Tesla Model 3 still caught in Musk’s ‘production hell’

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May 7, 2018

Tesla Motors missed already delayed goals of hitting 2,500 Model 3 units produced per week at its Fremont, California, plant by the end of March, and in April, the company stopped all production lines for a week to upgrade equipment.

CEO Elon Musk has complained for months that the car is stuck in “production hell,” his term for the constant troubleshooting needed to solve manufacturability issues with the vehicle. In early April, he said the company should still be able to meet its target of 5,000 Model 3s per week by the end of June, but as of late April, build rates were closer to 2,000 vehicles per week. In interviews, Musk has blamed overly aggressive automation investments for the delays.

“Excessive automation at Tesla was a mistake. To be precise, my mistake. Humans are underrated,” Musk said on Twitter.

Tesla unveiled the Model 3 in early 2016, with promises of late 2017 or early 2018 deliveries. The company’s goal was 250,000 vehicles per year in 2018 and 500,000 in 2019. The car was intended to catapult the electric car company from a niche player in the luxury world into the automotive mass market. However, goals of producing 5,000 vehicles per week (roughly 250,000 per year) went unmet in 2017. At the end of the first quarter, the factory turned out 2,020 Model 3s, but it did so with lots of overtime (a seven-day workweek instead of five).

Production problems have worried markets, with Moody’s at the end of March downgrading the automaker’s debt, effectively raising the interest rates it will have to pay if it needs to sell bonds. www.tesla.com

Tenneco, Federal-Mogul to merge, split in $5.4B deal

Two of North America’s largest Tier 1 automotive suppliers are merging and splitting apart. Tenneco, manufacturer of ride performance and air purification equipment, has agreed to buy Federal-Mogul, maker of powertrain components and aftermarket equipment, for $5.4 billion in cash, stock, and the absorption of debt.

Following the merger, Tenneco will split into two publicly traded companies – one focused on air cleaning components from Tenneco and powertrain parts from Federal-Mogul, the other focused on aftermarket parts from Federal-Mogul and Monroe shock absorbers and other ride comfort equipment from Tenneco.

The acquisition is expected to close in the second half of 2018, subject to regulatory and shareholder approvals and other customary closing conditions. The separation should occur in the second half of 2019.

Federal-Mogul is owned by Icahn Enterprises, a fund managed by activist investor Carl Icahn, who had planned to split Federal-Mogul without Tenneco’s involvement. In 2014, he released a plan to separate that company’s powertrain and aftermarket businesses. However, investors showed little appetite for the separated companies, and Icahn delayed the separation.

In early 2016, he announced that Federal-Mogul would remain united but would market its various divisions separately.

Merging Tenneco’s ride performance business with Federal-Mogul’s motorparts business will establish a $6.4 billion global aftermarket company (based on 2017 sales for each partner). The $10.7 billion (in 2017 sales) powertrain technology company will be one of the largest pure-play powertrain suppliers. www.tenneco.com; www.federalmogul.com