Tesla’s Supply Chain Struggles and Triumphs

Tesla has had its share of well reported troubles recently. But regardless, the electric luxury carmaker has earned its place in history as the industry outsider that set new plateaus in car design, infotainment, and alternative energy powertrains.

Engineering feats aside, Tesla also serves as a case study in supply chain management trials and tribulations from which many lessons can be learned. After all, founder and CEO Elton Musk and his team managed to build what is possibly the world’s most advanced electric car factory from scratch in the California desert.

Musk is the first to say that he and team had a lot to learn about automotive supply chain, even long after the first Tesla model rolled off the production line.

At a recent shareholders meeting, Musk and Tesla co-founder JB Straubel discussed Tesla’s history and how supply chain management played a part. They were surprisingly candid about what worked, what didn’t, and what remains to be done. Here a few supply chain lessons they learned – often the hard way.

Know When to Start Over

During the first few years after Tesla was created, Musk gradually realized the supply chain was not working. The startup was quickly running out of cash and the end of Tesla’s dream was approaching very quickly. Musk realized that in order for Tesla to survive, a complete supply chain overhaul was in order.

“[The cars] were almost all hand-built. There were so many issues that we had to redesign the whole production process,” Musk said. “From 2008 to 2009, we had to do a complete reboot of the design of the car and the technology. Most of our suppliers had to be changed. “

Offshore Not Always Viable

Relying on suppliers offshore can have its obvious pluses. Yet, not all companies stand to benefit, especially for a startup like Tesla that intended to design and produce what it hoped would be the most technologically advanced electric cars on the market.

Among the problems overseas-based suppliers posed was a six-month delay between the time battery cells were produced and when they were put in the car.

“We started building most of the powertrain overseas, because we had this slightly misguided idea that everything must be cheaper and better if built in Asia. We had this crazy supply chain and it was hard to get good quality product at the rate we needed from these suppliers,” Straubel said. “So we started building battery packs in Thailand with a contract manufacturer that had no idea how to build battery packs. So from 2008-2009, we moved those factories back to California from overseas and resetting them up completely.”

Putting Everything in the First Product

Musk described the design and producing of the first Model Xs as “challenging,” largely because the bar was set too high for the first model. The goal of creating a supply chain that would procure such as vast range of tech for its first model was misguided, Musk says.

“I particularly need to fault myself for putting too much technology all at once into a product,” Musk said. “We have these great ideas. The smart move would have been to table those for version 2 or version 3.”

Know When It is Time to Reinvent

Only consumer electronic companies previously produced the lithium ion batteries that Tesla cars required, which posed difficulties for Tesla’s supply chain.

“Previously, all lithium ion batteries were made by consumer electronics companies, with different volumes and methods [than what we required], Straubel said. “We determined that we could remove many inefficiencies from the process by moving the battery packs and module production next to where the cells were made.”

The Ultimate Task: Learning How to Teach Machines to Build Machines

It is a colossal understatement to say that Musk is ambitious. Besides creating Tesla, the PayPal founder plans on creating the company that first colonizes Mars where Musk has said he hopes to die.

For car production, Musk said he hopes to boost efficiencies in orders of magnitude by factors of 10 or even 100 times. “Tesla’s factories will generate dramatic improvements. There is crazy room for improvement by an order of magnitude in production,” Musk said. “So with significantly less engineering effort we can make dramatic improvements to the machine that makes the machine.”

How does Musk hope to accomplish this monumental task?“The greatest potential lies is in building the factory,” Musk said, without offering specifics.

If he does succeed, the project will likely serve as historically important case study in production processes. If he does not succeed, Musk’s venture will be one of history’s most brilliant failures.

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