In July 2017, Elon Musk presided over a coming out party for the Model 3, more than a year after nearly a half-million customers had made a $1,000 deposit to reserve Tesla’s eagerly anticipated mass market entry. The event was billed as a historic milestone towards Elon Musk’s bold vision to accelerate the world’s transition to sustainable energy.
At the celebratory event, Musk was to hand over keys to the first 30 Model 3 production vehicles and share his perspective on what to expect from Tesla in the exciting months ahead. But storm clouds were brewing and Musk knew it. The cars delivered that day were painstakingly built by hand since much of Tesla’s overly ambitious assembly line automation was inoperable. And the lucky first customers were all Tesla employees, to keep Model 3 quality glitches in the family for the time being.
At a pre-event press conference, Musk’s opening remarks were uncharacteristically gloomy. “We’re going to go through six months of manufacturing hell. It’s going to be pretty great, but it’s going to be quite a challenge to build this car.” Musk went on to list all the things that could go wrong with Tesla’s aggressive production plans, sounding more like a prophet of God’s wrath than a confident high-tech visionary: “Floods, fires, tornadoes, ships sink, if anything interrupts one of our supply chains, that will interrupt the production ramp.”
As it turned out, Musk’s remarks were prescient. The factory wasn’t hit by floods or tornadoes, but Tesla nonetheless experienced hellish problems in ramping up to meet Musk’s promise to build 5,000 vehicles in a week by the end of Q2 2018. Tesla had fallen short of Musk’s stretch targets in the past, but this time seemed different. Even by Musk-ian standards, Tesla’s CEO was driving the company with unprecedented urgency and maniacal focus, exemplified by the extraordinary step of erecting a second, largely manual assembly line under a tent astride Tesla’s Fremont, California factory.
We now know why Tesla was so hell-bent on hitting their Q2 production target. In reflecting last month on Tesla’s manufacturing milestone, Musk recounted:
“Essentially the company was bleeding money like crazy. And just if we didn’t solve these problems in a very short period time – I would say single-digit weeks — we would die. And it was extremely difficult to solve them.”
On July 1, Musk was able to proudly announce that the company had built 5,000 vehicles in the prior 7-day period. Marking the achievement, Musk noted, “I think we just became a real car company.”
But the supreme effort took a brutal toll on the CEO and his company. Musk’s behavior during Tesla’s many months of manufacturing hell was frighteningly erratic. At work, he displayed episodes of mania, working 120-hour weeks, while sleeping at the factory for days on end. He regularly missed management meetings, raged at colleagues, impetuously fired employees with little apparent cause, yet all the while relentlessly pushing his team to work harder and faster. In his off hours, Musk turned to Twitter, often with disastrous results. In one tweet, Musk announced that he had lined up financing to take Tesla private at an inflated price – an unfounded claim leading to an SEC settlement costing the CEO $20 million and his board chairmanship. In another tweet, Musk accused a man he had never met of being a pedophile, which is currently the subject of an ongoing defamation lawsuit.
With all the chaos and disarray during this tumultuous year, many of Musk’s lieutenants chose (or were pushed) to leave for greener pastures, including the company’s VP Worldwide Finance, Chief Accounting Officer, Senior Director of Production and Quality, Vice President of Supply Chain Management, Chief People Officer, President of Global Sales & Services, VP of Retail, Delivery & Marketing, and General Counsel.
But despite it all, by sheer force of Elon Musk’s will and tenacity, Tesla has continued to increase production volumes and is now on pace to manufacture well over 200,000 electric vehicles in 2018 (mostly Model 3’s). Moreover, Tesla announced a third-quarter operating profit of $312 million, by far its biggest ever, and forestalled the need to raise more money in today’s shaky capital markets
Has Tesla finally conquered its demons and become, in Musk’s words “a real car company?”
The company’s rapid increase in production volume exposed weaknesses in two critically important downstream processes: vehicle distribution and customer experience management.
The first issue surfaced in July, with sightings of thousands of Tesla Model 3 cars parked at the Fremont assembly plant and several other remote facilities around the country. Critics rightfully wondered and worried why a company that had struggled so long to ramp up production, would delay in getting vehicles into the hands of eagerly awaiting customers.
