Tesla’s Quality Challenge

On March 31, 2016, Tesla Motors announced the release of its new Model 3 electric car. Over 276,000 people from around the world put down $1,000 reservations for the car within three days. First deliveries of the car are expected in late 2017. The innovative new car is a follow-up to the much more expensive Model S and Model X cars. Tesla delivered about 110,000 of these cars prior to the Model 3 announcement. Elon Musk, the CEO of the company, has said that he has confidence that the company can sell 500,000 cars a year by 2020. Given the interest shown at the Model 3 announcement, some experts think this might be possible.

The fledgling Palo Alto, California, automaker has struggled with ramping up manufacturing, particularly with the Model X sport utility vehicle introduced in 2015. The company reported that there were many sourcing changes made late in the process of planning production. Tesla tends to make items, such as the middle seats in the Model X, in-house rather than outsourcing them, which is done by many car manufacturers.

The issues associated with the production of the cars are a complex combination of mechanical and computer software problems. Popular features of the cars include driving-assist autopilot functions, auto-parallel parking, and auto-braking. The cars even have an auto-summons feature that lets a driver park and retrieve their car with no one inside. Many post-production issues have been addressed through software updates downloaded to customers over wireless connections. Other mechanical problems are more difficult to resolve.

Owners have complained that the Model X falcon-wing doors will not open. When owners have problems like this, Tesla typically schedules a time to pick up the car for repair and leaves a loaner for use by the customer.

Another recent issue was a latch on the third-row seat that could come undone during a collision. Tesla decided to recall 2,700 Model X cars to replace the latches with a new design. This recall totally overloaded Tesla’s service outlets with waits of more than two weeks to make the repair. Some customers were offered rental cars due to the long wait.

So far, customers expect the "white-glove" treatment that Tesla currently offers, but a big concern is what Tesla will do when there are hundreds of thousands of vehicles on the road. Mr. Musk’s Tesla cars have many loyal customers, even though problems have been encountered. But moving from tens of thousands of vehicles to hundreds of thousands may be difficult unless some major service improvements are made.

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**Put yourself in the position of a manager at Tesla responsible for quality and customer satisfaction. What would you suggest relative to the following questions?**

1. Consumer Reports, the service that reports unbiased testing and ratings on cars (together with about everything else we buy), recommends avoiding new cars in their first year of production, especially those loaded with new technology. What can Tesla do to refute this recommendation?

2. How should Tesla "manage" the delivery of the new Model 3 during the initial production ramp-up? Think about this relative to where cars should be delivered geographically and how the service process should be designed.

3. Should Tesla deliver cars to customers on a first-come-first-served basis (i.e., in the order of when deposits were placed)?

4. What other suggestions would you have for Tesla relative to ensuring the quality of their new Model 3 car?