Wednesday, September 27

Why Tesla is getting through the crisis better than other car manufacturers

Tesla with record deliveries in 2021
Strong despite semiconductor crisis and supply chain chaos
Business model and set-up as an advantage

2021 was a successful year for Tesla. After the electric car maker was able to report the sixth record month in a row in vehicle deliveries in December, the number of Tesla vehicles sold over the year totaled more than 936,000. The company thus exceeded the previous year’s figure by a whopping 87 percent.

Automaker with a weak 2021

But Tesla’s success is not a blueprint for other automakers, quite the opposite. Last year, the industry was concerned about the consequences of the corona crisis and in particular about disrupted supply chains and a shortage of semiconductors. Production outages were the result, and not only the car manufacturers themselves, but also their suppliers came under massive pressure.

This was also reflected in the sales figures of established automotive groups: At Volkswagen, sales figures around the world fell by 4.5 percent to 8.9 million vehicles. The core brand VW was particularly affected, where sales figures – compared to the weak reference year 2020 – fell again by 8.1 percent. The company’s bright spot: The electric car business: Here, the Wolfsburg-based company sold 452,900 purely battery-powered vehicles, more cars than in the previous year.

The traditional car manufacturer General Motors was hit even harder than the VW Group in 2021, which even recently had to give up its supremacy in the USA to its Japanese competitor Toyota. And Ford’s sales were also down – in the US market alone, the company lost 6.8 percent over the year as a whole compared to 2020.

Semiconductor Crisis and Supply Chain Issues

It was the lack of semiconductors in particular that caused problems for many established car manufacturers last year. Apparently, many industry representatives, but also their suppliers, underestimated how quickly customer demand would recover after the weak COVID-19 year 2020. Semiconductor manufacturers could not deliver the urgently needed chips quickly enough, which led to production losses and even caused some car manufacturers to temporarily close plants.

Tesla has been able to handle these challenges better – for two reasons. Initially, the Musk group was apparently able to estimate the development of demand better than many of its competitors. So Tesla was set for a recovery towards pre-crisis levels. In addition, Tesla has a fundamental advantage over the competition: the EV group has become much less dependent on suppliers. Unlike GM & Co., Tesla never gave up semiconductor negotiations to suppliers, instead establishing itself in a strong negotiating position.

In addition, the company reacted as flexibly as possible to the increasingly pronounced chip crisis. In its third-quarter earnings report, Tesla said it used “alternative parts and programmed software to mitigate the challenges created by these bottlenecks.” Specifically, Tesla simply manufactured some of the missing chips itself or used alternative semiconductors and adapted its in-house software for this – an option that many other car manufacturers had not previously considered. In this context, company boss Elon Musk spoke of “vertical integration”:

That put the company in a better bargaining position, and the type of semiconductors Tesla puts in its vehicles are less popular with competitors. In an investor statement, the experts at Morgan Stanley also identified another advantage for Tesla: economies of scale. Although traditional car manufacturers such as VW & Co. sell significantly more vehicles overall, Tesla is growing significantly faster than the established competition. The experts write that this has prompted semiconductor manufacturers to perceive Tesla as a strategic customer.

The fact that the car manufacturer takes over almost all of the production of its vehicles itself and also has its own battery production facilities has given the company a major advantage over its competitors in the current market situation. This allowed Tesla to go about its business without having to stop production.

Industry giants inflexible

The fact that Tesla was able to cope with the crisis much better than most of the industry representatives may also be due to the size of the company. In an international comparison, the world’s largest electric car manufacturer is a small light in terms of total sales. The number of production sites is also clear: Model S, Model 3 and Model Y roll off the assembly line in Fremont in California, while the Tilburg plant in the Netherlands is no longer produced at all, only final assembly takes place here. The Model 3 and Model Y are produced in the plant in China, and the company also produces battery cells and superchargers in its Asian branch. The Model Y and later the Model 3 are to roll off the assembly line in the new Gigafactory in Grnheide near Berlin, and Tesla also wants to set up battery cell production here. It remains to be seen whether this will be as large as in the main battery plant in Nevada, where the semi-truck is also to be built. The Tesla factory in New York has also focused on superchargers, and parts for the solar roof business are also manufactured here.

VW now has 120 production sites in 19 European countries and 19 countries in America, Asia and Africa. General Motors also operates globally and claims to have production facilities on six continents. Ford also operates worldwide with over 60 factories.

In addition to the striking differences in the number of production sites, Tesla’s model range is also clear compared to that of the major car manufacturers: With the Model S, Model 3, Model X and Model Y, the company has its S.3.XY series on the market come the semi-truck as well as the roadster and cybertruck, which are not yet in production. On the other hand, there are 50 different models in the Volkswagen Group, GM sells 7 different models with its Chevrolet brand alone, plus vehicles from the Buick, Cadillac and GMC brands. And the Ford Group is also on the road with a large range of models, including in the segments of passenger cars, SUVs and commercial vehicles.

However, the sheer size of the auto giants makes them more inflexible in the current environment, while Tesla’s leaner approach keeps the company more nimble. The smaller supply chain and the ability to quickly and flexibly make adjustments to the production of the manageable number of vehicle models gives Elon Musk’s group an advantage in the current situation in the industry.

view in the future

However, Tesla has also recognized that this does not have to be permanent. In its third-quarter results, the company acknowledged that creative maneuvering around the tight supply chain may not be as feasible as production increases and the demand for semiconductors and auto parts increases.

In addition, the situation in the semiconductor market is likely to ease in 2022 and established car manufacturers will probably adapt better to the current industry conditions. VW & Co. are already trying to set up their own battery production, in Europe alone the Wolfsburg-based company wants to start with 6 of its own battery cell plants. In the semiconductor sector, one should consider taking things into one’s own hands: “The Volkswagen Group is currently also considering developing its own chips,” a VW Group spokesman recently told the Saxon news portal Oiger.

Tesla’s lead could then shrink, while the situation for VW & Co. is likely to ease up more and more. In addition, Tesla is currently struggling with its own problems in-house. The company recently had to recall hundreds of thousands of vehicles in the USA and China because of potentially “safety-threatening defects”. In addition, Tesla’s heart, the autopilot system, remains in the focus of the US federal authorities after accidents.

To maintain its fundamental lead, Tesla needs to get these issues under control as well.

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