The manufacturing analysts who spent 6,600 hours inside a warehouse north of Detroit picking apart a Model 3 have good news and bad news for Tesla Inc. The company now boasts the best technology of any electric car, with potential profit margins that would be the envy of most automakers. But Tesla is squandering that edge with wasted expenses linked to poor design and bloated manufacturing.
Sandy Munro, the founder of Munro & Associates, a small firm that disassembles new cars piece by piece, concluded that the Model 3 costs about $2,000 more to produce than a similarly-priced BMW i3 and may have additional cost problems in its assembly plant. Some compact cars and family sedans produced by conventional automakers don’t make $2,000 in total profit per vehicle.
Many of the problems stem from unconventional choices made by Tesla Chief Executive Officer Elon Musk. “If that car was made anywhere else, and Elon wasn’t part of the manufacturing process, they would make a lot of money,” Munro said in an interview. “They’re just learning all the old mistakes everyone else made years ago.” Munro said he admires Tesla’s technology, so he sent the company a pro bono list of 227 suggested improvements.
Take the steel and aluminum frame at the bottom of the car, a design meant to increase safety. Tesla's battery already sits in the floor and adds stiffness, Munro said, so Tesla made the car heavier and more expensive without getting much benefit.
The aluminum trunk well, meanwhile, is made from multiple pieces held together with rivets and weld points instead of one lighter, cheaper fiberglass trunk preferred by other carmakers. The rear wheel well on the Model 3 also features nine pieces of metal riveted, sealed or welded together. The Chevy Bolt? It has one stamped piece of steel.
“This body is their single biggest problem,” Munro said. “It’s killing them.”
Tesla declined comment, although the company did cite a statement from April saying that Model 3 line has gotten better since Munro’s cars were built. “We have significantly refined our production processes since then, and while there’s always room for improvement, our data already shows that Model 3 quality is rapidly getting better.”
Munro’s team sees the fully-loaded Model 3 as a car with the potential to make 30 percent gross margins, with 10 percent margins on the cheapest versions. Falling short of that potential risks undermining Musk's efforts to generate profit and cash, which he is targeting for the second half of this year following an operating loss of $1.2 billion in the first half.
Munro takes apart cars on behalf of his clients, looking for strengths and weaknesses in their designs. Before breaking down Tesla’s cheapest sedan, he tore up a Chevy Bolt and the BMW i3 to get a detailed sense of how other electric vehicles are made. In his shop outside of Detroit, there’s a disassembled BMW 328i and broken apart models from Honda Motor Co. and Fiat Chrysler Automobiles NV. Doors, body panels, valves, wiring harnesses and circuit boards hang on peg boards throughout the warehouse.
Munro’s team has taken apart about 400 different vehicles from almost every carmaker. The firm has also done work for aerospace giant Boeing Inc. and defense contractor Raytheon Co., among others.