Current and former employees at Panasonic's battery-making operation inside Tesla's Gigafactory said it's a chaotic environment where standard operating procedures often go ignored and there are half a million pieces of scrap generated daily.

"Why do we throw away half a million batteries a day? Because people are slobs and the stuff's not clean," a former employee said. Panasonic sends about 3 million battery cells to Tesla every day.

Business Insider also reviewed internal documents, including some related to an oil spill that sent workers hunting for weeks through millions of battery cells to find potentially contaminated product.

Insiders have described a chaotic environment in Panasonic's battery-making operation in the Nevada desert, one where standard operating procedures go ignored, expensive mistakes are born from carelessness, and half a million pieces of scrap are generated daily.

"I do not think that Tesla knows everything [that goes on on Panasonic's side]," one former employee who left the company last year said. "It's impossible to know everything. If Elon Musk was to know what was truly going on, he would flip his lid."

Tesla and Panasonic share the Gigafactory, the massive manufacturing plant outside Reno, Nevada, built in 2016. At the Gigafactory, under the same roof, Panasonic makes cells for Tesla's cars, and then Tesla turns the cells into batteries for its new Model 3 sedan. Tesla also makes the drive units for the Model 3 there.

Last week, Nikkei reported that Tesla and Panasonic would freeze plans to expand the Gigafactory. Tesla's stock fell, while Panasonic's rose after the news. Tesla responded by saying that both companies were still putting "substantial funds" into the Gigafactory, but that there's more "output to be gained from improving existing production equipment."

Tesla CEO Elon Musk called Panasonic's production rate a "constraint on Model 3 output" that the company has known about since July.

Three current and former employees, who spoke on condition of anonymity, told Business Insider that the operation scraps roughly half a million cells each day. Business Insider reviewed internal company documents, including some related to an oil spill that sent management scrambling for weeks to find potentially contaminated cells.

Together they tell a story of an operation that is still trying to get its bearings as batteries roll off the production line and into Model 3s. And just like on the Tesla side of the Gigafactory, there's intense pressure to meet production goals and work at breakneck speed.

A Panasonic spokesperson replied to a list of Business Insider's detailed questions about these issues with the following statement:

Panasonic produces the most advanced electric vehicle battery cells because we pay exceptional attention to quality. Our quality-control protocols are industry standards and include cleanroom environments and laboratory-like working conditions. The battery cells go through several testing gates before they are released to Tesla, and Tesla separately tests the cells after delivery. We are proud to have helped propel one of the most exciting revolutions in the auto industry.

If you have any experience working with Tesla or Panasonic, email me at llopez@businessinsider.com.

Tiny little big mistakes

Quickly, here are a few very broad words on how lithium-ion batteries are made.

The inside of the battery is made up of a sheet of a positively charged electrode (anode) and a sheet of a negatively charged electrode (cathode); there is a thin material separating the two. All of that rolled together makes the inside of a battery cell.

Panasonic sends Tesla about 3 million battery cells daily, making this a massive operation that comes with all of what that entails — giant 16-foot-high mixers churning lithium and other chemicals, standard operating procedures meant to keep volatile ingredients clean, and a tracking system to follow materials as they go through the production process.

It's an expensive operation too. Panasonic makes up the lion's share of Tesla's $18 billion worth of purchase obligations, $4.8 billion of which is due in 2019, according to Tesla company filings.

The current and former employees told Business Insider that standard operating procedures often go ignored without consequence at the facility.

On several occasions, something has fallen into one of the 16-foot mixers — which contain a blend of chemicals, including volatile lithium — inside the plant, three people with knowledge of the situation told Business Insider. That "something" — whether it be scissors, a roll of tape, a tool — is generally found when the mixer is being cleaned.

"People just don't have the integrity to say, 'Hey, I did something wrong,'" one former employee said.

Greg Less, the technical director of the University of Michigan Energy Institute's Battery Fabrication and Characterization User Facility, told Business Insider that if a piece of shrapnel got into the lithium mix, it could pierce the separator between the anode and cathode and cause a hard short.

The shrapnel wouldn't have to be very big at all, either — a millimeter or half a millimeter — and it could be thin, the width of a human hair, or thinner, Less said. Conceivably, if the piece were long enough to pierce the separator and carry a current between the anode and cathode, it could cause a fire, he said.

