have a laser focus on supply chain and production execution. Invariably, the company will become distracted by other needs requiring management attention such as product issues or the ongoing autonomous auto-pilot software caused accident that has caught the attention of U.S. regulators.
Traditional auto manufacturers attain a supply chain ramp-up focus via a permeating culture of just-in-time continuous production and total elimination of production waste. Culturally, that can be a tall order for most innovative high technology companies whose emphasis is on innovative and breakthrough product design while leaving the production details to contract manufacturers.
Tesla however continues to push the envelope of traditional thinking. Over the coming months and years, we all get to observe the results.
© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters© blog. All rights reserved.