Elon Musk acknowledged the issue in a tweet (of course), promising to get out of “delivery logistics hell” soon. Tesla’s problem had arisen because, in their haste to ramp up production volume, Tesla stopped building cars to order, and instead manufactured to inventory, in batches of commonly selected option and color specifications. But this approach created complexities in matching production vehicles to individual customer orders, and in securing efficient truckload delivery services.
There is nothing new in Tesla’s current logistics challenge. US car companies all manufacture vehicles to production forecasts, rather than specific customer orders. The difference is that traditional car companies can foist their production inventory on franchised dealers, who largely absorb the financial consequences of misalignments between supply and demand. But Tesla owns their own dealerships (which, by design have limited storage capacity), so there’s no financial or physical buffer to absorb unsold production inventory.
But Musk was justified in declaring that overcoming delivery logistics hell is fairly tractable for a company that excels in analytically-driven engineering solutions and process optimization, and the company is already showing signs of improvement in this area.
That leaves Tesla with only one more circle of hell – managing the customer experience from order-to-delivery and beyond. This will likely prove to be the hardest problem for Elon Musk to solve if for no other reason that he hasn’t even acknowledged that the problem exists (no tweets!), and there is no indication that Musk has any passion for dealing with such touchy-feely people problems.
To understand the depth and seriousness of Tesla’s shortcomings, let me share my recent experience. I took delivery of a fabulous all-wheel drive, long-range Tesla Model 3 six weeks ago. Given my delivery experience and career background, I can speak knowingly about the severe shortcomings in the company’s business processes
- I worked as a management consultant in the automotive industry for over 25 years, including architecting the turnaround of two nearly bankrupt car companies that have since thrived in the US market
- I served as a managing director at JD Power & Associates, focused on advising dozens of senior automotive executives on customer sales and service strategy
- I’m currently on the faculty of Columbia Business School, teaching business strategy in the MBA program
- I am a frequent contributor to Forbes and Entrepreneur Magazine on topics related to the automotive industry, including a recent hagiographic article making the case for Entrepreneur’s selection of Elon Musk as the entrepreneur of the year, 2018.
My bottom line conclusion is that despite Tesla’s exquisitely designed products and considerable current consumer goodwill, the company will not be successful long-term unless and until it can deliver a consistently superior customer purchase and ownership experience that matches its prowess in engineering best-in-class electric vehicles.
Elon Musk has talked about moving beyond manufacturing hell and struggling to overcome distribution hell. But on and before delivery day, its patrons are living through customer experience hell at the very moment that should be a joyous milestone in the company’s relationship with owners.
For those unfamiliar with what to expect in purchasing a Tesla, the process is very different from a traditional car buying experience. Tesla serves customers through a network of only 100 company-owned showrooms and delivery/service facilities across the US (in contrast, Ford has about 4,000 dealerships in the US). Until fairly recently, these facilities didn’t have Model 3’s available for a test drive, so most early adopters bought their cars sight unseen – a testament to the Tesla’s extraordinary brand equity.
To complicate Tesla’s distribution challenges, sixteen states have laws on the books that prohibit the company from operating sales and delivery facilities, including my home state of Connecticut. Nine other states have laws that severely limit Tesla’s dealer quota – for example, Colorado and North Carolina limit Tesla to only one dealership (a testament to the strength of state franchised dealer lobbyists across the country). The net result is that when the long-awaited delivery day finally arrives, most Tesla customers have to drive long distances – often to neighboring states to pick up their vehicle.
To their credit, Tesla has tried to streamline their delivery process by encouraging customers awaiting delivery to set up a personalized webpage on Tesla’s site, which allows them to upload information and documents required on delivery day (e.g. proof of insurance, title, and registration for trade-ins, etc.). Moreover, each backlogged customer is assigned a headquarters Tesla “Delivery Specialist” assigned to answer any questions customers may have about their upcoming delivery.
