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Tesla’s former VP of Production talks ‘secret second factory floor’ and vertical integration

Greg Reichow is an experienced manufacturing executive. He was SVP of Operations at SunPower and he had a long career in the semiconductor industry before joining Tesla in 2011 and leading production until the automaker made a change in manufacturing leadership last year.

He is now a Partner at Eclipse Ventures and out of the blue today, he wrote a blog post on Backchannel about Tesla’s vertical integration and overall manufacturing effort.

The executive wrote about the not-so-secret second floor of Tesla’s Fremont factory:

“Unknown to most visitors, the factory’s “secret” second floor built many of Tesla’s battery, power electronics, and drive-train systems. It was home to some of the most advanced manufacturing and automation systems in the company. Some of the robots moved at such high speeds that their arms needed to be built from carbon fiber instead of steel.”

I say that it is “not-so-secret” because while Tesla rarely talks about its operations on that second floor, it used to allow some people, like investors and analysts, up there before.

Former Dougherty & Company analyst Andrea James talked about it last year:

“In the early days (~2012), when we used to tour the factory, we were allowed to go up to the second floor (where Tesla houses its secretive battery development group) […] I was one of the first to be allowed on that second floor. I wasn’t allowed to take pictures, but I got to tour it and see the floor, and see the machines that they had to build. Elon talks about “the machine that builds the machine” and you know – you’d look at these parts and you couldn’t procure these parts. They had to make these parts.”

She recalled emailing Tesla CTO JB Straubel after the tour to let him know how impressed she was by what they were doing: “tears came to my eyes when I was on the second floor. I can’t believe what you guys are doing” she said. Straubel responded: “Yeah, I don’t think people realize what is going on here”.

In his post, Reichow also explained that people don’t understand what they are doing there, like manufacturing high-voltage cables, displays, fuses, and other smaller systems.

He answered:

“The answer is simple: Our goal wasn’t to build the best electric vehicle. It was to build the best premium car in the world that just happened to be an EV. This meant integrating technologies that were not readily available. It also meant pushing the boundaries of what was considered “normal” for the design and manufacturing of a car. Furthermore, we needed to do this on an accelerated timeline that most automotive suppliers could not fathom. So, in many cases, this meant building components ourselves. Building your own core components has obvious benefits, but there are some other advantages that you might not immediately recognize.”

The executive explains that Tesla’s vertical integration of small and generally outsourced subsystems lead to faster turnaround and shorter improvement cycles.

He says that Tesla was implementing up to 50 changes per week on its vehicles instead of waiting for the next model year – that’s something that CEO Elon Musk has emphasized before.

In the industry, some are seeing it as a weakness due to reduced manufacturing efficiency, but Reichow says that Tesla decided that “building a product that was rapidly improving” is more important.

The final advantage of Tesla’s vertical integration is knowledge, according to Reichow:

“Finally, when you build something yourself, you develop a far deeper understanding of your product and how to improve it—and the pain of doing it yourself gets transmuted into gold. “

That’s some interesting insights – especially now that Tesla is again in “pain” due to the “production hell” of the Model 3 manufacturing ramp up.

You can read the full post on Backchannel.

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