May 25, 2018

Tesla Parts Spotted Piled Outside San Jose Machine Shop

Author : David Z. Morris / Publisher: FORTUNE

A large number of parts intended for the Tesla Model 3, along with parts for the Model S and Model X, have been spotted outside a machine shop in San Jose. Such third parties are sometimes used to fix flawed parts after manufacturing, and previous reports suggest Tesla has struggled with an unusually high rate of flaws in parts coming from suppliers and its own production line.

The parts were spotted by CNBC outside a shop called JL Precision, not far from Tesla's Fremont factory. They included door frames and a variety of other components shipped from suppliers in China and Ohio. Unnamed sources within Tesla told CNBC the shop was used to rework designs or correct flaws in components.

But Tesla spokespersons have strongly denied those claims, insisting that JL Precision does not rework flawed parts, and only applies coatings that are a normal part of production.

Outsourcing the fixing of flawed parts is common practice in the auto industry, according to a former GM plant manager who spoke to CNBC. But Tesla appears to be dealing with a higher than average ratio of problems, with one engineer there estimating that as many as 40 percent of parts manufactured by Tesla or its suppliers required fixes.

Multiple current and former Tesla employees told CNBC that Tesla spent less time vetting suppliers than is standard in the auto industry, and that some of those responsible for the screening were not experienced with ISO standards and other quality assurance methods normally used in that process. Tesla has disputed those statements as well, insisting they have a rigorous supplier screening process. Tesla has also said that parts fixes aren't adding to delays in Model 3 production.

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The disputed claims of supplier problems add a wrinkle to an evolving picture of Tesla's manufacturing issues. The company has continued to fall far short of production targets, particularly for the new Model 3 sedan. When Model 3 production officially began in July of 2017, Tesla predicted it would be producing 20,000 vehicles per month by December of that year.

But that target has been revised downard repeatedly, and in the entire first quarter of 2018, Tesla produced only about 10,000 Model 3s.

Tesla CEO Elon Musk recently admitted that part of the problem was his over-commitment to automating the production process. But the claims of supplier issues, along with reports last year of battery pack production shortfalls, suggest a more complex array of challenges may be facing the carmaker.

Tesla stock had declined in recent weeks on production worries, but rallied Friday after Musk claimed the company would be profitable by the second half of 2018.

Update 4/14/18: This report has been updated with further statements from Tesla.

This article was written by David Z. Morris from FORTUNE and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.