While these are encouraging first steps, Tesla’s order-to-delivery process is fundamentally flawed in concept and execution, leading to a prolonged and agonizing customer experience. Here’s how it played out for me.
To begin with, after committing $1,000 to reserve a Model 3 in May, and then $2,500 more to order my car in June, I heard absolutely nothing from the company for months. In the meantime, a friend who reserved her Model 3 a year before me, was given a delivery date a month after me, but actually took delivery of her Model 3 two months before me. My son was inexplicably able to jump over Tesla’s reported large Model 3 order backlog, taking delivery of his Model 3 only three weeks after his initial contact with the company. There seemed to be no logical explanation for how Tesla was handling its order backlog. Throughout the many months that I waited for feedback on the status of my Model 3 order, the media was reporting on Tesla’s manufacturing and logistics hell. Given all the speculation and short sellers’ conspiracy theories floating in the press, it would have been nice for Tesla to communicate with me often, if for no other reason than to maintain my confidence in the company’s progress. It didn’t happen. Dark thoughts occurred to me that maybe the company wouldn’t make it, taking my $3,500 deposits down with them.
When I finally did hear from Tesla, it came in the form of a text message confirming my delivery date as November 15 and identifying my “Delivery Specialist” as Aaron. There was no indication in Aaron’s text of his contact information for follow-up questions, starting with the fact that I had a scheduling conflict on the designated delivery date. When I called the telephone number from which Aaron’s text was sent, I went into an unnamed voicemail. A text message to the same number went unanswered.
I had to call Tesla’s general headquarters customer support number to inquire how I might reach Aaron. The agent wouldn’t give me his number, but after putting me on extended hold, told me that Aaron would call me back. When Aaron finally did call, he acknowledged that he rarely checked the phone number from which his original text was sent. Aaron finally did give me a usable phone/text number and email address for further communication, but couldn’t explain why he didn’t simply provide valid contact information in his original communication.
After settling on an alternative delivery date, my next question for Aaron concerned how to get a trade-in estimate on my current Audi. Aaron told me that if I submitted the requisite information on Tesla’s “Manage Order” site, I would get a provisional valuation back from Tesla within hours. But after uploading the requisite information and photos, I heard nothing from Tesla for two days. I then tried contacting Aaron (on the new number provided) and left two voicemails and one text message, with no response. Once again, I had to call the general Tesla customer service number to enlist their help.
When Aaron finally called the next day, he first claimed he never got my text message, but later acknowledged he must have overlooked it, along with my two earlier voicemails. When I asked about the status of my trade-in assessment, he asked whether I had submitted a photocopy of my ownership title. “No,” I replied, ”How would I know to submit that information. The only information requested on my Tesla order webpage was pictures of my vehicle and a digital image of my vehicle registration.” The following conversation ensued:
Aaron: “Well, the trade-in guys really need to see your title.”
Me: “Why didn’t you tell me that when we spoke on the phone?”
Aaron: …no answer
Me: “Haven’t any other customers run into this problem? Why doesn’t Tesla just add this request on their website to collect all the requisite information once and done?”
Aaron: “I don’t know. I don’t handle website design.”
Me: “Can’t you request such minor fix. It would make your life and mine much easier?”
The next day, I placed my final call to Aaron seeking basic information on Tesla’s finance terms. Suffice it to say, I was unable to glean any useful information.
When my delivery date in mid-November finally arrived, I drove one-hour across the New York state line for my scheduled dealer appointment. I found the waiting area was full of grumpy-looking customers, which possibly explained the lack of any available parking at the dealership. The couple in front of me at the check-in desk was arguing with a Tesla salesman about why they couldn’t take delivery of their vehicle, after having driven several hours to the dealership. An inauspicious start.
When I finally was able to check in, I was told to anticipate a delay, as there were several customers ahead of me in the queue. I was given the password for the dealer wi-fi system but quickly discovered it wasn’t working.
While waiting, I had the opportunity to chat with some of the other customers. A common complaint was that customers were being held up by missing pieces of paperwork. Reflecting the sour mood, a particularly agitated couple walked by during one of my conversations, with the frustrated wife shouting at her husband, “Well, I hope you like this damn car because I would NEVER buy anything from this company given the way they’ve treated us!”