"Having pieces of metal in your mix could cause real performance issues, not to mention damage your equipment," Less said.

Read more: Wall Street is worried Tesla's going broke again

Taking a spill

In September, there was an oil spill that sent Panasonic's operation into crisis mode for about two weeks, Business Insider also learned.

The spill was detected on September 17, according to internal documents viewed by Business Insider, but it's unclear exactly when it started. Mechanical oil got onto one of Panasonic's massive machines used to press cathode material into a sheet.

The machine then contaminated any of the product it touched. Employees had to stop what they were doing and sift through millions of nearly finished battery cells to find potentially affected product, sources said.

According to documents reviewed by Business Insider, as well as accounts from employees, Panasonic searched for product that had gone through the contaminated machine as far back as September 11. The search extended to the latest stages of the production process, and all the product that Panasonic suspected to be contaminated was scrapped, according to the internal documents and the employees.

One current employee who spoke on condition of anonymity out of fear of retribution told Business Insider they were concerned that Panasonic hadn't correctly pinpointed when the spill started.

"If my car is leaking oil, how am I going to know what day it started?" the employee said.

Mark Ellis, a senior associate at the manufacturing consultancy Munro and Associates, said an oil spill like this one would upset him "tremendously" because all the product would be "automatic scrap."

"You don't want contamination on the electrodes," he told Business Insider by phone.

One current employee said they were concerned about contaminated cells because of Panasonic's tracking system on the factory floor. Would-be battery cells are tracked throughout the factory using a lot-number system.

As they move from stage to stage of production, the number grows longer, and at every new stage of production a new piece of paper with that number and other details are printed and taped onto the product, according to the employees.

The three current and former employees who spoke with Business Insider said that this paper often gets lost — the tape falls off or the paper rips. When that happens, workers will sometimes take a similar product's paper and use that to scan it down the line so that everything keeps moving without interruption. The people said that they worry that this practice, which is against the official procedure, hurts the traceability of the battery cells.

Read more: Internal documents reveal Tesla is blowing through an insane amount of raw material and cash to make Model 3s, and production is still a nightmare

Never enough

Panasonic sends about 3 million battery cells over to Tesla a day, and the pressure is always on to beat previous goals. That is why, the employees told Business Insider, some workers inside the factory sometimes put tape over the sensors on machines that would catch defects. They don't want the production to stop.

"If I walked through a factory and saw tape on sensor, I'd be kicking ass," Ellis told Business Insider.

Defects that are missed earlier in the process are often detected later down the line as product goes into the winding phase of production, in which the sheets are wound together as a cylinder. Panasonic's winding machines have dozens of sensors — too many for workers to tamper with. So the machines can find defects, including bad or expired material, dust, and misalignment.

A Tesla spokesperson said that it conducts multiple tests on battery cells once they're received from Panasonic and that cells that don't make the cut are sent back to Panasonic.

The winding phase is where much of the factory's scrap comes from — amounting to a fairly consistent half a million battery cells a day, one current and one former employee said. Employees start every shift with a departmental meeting, during which they're told about the previous shift's production and the number of cells scrapped.

"Why do we throw away half a million batteries a day? Because people are slobs and the stuff's not clean," the former employee said. All three current and former employees also said that rules for clean-room dressing often go ignored inside the factory.

According to Ellis, winders should be running at 70 to 85% efficiency and shouldn't be catching much scrap at all.

"If the scrap was from the winders, I'd be going ballistic," he said. "They've made cylindrical cells for decades. And if people can't make their machines do something they've been doing for decades, shame on them. They should be running at much higher efficiency than that."

A Panasonic spokesperson responded to Ellis' statement, saying that the company "respectfully disagrees" with his estimates and that they do not reflect the company's numbers.

But both Less and Ellis said that the farther along a damaged product goes into the production process, the more money is wasted on labor, material, and the depreciation of equipment.

"That [scrap level] is really excessive. I would be kicking some ass big time if that were my factory," Ellis said. "They obviously don't have all of their assembly processes under control. That's what would cause that."

If you have any experience working with Tesla or Panasonic, email me at llopez@businessinsider.com.

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