Elon Musk Says This Is Tesla’s ‘Biggest Problem’

Elon Musk has a cold. Tesla’s CEO had bigger troubles than a runny nose to apologize for on the company’s earnings conference call Wednesday, though, and he offered a rare mea culpa after the electric automaker reported disappointing third-quarter results.

Tesla stock dropped more than 5% after hours as Musk explained what had gone wrong in the making of the new Model 3, the company’s first affordably priced electric car. Investors had sensed something was awry a month earlier, when Tesla said it had only made 260 of the Model 3 last quarter, well below the nearly 2,000 it had forecasted; some reports said the bottleneck was due to the carmaker assembling the vehicle by hand.

Now, Elon Musk is keeping vigil at the Gigafactory, where the Model 3 is manufactured, spending most of his waking hours — and then some typically meant for sleeping — there, even conducting Wednesday’s call from the plant.

“I always move my desk to wherever — I don’t really have a desk actually — I move myself to wherever the biggest problem is in Tesla,” Musk explained. “I really believe that one should lead from the front lines, and that’s why I’m here.”

The main snafus are with the new type of battery the company is building in order to cost-effectively produce the Model 3, which at around $35,000 has a much lower price tag than Tesla’s Model S and Model X. But a problem with a subcontractor, compounded with other issues, forced Tesla to start over in certain areas, delaying production.

“We had to rewrite all of the software from scratch,” Musk said, adding that they’d redone “about 20 to 30 man years of software in four weeks” for the battery module. “This is what I spent many late nights at the Gigafactory working on.” Indeed, he noted, he’d even been there at 2 a.m. on a Sunday morning pitching in to help fix the battery production.

The pressure had clearly taken a toll on his mental health. Rating what he himself has described as “production hell” on a scale of one to nine, where “level nine is the worst,” Musk admitted that he’d struggled to persevere through the difficulties.

“I was really depressed about three or four weeks ago when I realized that we were kind of in level nine,” Musk said. “Then we got to level eight, and now I can see sort of a clear path to sunshine. And so I feel really pretty optimistic right now. But if you’d talked to me three weeks ago, I would have been quite pessimistic, and I was sort of quite down in the dumps.”

Still, Musk acknowledged that he’d expected to have made more progress already, and “be more like in level seven by now.” Tesla now doesn’t expect to ramp up Model 3 production to a rate of 5,000 a week until sometime in March, several months behind schedule, and Musk declined to commit to a timeline for reaching 10,000 a week — a key volume milestone that analysts believe could help lead to the vehicle’s profitability.

Though Tesla’s third-quarter revenue of nearly $3 billion slightly beat Wall Street’s expectations, the manufacturing bottlenecks contributed to a loss of $619 million for the period, well below estimates.

But while the delays were partially due to a subcontractor, not Tesla, Musk said he took full responsibility for them: “At the end of the day, everything is our fault — and my fault first of all.”

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