Tesla’s Big Secret to Overcoming Challenges: Vertical Integration

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posted on EVANNEX on January 19, 2022, through Matt Pressman

Last year proved to be extremely difficult for the automotive sector. Supply chain issues, a global chip shortage and a pernicious pandemic have plagued the industry. However, an unorthodox strategy at Tesla has proven invaluable in the face of tough times in 2021 – vertical integration.

Above: Tesla shows off its electric cars in various stages of production at the China International Import Expo (Twitter: Tesla Greater China)

Jack Ewing reports in The New York Times: “Just a few years ago, analysts saw Mr. Musk’s insistence that Tesla do more things on its own as one of the main reasons why the he company was struggling to increase production. Now his strategy seems to have been vindicated. »

“For the past few decades, conventional automotive wisdom has dictated that manufacturers focus on design and final assembly and leave the rest to suppliers. This strategy has helped reduce the amount of money the big players tie up in factories, but has left them vulnerable to supply chain disruptions,” Ewing writes.

In contrast, Tesla tightly controls the technology inside the car. “Tesla has fewer packages,” said Phil Amsrud, senior analyst specializing in automotive semiconductors at IHS Markit, a research firm. “The fewer components you need right now, the better.”

“It’s a more streamlined approach.” says Mr. Amsrud And, unlike traditional automakers mired in outdated gasoline engine technologies, “Tesla started with a blank sheet of paper.”

Above: Wedbush analyst Dan Ives talks about Tesla overcoming challenges in 2021 and forecasting what lies ahead in 2022 (YouTube: CNBC Television)

Additionally, Elon Musk’s focus on in-house software development has helped him outmanoeuvre his competitors. “Tesla, born in Silicon Valley, has never outsourced its software – they write their own code,” says Morris Cohen, a professor emeritus at the Wharton School at the University of Pennsylvania who specializes in manufacturing and logistics.

“Tesla was in control of its destiny,” says Professor Cohen.

“Doing more on its own also helps explain why Tesla avoided battery shortages, which prevented companies like Ford and GM from selling many electric cars. outside of Reno, Nevada, to produce batteries with partner Panasonic, and now that plant helps ensure a reliable supply,” according to the NYT.

“It was a big risk,” said Ryan Melsert, a former Tesla executive who helped build the Nevada plant. “But because they decided early on to bring things in-house, they have a lot more control over their own destiny.”

In turn, according to Bloomberg, “investors have embraced Tesla Inc. and its meteoric rise.” Why? If there is an industry-wide race for electric vehicles, Morgan Stanley’s Adam Jonas says Tesla is leading the way. “Think of EV racing as a marathon. Tesla is in the lead at mile number 21. Everyone is at mile 2 or still tying their shoes.


Sources: New York Times, Bloomberg, CNBC Television

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