My previous comment on this subject (reproduced below): https://news.ycombinator.com/item?id=16614247 https://news.ycombinator.com/item?id=16614247 ---- Disc

My previous comment on this subject (reproduced below): https://news.ycombinator.com/item?id=16614247 https://news.ycombinator.com/item?id=16614247 ---- Disclaimer up front: I work for a Tesla competitor. Tesla is making several very interesting bets on the Model 3. Bet 1: Model 3 mix - Tesla is betting that the ratio of expensive, high-content Model 3s to cheap, low-content Model 3s will be sufficient to make enough money to offset investments and pay back loans. It will not be sufficient to make a small profit on each Model 3 sold given the debt load that Tesla has accrued, so they will want to sell a good ratio of expensive Model 3s. If it takes to long to produce the cheaper Model 3s, Tesla will lose some potential customers. Many investors are looking at that "top line" right now - the number of customers and potential customers. If the top line moves too much, investors may get spooked. Bet 2: Vertical Integration - Most automakers rely on a web of parts suppliers, who are under enormous pressure to reduce costs, but Tesla produces most of its components in-house. The contract with an external parts suppliers ensures that the supplier is responsible for any re-work or replacement of defective parts. This allows the automaker to concentrate on internal production issues. Tesla's bet is that internal production of parts will lead to better and cheaper components. This has not worked for any other automaker. Traditional OEMs shoot for a mix of components where the internally produced components are part of the company's core competence: Body Shells, Engines, Transmissions - and externally produced components may be generic - switches, latches, seats, frames, tires, wheels, etc. If Tesla spends too much capital on component manufacturing, they will be inefficient and investors pressure them. Additionally and probably more importantly, if Tesla is not able to spend the time and attention to iterate on cost and quality of these parts, it will also lose this bet. Personal opinion: I think Tesla has learned the wrong lesson from previous dealings with suppliers. For instance, the original Roadster was designed with a two speed transmission. A supplier claimed they could make it, but it never really worked. Tesla learned the lesson that suppliers are stupid and suck at making new things - I think they should have learned that lesson that it is really really hard to make new things. Bet 3: Automation - But first a detour - There are 3 main areas of auto assembly, and most manufacturers have already fully or almost fully automated 2 of them: Body Shop (welding and assembly of the body shell) and Paint Shop. The 3rd area is General Assembly. General Assembly is the bloody, thorny, devilish poster child for multiple single points of failure. A high feature vehicle may have on the order of 1000 assembly stations (aka footprints) in General Assembly. The Model 3 is designed with much lower complexity in mind, and may only have 100 footprints. If and when any of those 100 footprints has an equipment failure or parts issue, ALL 100 stop running in a short amount of time. Human assembly workers are rather resilient and can figure out a multitude of small issues on each and every operation. This may allow for a hypothetical variation of 5% in non-critical parts. Automated assembly may only allow for a 1% variation. Additionally, automated assembly only runs well when EVERYTHING is designed for automation. That is not impossible, but it is expensive and time consuming. --- Most importantly, these three bets are linked: If not enough base models are sold, the cost of design and equipment spending will be excessive on a per vehicle basis. If internally produced parts are too far out of spec, you have strong negative impacts on automation. If automation fails, you cannot produce enough vehicles at a low enough price to satisfy your low-end customers. But, if Tesla wins all three bets, they win big time.