Despite the bad vibes permeating the dealership, I felt confident that my required paperwork would be in order, as I had carefully reviewed the document requirements for my purchase/trade-in with my new delivery specialist (Aaron had been relieved of his duties), and was also reassured by the green light indications on my Tesla customer webpage.
After a 45 minute wait, a Tesla salesman finally ambled over to inform me that I did not have the appropriate insurance paperwork on file and that he would have to contact my insurance agent to request additional documentation. When I assured him that I had uploaded exactly the insurance documentation called for on Tesla’s website and verified it with my delivery specialist, the following dialogue ensued.
Tesla: “Well you live in Connecticut, and they require not just the Temporary Auto Identification Card verifying coverage on the new vehicle, but an additional document specifying the actual dollar amount coverages.”
Me: “But why wasn’t I ever told that in advance, which could have made this a lot easier for both of us?”
Tesla: “Well those Tesla delivery guys sitting in Las Vegas don’t know anything about what’s required in Connecticut
Me: “Do you run into this problem often with CT residents like myself?”
Tesla: “All the time.”
Me: “Have you ever tried to pass the word up the line to the Vegas delivery specialist team to make your deliveries run smoother?”
And so I joined the other customers, waiting in line for additional paperwork to be faxed to the dealership. Ninety minutes after my arrival, I was finally able to sign the requisite documents and was led to a Tesla Model X along with another Model 3 customer (Bob), to be ferried to the dealership’s satellite delivery garage. Bob’s dealership ordeal had already consumed over two hours of his time, and he wasn’t happy at all.
At the delivery facility, Bob was shown to his car in a cavernous, but otherwise empty garage, while I waited for some assistance. A few minutes later, a Tesla delivery person wandered up to ask:
Tesla: “Can I help you?”
Me: “I’m here to pick up my Model 3. My name is Len Sherman.”
Tesla: “Let me check.” (checks an app, fiddles with it, and then runs off without a word).
Me: (wandering up to the delivery person assisting Bob) “Excuse me, but do you know where your colleague went?”
Tesla: “I don’t know. Maybe to get your car.”
Given that I again had some time to kill, I joined Bob to observe his delivery experience. Bob was meticulously examining the body panels on his Model 3 and found two clearly visible scratches. After Bob took photographs of the marred surfaces, his delivery assistant blithely volunteered that Tesla would schedule a mobile van to come by his house to fix the damage (suggesting this was not an infrequent occurrence). Bob’s mood darkened. He asked why Tesla hadn’t discovered the scratches earlier and fixed them prior to delivery. She didn’t have an answer.
When my car finally arrived, my only desire was to quickly get on my way. What was supposed to be a joyous experience had turned into a depressing ordeal. I tried asking the delivery agent a few basic questions about vehicle operation, but she couldn’t answer, sheepishly explaining she had just started in her new job. In keeping with my experience with Tesla from the time I reserved my Model 3, I was on my own.
So what’s it like to own a Model 3?
The car is fabulous, and I have thoroughly enjoyed every minute of driving it. But after three weeks, I began to grow concerned that my temporary Connecticut license plate was due to expire. In Tesla’s delivery process, when a customer trades in a vehicle, the dealership is responsible for forwarding the paperwork to the customer’s state DMV to issue a permanent registration.
When I called Tesla’s New York dealership about the delay, the delivery agent assured me that I would receive the permanent registration before my temporary license plate expired on December 12th.
On December 12th, with no registration in hand, I called the dealership again.
Me: “My temporary license expires today and I haven’t received my permanent registration. Can you check on it?”
Tesla “We delivered the license transfer paperwork to the Connecticut Dept. of Motor Vehicles on Dec. 8th, so it’s out of our hands”
Me: “But why did your dealership wait almost a month from my purchase to submit the required paperwork, while it WAS in your hands?”
Tesla: “I don’t know. I’m sorry.”
Me: “I called the dealership a week ago trying to prevent exactly this problem.
