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Wednesday, 9 August 2017

Finance: Tesla's pro-union workers say Model 3 'production hell' could lead to injuries and delays (TSLA)

Tesla CEO Elon Musk.

Tesla workers calling for a union said issues with the Model 3 assembly line could cause the same delays and defects that occurred when the Model X launched.

  • Tesla CEO Elon Musk has said the company will enter "production hell" to deliver its first mass-market car, the Model 3.
  • Some workers at Tesla's Fremont factory have been calling for a union since February.
  • The pro-union workers said they are worried about factory safety after Tesla skipped the "soft-tooling" process that helps work out kinks in production.
  • The workers are putting pressure on Tesla's board and management to meet their demands before Model 3 production ramps up.

As Tesla prepares to ramp up production for the Model 3, factory workers are using the occasion to put pressure on management to meet the demands of a union effort.

Tesla made company history in July when it delivered the first 30 Model 3 sedans, marking the start of production for its first mass-market vehicle.

But the real production frenzy won't start until the fall, when Tesla will begin ramping up Model 3 production from 1,500 sedans a month in September to 20,000 Model 3 cars a month in December.

Some of the Fremont, California, factory workers calling for a union told Business Insider there were two big issues with Model 3 production.

One is that Tesla skipped a standard trial of the new equipment for Model 3's assembly line. Unseen issues with new equipment could cause on-site injuries, the pro-union workers say, which has been an issue for Tesla in the past.

The second issue is, even if the assembly line runs smoothly, Tesla is still contending with its biggest order to date. Some workers said they worry Tesla will employ excessive mandatory overtime to meet the deadline, which also contributed to above-average workplace injuries at the Fremont plant.

Tesla has made some changes to improve factory conditions since the unionization effort started in February, the workers said, but they added that more changes were necessary to ensure that production runs without significant delays and doesn't ultimately hurt factory workers.

A risky strategy

For the unionization effort, the Model 3 launch is an ideal opportunity to turn up the pressure on Tesla. The company has nearly a year's worth of orders to fill, and investors' expectations for a successful ramp up are high.

Members of Tesla's production team who are part of the unionization effort said the Fremont plant may not be ready to handle the fast-paced production Tesla needs to fill the roughly 455,000 preorders it secured for the Model 3.

Tesla shut down its Fremont factory for a week in February to install brand-new equipment for the Model 3 assembly line.

But Tesla may have employed a risky strategy by skipping the production prototyping stage of the new equipment.

The prototyping stage is when automakers test less-expensive versions of equipment that will be used to launch a vehicle line. This phase is referred to as "soft tooling" and allows automakers to work out issues with the disposable equipment that could hurt the cars' overall quality before production kicks into high gear.

It would also give workers a chance to provide feedback on ways the equipment could be improved. Once the issues from soft tooling are addressed, automakers usually order the final set of equipment to proceed with mass production.

Tesla skipped the soft-tooling phase and instead used computer simulations to design and order the final production tools.

The Tesla workers said they fear it will be difficult to work out growing pains with the new equipment while contending with a rapid production ramp up based on past experiences.

"I have my doubts with that because, just like anything new, there are always going to be adjustments that need to be made and you can’t guarantee a flawless, injury-free line right off the launch," Michael Catura, a Tesla battery production associate, said in an interview. "You’re going to have to deal with all the bugs, all the kinks."

Catura said he has worked at Tesla's Fremont plant for three years. He is part of the union effort supported by the United Automobile Workers.

In May, Tesla said an ergonomics team worked with engineers and used the computer simulations to design the equipment and ensure it wouldn't cause unnecessary strain for factory workers.

Jonathan Galescu, a pro-union production technician at Tesla, said he is skeptical that approach is enough to ensure workers won't get injured on the job.

"You’ve got engineers sitting in an office who have never broken a sweat sitting there on a computer, designing something that they can’t relate with," he said.

"When we try to get it changed they’ve already spent thousands and thousands of dollars on that one piece of equipment, they don’t want to change it for us," Galescu added.

Galescu has worked at Tesla for three years and said he currently helps with Model X production.

Injury rates at Tesla’s Fremont factory were higher than the industry average in 2014 and 2015, according to a May report by Worksafe, a California worker-advocacy group.

Tesla has not disputed that its incident rate was above the industry average between 2013 and 2016, but the company has said injury rates have fallen between the first quarter of 2016 and first quarter of 2017 since making ergonomic changes to its Model S and Model X assembly lines.

Galescu added that problems with new equipment make production less efficient.

The soft-tooling process can take between five months and eight months, said Michelle Hill, a vice president in the automotive and manufacturing industries division of Oliver Wyman, a consulting firm. Skipping the process allows Tesla to cut costs and begin manufacturing earlier, she said in an interview.

Major automakers are starting to rely on computer simulation to cut down time spent on soft tooling, but it's atypical to forego the tests completely, Hill said. Audi is experimenting with the concept at its plant in Mexico.

It's unlikely Tesla will avoid production issues after skipping the soft-tooling phase because it's difficult to predict every scenario with computer simulations, Hill said.

"You have to for sure know there will be a number of different engineering changes as they go through that production process," she said. "They’re going to run into problems and it will delay reaching the ramp up curve that they are expecting of 5,000 or 10,000 units a week by December."

