Good Tesla, bad Tesla: duality vexes hot-selling brand

Clarification: This story has been updated to reflect that the initial statement Tesla issued about paint shop problems reiterated a previous statement issued in a letter to shareholders referring generally to production problems.

Tesla is a study in contrasts. Its Model 3 is the best-selling luxury vehicle in the U.S. – eclipsing models from formidable foreign brands like Lexus, BMW and Audi – yet the Silicon Valley-based company still must convince the financial community that it is a sustainable business.

Key to that goal is making a high-tech product with consistent quality. One of the riddles of Tesla is that it has designed one of the industry’s most advanced automobiles, yet struggles to manufacture it.

Two examples illustrate the opposite faces of Tesla.

After disassembling a Model 3 last year, veteran manufacturing consultant Sandy Munro of Munro & Associates said the car's electronics and battery systems are "not a generation – but generations beyond what any other manufacturer is doing."

Yet, the same time Munro was assessing the Model 3 in his Auburn Hills shop, Tesla was hiring an automotive supplier in California to patch up paint problems as cars emerged from its Fremont, California, manufacturing facility. With customer vehicles piling up in lots with unacceptable paint finishes, experts were called in to touch them up before delivery.

In Auburn Hills — the Model 3 spread out in pieces before them — Munro and his associate Mark Ellis marveled at the technology that underlies the rear-wheel drive, 310-mile range sedan.

State-of-the-art control systems are laid out in microscopic detail across green circuit boards. Wiring is minimal. There is no fuse box. High-voltage cables are many feet shorter than competitors. All is neatly packaged and sealed away below the car floor. 

"This car is a paradigm shift in automotive technology. This is an electronic car assembled by Silicon Valley engineers using smartphone and laptop-quality engineering," said Munro.

He added that Tesla's regular over-the-air electronic updates are "several leaps ahead of the industry."

The sci-fi tour continued on tables housing battery and electric-motor systems that Munro says have leap-frogged competitive systems from the BMW i3 and Chevrolet Bolt EVs laid out nearby. The Tesla batteries are more efficient, more powerful, more flexible. 

The two engineers still marvel over the electric motor 10 months after they first extracted it from the car. At $754 per unit, its advanced magnetic design is not only considerably cheaper than the $841 BMW and $836 Chevy units, but is smaller, lighter, more capable.

“It has a much, much different level of performance. It blows the other automakers out of the water," Munro said. "The Detroit boys better wake up and smell the roses. It's not just autos. Tesla is more advanced than the aviation and defense industries we also assess. We benchmark other systems to what Tesla is doing."

But when it comes to manufacturing, Tesla trails the pack. 

An employee with an industry paint supplier spoke to The Detroit News, disclosing that the contract they entered into with Tesla to fix paint flaws was unprecedented. 

As Tesla struggled to meet fourth-quarter production targets last year, its paint shop ran into serious difficulties. Model 3s emerged from the line with drip flaws, dirt in the paint and inconsistent clear-coat.

As customers revolted, Tesla CEO Elon Musk took to Twitter in August to acknowledge the problem.  "Sorry, we’ve put pretty extreme rules in place for paint & quality in general," he wrote. "If need be, we’re repainting/replacing entire sections of car or building whole new cars. Got to be done."

But it wasn't just a few dozen cars as sometimes happens in factory paint shops, but thousands of them. An estimated 20,000 blemished cars piled up in lots in San Francisco's South Bay area, too flawed to deliver to customers who were paying north of $50,000 for their new vehicles, according to the industry source, who declined to be named because of not being authorized to speak.

According to that person, the outside company in late August was brought in to buff sand out of the clear-coat for about four months before Tesla fixed its paint shop in mid-December. 

When reached by The Detroit News on Friday about its paint-shop issues, Tesla reiterated a statement from its fourth-quarter shareholder letter released Wednesday: "We went through significant challenges… with our general assembly line in Fremont. We successfully overcame these challenges and stabilized Model 3 production at high volumes.”

On Monday, the company said it couldn't confirm the work was done by the vendor.

Back in Auburn Hills, Munro said Tesla's shoddy manufacturing issues were readily apparent when his shop tore down the Model 3's body. While the electric systems were wonders of efficiency, the body was a mess of over-engineering.

Door frames are secured using multiple techniques like laser welds, rivets and spot welds. The trunk and wheel wells use so many different panels that Munro's engineering team scrawled "too many parts" across the trunk frame.

"It's like a kid designed it. It's not right," said Munro, who has spent decades as a product manufacturing expert. "Nobody I know in the industry who knows how to organize a body shop has been called by Tesla."

After Munro published the results of his Model 3 study, Tesla CEO Elon Musk called to discuss.

Tesla's Jekyll and Hyde nature is on display in customer satisfaction as well. 

Buyers flocked to the Model 3 in 2018 despite a market hostile to sedans. With sales of 138,000 units, the Model 3 ran away from the No. 2 Lexus RX sport utility (111,641), BMW's iconic 3-series sedan (75,957) and the Audi Q5 SUV (69,978). 

The Tesla topped Kelley Blue Book's 2019 Best Resale Value award in the electric vehicle category with a whopping 69 percent retained resale value after 36 months. That topped other established segment champs like the Porsche Macan (best compact SUV, 65 percent retained value), Audi A7 (best luxury car, 47 percent) and Subaru Legacy (best midsize sedan, 52 percent).

"People don't like Tesla Model 3s — they crave them — and that's how you hold on to your resale value over time," KBB concluded

Yet, Tesla online forums are filled with cautionary tales from buyers who have suffered through quality defects like bumpers falling off, door handles failing in cold weather, chassis rattles and screen glitches.

"Their poor build-quality is what is holding them up," Munro said. "The car has too many parts, and too many parts cause the problems you see."

Assessing Tesla's forward-looking technology, the BMW's cutting-edge chassis design, and the Chevy's reliability, Munro mused on what could be: "If you could get all three of their best traits together, that would really be something. You'd have a helluva a car that nobody could compete with."

Henry Payne is auto critic for The Detroit News. Find him at hpayne@detroitnews.com or Twitter @HenryEPayne. Catch “Car Radio with Henry Payne” from noon-2 p.m. Saturdays on 910 AM Superstation.