Tesla: “I’m sorry, but there’s nothing I can do”
So my fabulous new Model 3 remained grounded in my garage, for three days until I finally received the paperwork that allowed me to legally drive it. All that was left was to mount the front and rear license plates. My car had come with mounting hardware that looked a bit complicated. There were no instructions packaged with license plate holders, so I went to the online Model 3 owner’s manual for guidance. No luck; there is no installation information there either.
Next stop was a Google search on installing Model 3 license plates. The first search result that popped up was “Unable to install rear license plate on Model 3” – a long Reddit thread with lots owner questions and suggestions but no clear guidance. A follow-up search on installing front license plates on the Model 3 was even less productive, with the prevailing wisdom appearing to advocate buying aftermarket installation kits, because of the difficulties and inadequacies with Tesla’s own product.
And so I headed off to my closest Tesla service dealer (Tesla can service, but not sell vehicles in Connecticut) driving 21 miles for assistance – without legal license plates installed on my vehicle. The service technician was friendly and sympathetic, remarking that the front license plate installation is particularly tricky, bringing scores of overmatched and frustrated customers into the service center.
I’ve had an ongoing dialogue with Tesla Automotive’s COO and his designated “Executive Care Manager” over the past two months documenting my purchase and ownership experience. Their responses to date confirm my belief that Tesla’s customer experience business process failures are systemic and pervasive across the enterprise.
- Centrally located delivery specialists assigned to each customer are not familiar with local market requirements
- Tesla’s personalized customer web page provides a delivery checklist that also inaccurately lists paperwork requirements
- Dealership personnel don’t communicate with the Las Vegas delivery teams and vice versa
- All of these shortcomings contribute to a predictably poor delivery experience. All the customers in the dealership on my delivery day were frustrated and angry; some went home empty-handed
- Within the dealership, simple processes are clearly broken, e.g. delivering a vehicle with clearly visible scratches; not having my car ready two hours after I arrived at the dealership; being unable to process a license plate transfer within a month, even after being reminded by me one week beforehand
- No one in the organization seems to have or take responsibility for delivering a satisfying customer experience. Rather, Tesla personnel consistently assigned blame elsewhere (“It’s Vegas’ fault! “It’s the DMV’s fault”) or simply acknowledged there was nothing they could do
There appears to be no rigorous attempt to elicit customer feedback that would help Tesla systematically identify pain points in their current customer handling processes. The only questionnaire I received from Tesla during this saga came three weeks after delivery, asking one question: “Based on your experience so far, would you recommend Tesla?” with a simple thumbs up or down symbol to record my response. Absent more granular detail, Tesla is thus poorly equipped to identify and prioritize a myriad of much-needed improvements.
Not surprisingly, several of the process breakdowns that I reported to Tesla’s Executive Care Manager were news to her. Others problems appeared to be well known (e.g. poor communication between corporate Delivery Specialists and dealerships; frequent expiration of temporary license plates), but she could not provide any assurance that remedial actions were in place to resolve the problem. Tesla Automotive’s COO’s email response to my long list of grievances reflected Tesla’s apparent indifference to customer experience hell: “I’m sorry for the terrible experience… I am pleased that you are happy with the car.”
Elon Musk has survived Tesla’s manufacturing hell and appears well along in establishing processes to overcome the company’s distribution and logistics hell. The time has come for Tesla to turn its attention to an order-to-delivery customer experience that matches the engineering excellence of its products.
In fact, Tesla can make its company-owned retail network a major source of competitive advantage over traditional, often reviled car company franchised dealers. It’s instructive to recall that when Steve Jobs announced his intention to launch Apple stores in 2001, he was widely criticized for his crazy idea. Pundits advised Jobs to remain focused on designing consumer electronics devices and leave sales to “real” retailers. But, Jobs brought the same obsessive attention to detail to the design and operation of his retail stores that he devoted to the company’s game-changing products and quickly proved his critics wrong.
Elon Musk has the opportunity and need to write this same story at Tesla. But from my experience, this just hasn’t been where Musk’s passion lies. The time for Tesla to fix its customer experience hell is long overdue.
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