Supply chain issues brought on by the pandemic have been particularly challenging for the automotive sector. A global chip shortage among an onslaught of supply chain obstacles have adversely affected the entire industry. Tesla's vertically integrated strategy proved to be very advantageous when facing these supply chain challenges.
Tesla's insistence on vertical integration used to be one of the main reasons the company struggled to become profitable and reach volume production. Now, it has allowed the company to scale rapidly while the broader automotive industry is down amidst a supply chain disaster.
The conventional automotive business model has traditionally concentrated on design and final assembly while largely outsourcing to suppliers. This strategy left them extremely vulnerable to supply chain turmoil.
In the past, automakers outsourced as much as possible and mainly focused on supply chain management. In the short term, this strategy reduced production costs but in the long term, legacy automakers lost the ability to adapt, innovate and advance technology.
Automotive manufacturing has typically relied on third party suppliers which has led to supply chain contingency and reliance on external companies. This business model has been successful for a long time due to the maturity of the internal combustion engine and a lack of need for innovation.
Tesla recognized the stagnant supply chain of the automotive industry and revolutionized it by adopting a vertically integrated strategy.
Tesla is a chain of startups
- Elon Musk
In recent years, Tesla has defied the conventional business model, reducing supply chain needs and reliance on other companies.
Tesla has vertically integrated many production steps, from battery production to electric powertrain production and self-driving software. According to Tesla CEO Elon Musk, Tesla is a "chain of startups."
This strategy allowed Tesla to avoid shortages of batteries, which have hindered legacy automakers from reaching volume production of electric cars. Before legacy automakers began investing in electric vehicle manufacturing, Tesla partnered with Panasonic to build its first gigafactory to produce batteries. Now, the gigafactory ensures a reliable supply of batteries.
Lucid Motors, a newer EV automaker, has also adopted a more vertically integrated business model. CEO Peter Rawlinson says that gives them a huge advantage in the modern EV technology race.
In an interview, Rawlinson stated, “The electric powertrain cannot be bought off the shelf at a world-class standard, it is not a commodity. This is a technology race and the market doesn’t see it yet."
Tesla's in-house software development is perhaps their biggest advantage over its competitors. As a Silicon Valley born company, Tesla has never outsourced their software. They have instead developed a proprietary self-driving software that is improved by collecting data from Tesla's network of over one million beta testers.
Ford CEO Jim Farley emphasized the company's need to move away from the “catalog engineering” business model at a conference earlier this year, saying "The most important thing is we vertically integrate."
Tesla is potentially going a step further to vertically integrate their supply chain. In light of the skyrocketing prices of lithium, Tesla may plan to get into the lithium mining and refining business. Tesla is considering mining some of its own raw materials for the same reasons that they developed their own batteries, produced their own electric motors and built their own computer chip and software for autonomous driving.
Tesla's pace of innovation and lead in the industry has become clear as the traditional business model of outsourcing components and software to cut production costs is quickly becoming outdated.
Happy Birthday to Tesla’s Model 3. It’s hard to believe that five years ago, just 30 Model 3’s had rolled off the assembly line and been delivered. Now Tesla’s answer to a more affordable vehicle is the best-selling electric vehicle in the world, has been named car of the year, is considered one of the safest vehicles on the planet and has a long waiting list of eager buyers.
It’s a birthday, so we should reminisce about the early days. While this iconic car first appeared on the road in 2017, it was on Elon Musk’s to-do list for over a decade.
Elon Musk talks to Wired Science about the Model 3 in 2006
Years later, as it became more of a reality, the car was given the code name BlueStar. It was to be named the Model E, but Ford had already trademarked the wording. Then Musk turned the E into a 3, but he didn’t want the number; he envisioned 3 lines, similar to the current E in Tesla. But Adidas quashed that, arguing it was too close to that brand’s three stripes. So that’s how the 3 was named.
@awadsayeed Yes. Technically Model 3 or maybe three horizontal bars. Won't be three vertical bars.
The Model 3 was supposed to be the smaller, stripped-down version of the Model S to invite more buyers into Tesla and EVs. However, this more affordable, entry-level Tesla holds its own against luxury sedans and even its big sister, the Model S. Tesla has been rolling out several updates throughout the Model 3’s existence, allowing the vehicles to keep up and even pass the Joneses.
In 2019 the Model 3 received a significant software boost when the beta versions of Navigate on Autopilot and Smart Summon were added. Voice commands, a voice keyboard and new language supports were also implemented along with the popular Camp Mode. Once owners posted photos and videos of comfortable beds in the Model 3 with the backseat down, Tesla had to add climate control and a camp fire to complete the experience.
Tesla introduced Dog Mode in Teslas in 2019. In fact, the manufacturer used a Model 3 to unveil the feature to the world. With the help of a sleepy Husky and an excited German Shepherd, Dog Mode was demonstrated to the world on all of Tesla’s social media channels. This made Tesla a must-have for any dog lover!
Also included with the Model 3 in late 2019 and early 2020 was Sentry Mode. This all-encompassing security system records and notifies the owner if anything is happening around or to the Tesla. It’s arguably the most advanced stock vehicle alarm system on the market.
In 2020 the Tesla Toybox was overhauled and updated in all Model 3s. Emissions, sketchpad and many more favorites were revised and made even more fun. But it wasn’t just the games that have been updated; although plenty of games were added over time, Tesla improved it’s maps and dashcam. Later in the year, the Beta version of Full Self Driving was added to all Teslas, including the Model 3. While FSD is still a work in progress, for the system to be available in even the entry-level Model 3 was a big attraction.
A crowd pleaser is the Boombox. This was another addition in 2020 to all models. With the car in park, the boombox blasts music or sound effects through an external speaker. You can even add your own sounds through a USB drive. Perhaps the Boombox should be used by all Model 3 owners to wish their Tesla a happy 5th Birthday!
Elon Musk mentioned that Tesla could announce a new factory location later this year at Tesla’s annual shareholder meeting.
During his speech at the shareholder meeting, Elon talked in detail about Tesla's newly opened factories: Gigafactory Berlin-Brandenburg and Gigafactory Texas.
During the meeting Elon said that Tesla "might be able to announce another factory location later this year." When Elon asked where the next Gigafactory should be, the crowd shouted out various locations. Elon then said:
"We get a lot of Canada. I am half Canadian, maybe I should?"
This is not the first time Elon hinted that Canada could be home to the next gigafactory.
During an employee meeting in June, Elon confirmed that the company was looking at a new site in North America. During the Q and A, an employee asked a question about the location of the next American Gigafactory.
Musk noted that the company had not confirmed the location, but he said it may not necessarily be in the United States:
"We are looking at sites, but we are considering some site options more broadly in North America, so including Canada and Mexico, and the US as well."
At the shareholder meeting, Elon told investors that Tesla's next Gigafactory will be one of 10-12 factories the company is planning.
"Ultimately, we'll end up building probably at least 10 or 12 Gigafactories and they will be really big Gigafactories aiming for an average output of 1.5 to 2 million units per factory, which is enormous."
If Canada is home to the next Gigafactory, it would most likely be located somewhere in Ontario's "Golden Horseshoe", Canada's most populated and economically productive region. Alberta could also be a good option considering it has favorable business regulations, cheaper energy costs, including Canada's best solar and wind potential, and its proximity to lithium resources.
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