3 ways Elon Musk and Tesla are successfully managing the supply chain conflict
On Wednesday, Elon Musk reported to investors that “While we battled, as everyone did, with supply chain challenges through the year (2021), we (Tesla) managed to grow our volumes by nearly 90 percent last year.”
This is in stark contrast to other automotive manufacturers who have pointed to the same constraints that we wrote about earlier in the month.
What have Elon Musk and Tesla done so well to ride out the supply chain storm?
1. Problem Solving
Last year, Tesla with less volume than its competitors, further helped to mitigate its supply chain risk in comparison to its larger, higher volume competitors. Tesla used chips that were less scarce in comparison with its competitors. It also had the resource in place to quickly re-write the software when it needed to.
A classic problem-solving approach to efficiently sweat the assets of a finite resource.
Structuring expectations is a key aspect of negotiating – something which Tesla has been keen to do recently. Tesla states its factories “have been running below capacity for several quarters as the supply chain became the main limiting factor”, a trend “likely to continue through 2022”.
Whilst the Tesla share price has dropped off slightly – this information disclosure can serve a few different purposes, all of which have a positive spin for Tesla. Disclosing this information early is the market’s preference, markets don’t like nasty surprises. Whilst there were share price falls off the back of this news, they would probably be worse with an unexpected piece of bad news.
If Tesla’s prediction does come true, they can be viewed as providing a consistent, accurate message (again markets like this). If they do over perform, this could be seen as another chapter to add to the Tesla/Elon Musk success story.
For chip manufacturers, it’s attractive to be associated with innovative, forward-thinking products and brands. With a factory under construction in Berlin and others planned, the Tesla procurement team can point the chip makers to ‘realistic’ potential tomorrow when supply chain constraints hopefully recede.
These factors may help Tesla to negotiate a greater slice of the current chip ‘pie’ than one might have expected.
Musk has stated that his existing factories are underutilised – whist this could be viewed as a negative, a commitment to future volume is something that the chip makers will want to see to give them comfort when things hopefully settle down in the coming months.
The Wednesday message from Musk also lends itself to potentially influencing both the consumer and the chip manufacturers going forwards. For a consumer, hearing the message that in 2022 the supply chain issues continue, may encourage them to put in early orders now (scarcity).
Musk has also taken this opportunity to strengthen and clarify his vision of the future - driverless cars, followed in the future by a ‘Robotaxi’ fleet! This can both promote and enhance long term relationships with suppliers and sow the seeds for future consumer commitment and consistency – moving from the here and now technology with the promise of future progress with a commitment to the winning formula of this pioneer. As Musk himself said recently, companies like GM have "some room for improvement".
Sam Macbeth, 27th January 2022