Still, Tesla took the soft-tooling approach for past vehicle launches and suffered through setbacks. An unnamed source told Reuters that the approach caused a host of complications for the Model X, which was delayed three years and went through a voluntary recall.

It was also around that time when injury rates at Fremont were at their highest.

When asked about the workers' Model 3 production concerns, a Tesla spokesperson referred us to the company's previous statements about the vehicle's simple design.

The sedan doesn't have complex features like self-presenting door handles or falcon wing doors, which made prior production launches difficult.

"These reduce the risk substantially in the ramp and make it just easier to scale," Musk said during last year's fourth-quarter earnings call. "So I think it is going to be a very compelling car, but it's a simpler design and we also understand manufacturing a lot better than we did in the past."

'Cracking a whip'

Even if the assembly line runs without a hitch, Fremont workers said they were concerned work conditions would worsen as Tesla struggles to ramp up production to meet the high demand for the Model 3.

Tesla CEO Elon Musk has been open about the company's production challenges. In July, Musk said the Fremont factory would enter six months of "production hell" for the Model 3.

Musk has used the "production hell" terminology before to describe building the Model S and Model X.

"Back then, it literally was like they’re cracking a whip on you," Catura said of Model X production. "They put [the assembly line] on so fast, like, ‘OK, go — mush, mush, hurry up.'"

Jose Moran, a production associate at Tesla’s Fremont factory, kicked off the union effort in February with a Medium post detailing difficult work conditions at the flagship plant. Moran said Fremont employees experienced work-related injuries regularly because of poor equipment and excessive mandatory overtime.

The Guardian published a bombshell report in May detailing how long hours and intense pressure have created grueling work conditions where people pass out in the middle of the factory.

"The pressure to build is going to be very, very high," Galescu said. "I just hope they keep it at a reasonable speed for us and [aren’t] unreasonable with some of the things we have experienced in the past."

In a May blog post, Tesla acknowledged employees have worked significant overtime for past production ramp-ups, but the company has since reduced the average amount of time that team members work by adding a third shift.

Both Catura and Galescu said the average shift time has been eight hours since Tesla employed a third shift, but they said that the change is unlikely to last for long.

Workers have already received schedules with extra shifts carved out on weekends in preparation for Model 3 production, Catura said, adding that there was speculation among workers that 10-hour shifts will return.

The high-stress environment isn't only bad for the workers involved. Similar scenarios with the Model S and Model X ultimately resulted in vehicle delays and defects.

"It’s kind of a double standard because when you’re doing the process and you get a defect from working fast, you get in trouble for that," Catura said. "And then you also get in trouble because you’re not working fast enough."

The Model 3 could face similar delays as the Model S because Tesla is trying to rapidly ramp up production for a completely new car model with an entirely new set of tools, a former Tesla employee who oversaw the launch of the Model S said in an interview.

The lack of additional assembly lines for the Model 3 could become a problem when Tesla achieves high-volume production, the source said.

"Right now, we have a specific quota that we need, and at times we struggle to get that quota," Catura said. "So imagining we have Model 3s in combination with that in production, we're going to need a second or third line to compensate."

The Model 3 line is more automated than it was for the Model S and Model X, Tesla CTO JB Straubel said during the company's first-quarter earnings call. Automation and a more simplistic Model 3 design should help Tesla meet its lofty production targets, a Tesla spokesperson said.

Putting pressure on Tesla's board

Fremont workers calling for a union said they are placing added pressure on Tesla to meet their demands to ensure Model 3 production goes smoothly, an effort that could help minimize on-site injuries.

The Tesla Workers' Organizing Committee, which is leading the unionization effort, wrote a letter to Tesla’s board in July listing their demands.

The letter asks Tesla to inform employees of the risks associated with working at the factory, make safety audits readily available, allow workers to make decisions about equipment, and to allow Fremont workers to have a voice in the company's safety plan.

"We have raised these issues repeatedly, but they remain unresolved," the letter says. "Your guidance navigating them would be invaluable as we work to become the most profitable and productive auto company in the US."

The Fremont plant was originally a union shop when it was jointly owned by General Motors and Toyota, but the facility has operated without union representation since it was turned over to Tesla in 2010.

It’s not entirely surprising then to see a unionization effort crop up as Tesla transitions from a Silicon Valley startup to a mass-market automaker. Galescu and Catura declined to say how many people are part of the effort, making it difficult to assess how many employees are on board with the plan.

Tesla has been receptive when it comes to some issues since the union effort started in February, the workers said.

In addition to forming an ergonomics team and adding a third shift, Catura said management has been more responsive when he and others have reported injuries.

"Since the unionization effort occurred, I’ve been getting a lot more proper communication from management," he said. "If we have an issue and bring it up, they’ll try to help us."

Although Tesla has made changes since injury accounts surfaced, some workers take issue with Musk's public attitude toward the claims.

Musk originally called injury allegations at the Fremont plant "disingenuous or outright false" but has since told employees to report injuries directly to him.

In the May blog post, Tesla called reports on Fremont safety issues a "misleading narrative based on anecdotes, not facts."

"It shouldn’t be like this," Galescu said. "It shouldn’t have to be a public thing of, 'Look, we’re working ourselves half to death, and when we do report our injuries, we get sh-- upon.'"

One thing Tesla Workers' Organizing Committee and Musk agree on: Model 3 production will be a major challenge.



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