A problem with the Tesla Roadster’s body panels led Musk, Walter Isaacson explains (in his biography of Elon), to ask Tim Watkins to sort out the entire system:
What he found was a nightmare. The process began in Japan, where the cells for the lithium-ion batteries were made. Seventy of these cells were glued together to form bricks, which were then shipped to a makeshift factory in the jungles of Thailand that once made barbecue grills. There they were assembled into a battery pack with a web of tubes as a cooling mechanism. These could not be flown by airplane, so they were shipped by boat to England and driven to the Lotus factory, where they were assembled into the Roadster chassis. The body panels came from the new supplier in France. The bodies with batteries would then be shipped across the Atlantic and through the Panama Canal to the Tesla assembly facility near Palo Alto. There a team was in charge of the final assembly, including the AC Propulsion motor and drivetrain. By the time the battery cells made their way into a customer’s car, they had traveled around the world.
This presented not just a logistics nightmare but also a cash-flow problem. Each cell at the beginning of the journey cost $1.50. With labor, a full battery pack of nine thousand cells cost $15,000. Tesla had to pay for them up front, but it would be nine months before those packs made it around the world and could be sold in a car to consumers. Other parts going into the long supply process likewise burned cash. Outsourcing may save money, but it can hurt cash flow.
Compounding the problem was that the design of the car, partly because of Musk’s fiddling, had gotten too complex. “It was just a flat-out burning dumpster fire of stupidity,” Musk later admitted. The chassis had become 40 percent heavier and it had to be redesigned to fit the battery pack, which invalidated the crash testing Lotus had done. “In retrospect it would have been much smarter to start with a clean-sheet design and not try to modify the Lotus Elise,” he says. As for the drivetrain, almost none of the AC Propulsion technology turned out to be viable for a production car. “We screwed the pooch six ways to Sunday,” Musk says.
When Watkins got to Tesla’s California headquarters to sort through this mess with Eberhard, he was shocked to discover that there was no bill of materials for the production of the Roadster. In other words, there was no comprehensive record of every part that went into the car and how much Tesla was paying for each. Eberhard explained that he was trying to move to an SAP system to manage such information, but he didn’t have a chief financial officer to organize the transition. “You can’t manufacture a product without a bill of materials,” Watkins told him. “There are tens of thousands of components on a vehicle, and you are getting pecked to death by ducks.”
When Watkins pieced together the true costs, he realized that things were worse than even the most pessimistic projections. The initial Roadsters off the assembly line would cost, including overhead, at least $140,000, and it would not fall much below $120,000 even after production increased. Even if they sold the car for $100,000, they would be hemorrhaging money.
I suppose many readers of this site have some experience with either military or civilian logistics. A typical civilian experience of the past fifty years has been the profit-mad company that slashes its safety inventory to the bone because products held in inventory represent both a cash investment plus a holding cost. Then the civilian company goes into crisis because it does not hold enough safety stock and it is not nearly clever enough to do just-in-time like Toyota can do.
This lithium-ion battery nightmare in the main post is another example of profit-mad managers following stupid trends and wrecking manufacturing, and then the cherry on top is that the managers don’t have any appreciation for the beauty of delivering a working product, or the shame of delivering a non-working product. The managers only care about whether the money adds up. The physical realities of pollution, strained transport capacity, and shoddy products are invisible to them.
I don’t know whether to laugh or cry. The insane wastefulness of financialized capitalism literally kills people in multiple ways, some unavoidably, but most avoidably. I used to try to reason with company officers and factory managers, but I seldom got even an iota of reason into the conversations.
A typical scenario of financialized logistics is as follows: Lithium-battery cars are really an experimental project. They are being transported on heavily over-optimized container ships that have been over-optimized in the mad pursuit of short-term profits. And then a single bad wave gets a little bit of water into the lithium and the entire stock catches on fire.
Gratuitous globalization is stupid. Autarky is safer and more efficient.
Harry Jones,
Amen.
Alexander Hamilton and Friederich List are further validated each day that passes, not merely by the historical success of their models, which is undeniable, but by the increasingly obvious failure of the Globalized version of Manchester Liberalism that replaced it.
Laissez-Faire Capitalism, like Communism, simply isn’t built for the real world.