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Exclusive: Tesla’s Model 3 sourcing program proves stringent, supplier SHW stung by $100 million parts cancellation [updated]

tesla model 3

When launching an accelerated production program for the Tesla Model 3 after receiving more pre-orders than anticipated, CEO Elon Musk said that the company would enforce a rigorous sourcing program both with internal teams and suppliers in order to meet its deadline.

He said that suppliers will be held to high standards and deadlines or otherwise they could be fired – adding that “if you can make a human in 9 months, you can make a tool in 9 months,” in reference to the Model 3 production timeline.

One of the suppliers fell victim of the strict sourcing program this week after Tesla canceled a large order.

German automotive supplier SHW Automotive saw its stock price crash by almost 10% on Tuesday after they announced that “an electric carmaker had canceled a 100 million euro ($107 million) order” for axle-drive pumps that “failed to meet its requirements”, according to the undisclosed customer.

The company didn’t disclose the identity of the customer, but the timing and the size of the order led to speculation about it being from Tesla.

A source familiar with the order told Electrek that it was indeed Tesla that ordered the parts for the Model 3 program back in September.

We are told that Tesla was unsatisfied with the quality of the work and felt it was better to cancel the order.

SHW said on Tuesday that it disagrees with Tesla’s reason to cancel the order and that the company reserves the right to seek damages. It’s not clear if they have done so yet.

When German media speculated that the order could be from Tesla, they also suggested that the cancellation could have originated from pressure by the new Trump administration to support American manufacturing and the threat of higher border taxes for production entering the U.S.

Writschafts Woche reported based on “insider sources” at SHW that the reasons were “not technical, but political.” The same source told the German paper that the supplier had “no indications from engineers” that the parts didn’t meet their standard until they canceled the order this week.

Our source, who is familiar with the relationship with SHW noted that the technical and contractual reasons given to the supplier were the only reasons behind the cancellation. Tesla had similar issues with suppliers pre-Donald Trump. The whole ordeal is reminiscent of the problem Tesla had with the first supplier behind the mechanism of the Model X’s Falcon Wing doors that ended with a lawsuit.

Update: the company released the following statement: Tesla’s policy is to terminate any supplier that is unable to meet their contractual milestones or violates their non-disclosure agreement. Unfortunately, we have to be firm in this regard in order to keep the Model 3 program on schedule and prevent plot spoilers.”

Currently, we have no indication that the issue will have any effect on the Model 3 production timeline. When canceling an order of this magnitude, automakers generally have a backup plan B in mind. The automaker could bring the manufacturing of the part in-house, something Tesla has often done through its vertical integration effort, or place a new order with a backup supplier.

Tesla plans to bring the Model 3 to production during the second half of the year.

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