Why Tesla Soared as Other Automakers Struggled to Make Cars

For most of last year, established automakers such as General Motors and Ford Motor operated in a different reality from Tesla, the electric car company.

GM and Ford shut down one factory after another due to a shortage of computer chips – sometimes for months at a time – because dealer lots were empty and car prices were rising. Yet Tesla posted record sales quarter-on-quarter and finished the year without a hitch from the industry-wide crisis, selling nearly twice as many vehicles as in 2020.

Tesla’s ability to combine critical elements is more important than one-year car sales. It suggests that the company, and possibly other young electric car businesses, may sooner and more forcefully threaten the dominance of giants such as Volkswagen and GM than most industry executives and policymakers realize. It will help reduce emissions by replacing more gasoline-powered cars sooner that cause climate change. But it could hurt millions of workers, thousands of suppliers, and countless local and national governments that rely on traditional auto production for jobs, business, and tax revenue.

Tesla and its enigmatic chief executive, Elon Musk, have said little about how the carmaker drove circles around the rest of the auto industry. It is now becoming clear that the company had only the best command of technology and its own supply chain. Tesla appears to be in demand for better estimates than businesses producing much more cars than that. Other automakers were amazed at how quickly the car market recovered from the recession at the start of the epidemic and did not order enough chips and parts.

When Tesla could not find the chips he was counting on, he took the available chips and rewrote the software operating to suit his needs. Big auto companies can’t do that because they rely on an outside supplier for most of their software and computing skills. In many cases, automakers deal with these suppliers to deal with chip manufacturers. Automakers lacked bargains when the crisis hit.

Just a few years ago, analysts said Mr. One of the main reasons the company was struggling to increase production was Musk’s insistence that Tesla do more things on its own. Now, their strategy seems to have worked out.

Cars are becoming increasingly digital, as defined by their software as their engines and transmissions. The reality is that some older-line car companies are increasingly embracing it. Many, including Ford and Mercedes-Benz, have said in recent months that they are hiring engineers and programmers to design their own chips and write their own software.

“Silicon Valley-born Tesla never outsourced their software – they write their own code,” said Emeritus Morris Cohen, a professor at the Wharton School of the University of Pennsylvania who specializes in manufacturing and logistics. “They rewrote the software so that they could replace short-supply chips with non-low-supply chips. Other carmakers could not do that. “

“Tesla controlled his fate,” Professor Cohen added.

Tesla sold 936,000 cars globally in 2021, an increase of 87% for the year. Ford, GM and the Stalantis, a company made up of mergers of Fiat Chrysler and Peugeot, all sold fewer cars in 2020 than in 2021.

Measured by globally distributed vehicles, Tesla surpassed Volvo and Subaru in 2021, and some analysts predicted it could sell 2 million cars this year, as factories in Berlin and Austin, Texas come online and A plant in Shanghai increases production. That would put Tesla in the same league as BMW and Mercedes – something some in the industry thought was possible a few years ago.

GM and Ford, of course, sell a lot more cars and trucks. Both companies said last week that they sold about 2 million vehicles in the United States alone last year.

Tesla, who rarely answers reporters’ questions, did not respond to a request for comment. He has said little in public about how he managed to bounce back down the market.

The company said in its third-quarter earnings report that “we have used replacement parts and programmed software to reduce the challenges posed by this shortage.”

The show has seemed a bit unfocused in recent episodes, with Tesla’s production and supply problems making it ridiculous for the industry. Many manufacturing sniffs Mr. At Musk’s insistence, the company makes many of its own parts.

Other car companies have realized that Mr. Musk and Tesla are constantly working and in the process of gaining control of their onboard computer system.

Mercedes, for example, plans to use less specialized chips in upcoming models and more standardized semiconductors and write its own software, said Marcus Schaefer, a member of the German carmaker’s management board who oversees procurement.

In the future, Mercedes will “make sure we have customized, certified chips in the car,” Mr. Schaefer said in an interview Wednesday. “Not a thousand different chips.”

Mercedes will also design its own vehicle hardware, he said. Without mentioning Tesla, Mr. Schaefer added, “Maybe some other people have been on this road before.”

Doing more on its own also helps explain why Tesla avoided battery shortages, with limited companies like Ford and GM not selling a lot of electric cars. In 2014, while most carmakers were still debating whether electric vehicles were ever the same, Tesla broke with its partner, Panasonic, to build a battery based on what is known as the Giga Factory outside Reno, Nev. Now, it helps the factory ensure reliable supply.

“It was a big risk,” said Ryan Melsert, a former Tesla executive involved in the construction of the Nevada plant. “But because they made earlier decisions to bring home items, they have more control over their own destiny.”

As Professor Cohen of Wharton points out, Tesla’s approach is in many ways a throwback to the early days of the automobile, while Ford owned its own steel plant and rubber plantation. In recent decades, the traditional auto wisdom has been that manufacturers should focus on design and final assembly and give the rest to suppliers. That strategy helped reduce the amount of money the big players put into factories, but made them vulnerable to supply chain turmoil.

It also helps that Tesla is a much smaller company than Volkswagen and Toyota, producing more than 10 million vehicles in a good year. “It’s just a small supply chain to start with,” he said. Melsert, who is now the chief executive of American Battery Technology Company, a recycling and mining firm.

The Tesla lineup is even more modest and easy to supply. The Model 3 sedan and the Model Y Sport utility vehicle account for almost all of the company’s sales in 2021. Tesla also offers fewer options than traditional car makers, which makes production easier.

“It’s a more streamlined approach,” said Phil Amsrude, a senior lead analyst who specializes in automotive semiconductors at research firm IHS Markets. “They’re not trying to manage all these different configurations.”

Tesla software, which can be updated remotely, is considered to be the most sophisticated in the auto business. However, the company’s cars probably use fewer chips, analysts said, as the company handles a small number of functions such as centralized, battery cooling and autonomous driving from onboard computers.

“Tesla has fewer boxes,” Mr. Msrude said. “The fewer components you need right now, the better.”

Of course, Tesla may still face problems as it seeks to replicate the growth it has achieved in 2021 – with the goal of increasing sales by about 50 percent per year for the next few years. The company acknowledged in its third-quarter report that its constructive maneuver around supply chain chaos may not work as well as it has because of increased production and the need for more chips and other parts.

The electric vehicle market is also becoming more competitive as traditional car makers generally respond late with models that people want to buy instead of small electric vehicles designed to please regulators. Ford said last week that it would nearly double the production of the Lightning, the electric version of its popular F-150 pickup truck, because of strong demand. Tesla’s pickup truck will not go on sale for at least another year.

Estimates for traditional car makers are likely to improve this year as the shortage of semiconductors and other components is mitigated, and manufacturers are getting better at coping.

Tesla vehicles still suffer from quality problems. The company told regulators in December that it plans to recall more than 475,000 cars for two separate defects. One can cause the rearview camera to fail, and the other can cause the front hood to open unexpectedly. And federal regulators are examining the safety of Tesla’s autopilot system, which can accelerate, brake and steer cars on its own.

“Tesla will continue to grow,” said Stephen Beck, managing partner of cg42, a management consulting firm in New York. “But they are facing more competition than ever before, and the competition is getting stronger.”

The basic advantage of the car maker, which allowed it to go through a chip crisis, will remain, however. Tesla manufactures nothing but electric vehicles and is unneeded by the habits and processes that have become obsolete with the new technology. “Tesla started from a clean sheet of paper,” Mr. Msrude said.

Similar Posts

Leave a Reply

Your email address will not be published.