Engineering Economic Analysis

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The report should be typed; 1.5 spaced, in Times New Roman 10 or 12 point font, with 1-inch margins on all sides. Be sure to include your name in the first page. Note that this is an individual assignment. The body of the report (text exclusive of graphs, charts, and appendices) should be 2 to 5 pages in length (no more than 5 page).
Reports will be graded on organization, style, and grammar as well as content. Assume you are preparing the report for the management team of the company you are working for. Your report should sufficiently document the case, your approach, and your conclusions. It should be easy to understand for your managers.
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Engineering Economic Analysis
Summer 2018
Case Study
Due Date July 24 at 11:59 PM (Eastern Time)
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1486592AXC
Read the instructions carefully:
The report should be typed; 1.5 spaced, in Times New Roman 10 or 12 point font, with 1-inch margins on
all sides. Be sure to include your name in the first page. Note that this is an individual assignment. The
body of the report (text exclusive of graphs, charts, and appendices) should be 2 to 5 pages in length (no
more than 5 page).
Reports will be graded on organization, style, and grammar as well as content. Assume you are preparing
the report for the management team of the company you are working for. Your report should sufficiently
document the case, your approach, and your conclusions. It should be easy to understand for your
managers.
Content:
The following subsections should be included or addressed in some fashion:
x Overview of the Case
x Problem Statement
o Interpretation of the situation including explicit consideration of any necessary
assumptions
x Solution Methodology
o Overall approach as well as a discussion of engineering economy principles utilized
x Recommendations and Conclusions
o Be specific and discuss sensitivities
o Include the answers to any specific questions here
Make use of graphs and charts as appropriate. You may use any Excel tools you deem appropriate in
analyzing the case. If you use Excel, you must submit the Excel file generated. It will be graded on
correctness, organization, and style.
Tesla Model 3 Front Trunk Production
Tesla has had numerous issues with their Model 3 production process. One area for potential
improvement is the production process of Model 3’s front trunk. Tesla is facing various quality
issues with Model 3 front trunk. Tesla’s automotive engineers concluded the welding machinery
which is used for the front trunk production should be replaced immediately and start the
production with the new machine in January first. The new conventional welding machinery
could fix the quality issues. The engineering team also considering a new laser welding
technique to replace it with the current conventional welding method for Model 3’s front trunk.
Model 3 front trunk
The engineers believe that, compared with the conventional technique, laser welding technique
would result in significant savings and improvement in quality. On the basis of an annual volume
of 4,000 unit production, Tesla engineers have estimated the financial data provided in the table
below.
Welding Method
Description Conventional Laser Welding
Steel cost / part $19.98 $15.67
Transportation cost / part $0.80 $0.55
Blanking cost / part $1.95 $0.17
Initial investment $100,000 $130,000
The laser welding technique appears to achieve significant savings, so Tesla’s engineers are
leaning toward adopting it. However, the Tesla engineers have no experience with laser welding
technique, so they are not sure whether producing the front trunk in this manner is a good
strategy. For Model 3’s front trunk production, it may be cheaper to use the services of a supplier
that has both the experience with and the machinery for laser welding. Tesla’s lack of skill in
laser welding may mean that it will take six months to get up to the required production volume.
So they need to use the conventional welding technique with the new machinery for 6 months
until they can start production with laser welding technique. In this case, they need to purchase
both types of machinery, so they can produce the parts in the first half of the year using the
conventional method, then start production by laser welding technique for the second half of the
year and also the following years.
If, however, Tesla relies on a supplier, it can only assume that supplier problems will not halt the
production of Tesla’s cars. To be clear, Tesla can select one of 3 options:
1. make the parts using conventional techniques;
2. make the parts using laser welding technique themselves, or
3. buy the parts from a subcontractor who will charge Tesla a price per part with no volume
discounts. The subcontractor will use the laser welding technique and they will produce
and deliver the parts to Tesla for $22.95 per-part.
Assume a lifetime of 10 years and an interest rate of 12% to recommend the best course of
action. If you use a Rate of Return approach, use 12% as the MARR. Assume that neither the
conventional nor laser welding technique have any salvage value.
Answer the following questions in your report:
1. Using Engineering Economic Analysis, which option they should select? Discuss all
aspects of your proposed option.
2. Do you include the “do-nothing” option? Why or why not?
3. Does the quality of the parts produced impact your answer? What would happen if, in 5
years, cars produced with the technique you selected had defects and had to be repaired
on warranty?
4. To what risks does Tesla expose themselves if they use a subcontractor?

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