Tesla's New Manufacturing Veteran Is Just As Ambitious As Elon Musk

By Markets Fool.com

Tesla factory. Image source: The Motley Fool.

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"Tesla is going to be hell-bent on becoming the best manufacturer on earth," Tesla Motors (NASDAQ: TSLA) CEO Elon Musk said during the company's first-quarter earnings call in May. Tesla is shifting its focus from the design and technology of its products to being "the leader in manufacturing," Musk said.

Musk's bold comments came moments after Tesla announced it would be accelerating its target for an annualized build rate of 500,000 vehicles two years earlier, from 2020 to 2018 -- a wildly ambitious goal, considering Tesla delivered just 50,700 vehicles in 2015.

Tesla has since charged ahead with this vision, appropriately making some key hires in the process. One key hire was Peter Hochholdinger, former senior director of production at Audi. Hochholdinger oversaw production of the brand's popular A4, A5, and Q5 vehicles.

But would an experienced auto veteran like Hochholdinger readily embrace Musk's vision? Apparently so. In an interview with Manufacturing Leadership Journal after being on the job at Tesla for over two months, Hochholdinger seems just as confident in Tesla's ability to ramp production as Musk himself.

Here's a look inside of the mind of the executive overseeing essentially all of Tesla's production as the electric-car maker prepares to bring its higher-volume Model 3 to market next year.

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On Tesla vehicles

"The cars we build are about seven years beyond everything I've seen before," Hochholdinger said when asked about what excites him most about his new role at Tesla. He was particularly pleased Tesla builds 100% electric vehicles.

"[E]verybody else is continuing with the normal business of building [internal combustion] cars, and I think that will not work."

Tesla factory. Image source: The Motley Fool.

On accelerating production

When asked about Tesla's announcement earlier this year to accelerate its target for achieving an annualized build rate of 500,000 vehicles, Hochholdinger pointed to the company's unique framework for thinking about production as the driving force and expressed high confidence in Tesla's ability to pull it off.

What we want to do is get more density into the factory. Why is the footprint of the factory so big? Why can't we put more density into it? These are questions we have to solve. The next question is: Why is the process so slow? Why is the conveyor belt that moves the cars (through general assembly) as slow as a turtle? Couldn't we speed it up by five times, by 10 times? Can we put more automation into general assembly? Everybody in the world tries that. We have an opportunity with a car like Model 3 to do it, and we will do it.

Even more, Hochholdinger went on to emphasize that Tesla's ability to achieve unorthodox production levels is a byproduct of the fact that the company's vehicles are fully electric.

Indeed, the Model 3, specifically, is presenting Tesla with an opportunity to approach manufacturing differently, he explained.

It's all about the product. You have to make the products as simple as possible and as buildable as possible so that we can do that. (The Model3 [sic]) has no exhaust system. It has no gear box. It has no engine. It's more or less a computer on wheels. It's very thrilling and exciting. This car is totally different than everything else done before.

Model 3. Image source: The Motley Fool.

On what makes Model 3 different

Model 3 is getting special treatment compared it its predecessors when it comes to its design as it relates to manufacturing, Hochholdinger said.

Model 3 has a different approach. So the engineering staff is working on new things, different things, how the car is built. I don't want to get into detail, but it's more focused on manufacturing.

Manufacturing people are involved in the whole design phase and are now involved in designing the car.

On the challenges

Tesla's greatest challenge in ramping up production? Hochholdinger says it is the supply chain.

We have to work on our supply chain, getting our parts on time into the factory, and in the numbers we need.

[We will do that by] being more efficient and being more on time and doing more tracking about which materials are in transit, which are in process, and which are here in the factory.

Manufacturing will be a competitive advantage

Tesla factory. Image source: The Motley Fool.

Hochholdinger was particularly fond of Musk's plan to innovate in manufacturing by, as Musk has says, focusing efforts on "the machine that makes the machine" and essentially "turning the factory itself into a product."

Musk extrapolated on this idea in the company's update to its "secret master plan" earlier this year:

A first principles physics analysis of automotive production suggests that somewhere between a five- to tenfold improvement is achievable by Version 3 on a roughly two-year iteration cycle. The first Model3 factory machine should be thought of as version 0.5, with version 1.0 probably in 2018.

Hochholdinger believes Tesla's "machine that makes the machine" approach is going to be a competitive advantage for Tesla and will enable the automaker to create more throughput and quality.

For now, investors can only take Tesla's vision for manufacturing at face value. But if reality comes even close to the company's determination to overhaul vehicle manufacturing, Tesla's invigorated focus on manufacturing could be the key element helping it sustain -- and possibly even advance -- its first-mover's advantage in production of long-range, fully electric vehicles.

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Daniel Sparks owns shares of Tesla Motors. The Motley Fool owns shares of and recommends Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.