• Of the 5,000 Model 3s that contributed to Tesla’s end-of-June manufacturing target, about 4,300 required rework, according to internal documents viewed by Business Insider.
  • Within the auto industry, cars that make it through a manufacturing process without requiring rework are part of a factory or line’s “first pass yield,” or FPY.
  • That means the Tesla factory had a first pass yield for Model 3 vehicles of as low as 14% during the last week of June.
  • An industry expert told Business Insider that good auto plants have a first pass yield of about 80%.
  • A Tesla representative said the number of labor hours required per Model 3 had decreased by almost 30% since last quarter.

Internal documents show that Tesla had to rework more than 4,300 of the 5,000 Model 3 vehicles it built during the last week of June, when it hit its critical production target.

Within the auto industry, cars that make it through a manufacturing process without requiring rework are part of a factory or line’s “first pass yield,” or FPY.

During the week of June 23, Tesla reworked a little over 4,300 Model 3 vehicles, according to internal documents. Each car took an average of 37 minutes to repair.

That means that Tesla had a first pass yield of about 14% for Model 3 production the first week of June, or that 14% of the vehicles made didn’t need rework.

"A competitive plant will pass 80%-plus vehicles that do not require repair. I would say the average plant is about a 65-80% range," said Ron Harbour, a consultant at Oliver Wyman who founded and writes "The Harbour Report," a worldwide guide to manufacturing.

What's more, Harbour said, the amount of rework required for each car adversely affects a plant's overall labor productivity, which is determined by dividing the total hours of human labor worked by the number of vehicles produced in the plant.

"It's a direct impact on their labor productivity if they have to add additional labor hours for repair," he explained.

A representative for Tesla told Business Insider that while its FPY is confidential, it is important to understand that rework can also include minor issues and that most cars do not have significant issues when they reach the end of the production line.

"Our goal is to produce a perfect car for every customer," the representative said. "In order to ensure the highest quality, we review every vehicle for even the smallest refinement before it leaves the factory. Dedicated inspection teams track every car throughout every shop in the assembly line, and every vehicle is then subjected to an additional quality-control process towards the end of the line. And all of this happens before a vehicle leaves the factory and is delivered to a customer."

The representative also said the number of labor hours per Model 3 produced had decreased by almost 30% since last quarter.

(If you are a Tesla employee or customer who has a story to share about a car or experience with the company, give me a shout at [email protected].)

Tesla's production process

Tesla CEO Elon Musk said during the company's second-quarter earnings call on August 1 that it produced 5,000 Model 3 cars multiple times in July. When asked by Business Insider whether Tesla has continued the rate of production, the company declined to comment.

The most common reason Model 3 cars require rework is a "failed manual task," followed by cosmetic issues. Tesla would not comment on what this entails, but a factory worker who asked not to be named said that a manual task is anything on the production line that is installed by a human.

During Tesla's Q2 earnings call, Musk said that major productivity gains could be made by improving production processes, but he did not elaborate on what could be improved or by how much.

Musk described Tesla's production process as "a lot of hurry up and wait" on the production line. He said production was sometimes stalled because parts were incorrect, for example. He also said the plant was experiencing "super high labor costs per car."

Harbour explained that for the past 25 years, legacy automakers have focused on mitigating issues like this by getting the process of manufacturing right from the outset of production. And even after the process has been streamlined, top plants have figured out how to handle defects and repairs within a production line so they are not passed along to the next step or to the end of the line.

"In the '60s and '70s, it was always assumed you would have to repair some vehicles," Harbour said. "In the same way that Musk has challenged how you propel a car, Toyota's production system challenged the notion that you would always have to fix something. They said, 'Our goal is zero defects' ... and they've been very successful."

Kate Taylor contributed to this report.