Why Tesla soared as other automakers struggled to make cars

GM and Ford
closed one factory after another — sometimes for months on end — because of a
shortage of computer chips, leaving dealer lots bare and sending car prices
zooming. Yet Tesla racked up record sales quarter after quarter and ended the
year having sold nearly twice as many vehicles as it did in 2020, unhindered by
an industrywide crisis.

ability to conjure up critical components has a greater significance than one
year’s car sales. It suggests that the company, and possibly other young
electric car businesses, could threaten the dominance of giants like Volkswagen
and GM sooner and more forcefully than most industry executives and
policymakers realise. That would help the effort to reduce the emissions that
are causing climate change by displacing more gasoline-powered cars sooner. But
it could hurt the millions of workers, thousands of suppliers and numerous
local and national governments that rely on traditional auto production for
jobs, business and tax revenue.

Tesla and
its enigmatic CEO, Elon Musk, have said little about how the carmaker ran
circles around the rest of the auto industry. Now it’s becoming clear that the
company simply had a superior command of technology and its own supply chain.
Tesla appeared to better forecast demand than businesses that produce many more
cars than it does. Other automakers were surprised by how quickly the car market
recovered from a steep drop early in the pandemic and had simply not ordered
enough chips and parts fast enough.

When Tesla
couldn’t get the chips it had counted on, it took the ones that were available
and rewrote the software that operated them to suit its needs. Larger auto
companies couldn’t do that because they relied on outside suppliers for much of
their software and computing expertise. In many cases, automakers also relied
on these suppliers to deal with chip manufacturers. When the crisis hit, the
automakers lacked bargaining clout.

Just a few
years ago, analysts saw Musk’s insistence on having Tesla do more things on its
own as one of the main reasons the company was struggling to increase
production. Now, his strategy appears to have been vindicated.

Cars are
becoming increasingly digital, defined by their software as much as their
engines and transmissions. It’s a reality that some old-line car companies
increasingly acknowledge. Many, including Ford and Mercedes-Benz, have said in
recent months that they are hiring engineers and programmers to design their
own chips and write their own software.

See also  Mexican president contracts COVID-19 for second time, symptoms 'mild'

“Tesla, born
in Silicon Valley, never outsourced their software. They write their own code,”
said Morris Cohen, a professor emeritus at the Wharton School of the University
of Pennsylvania who specializes in manufacturing and logistics. “They rewrote
the software so they could replace chips in short supply with chips not in
short supply. The other carmakers were not able to do that.”

controlled its destiny,” Cohen added.

Tesla sold
936,000 cars globally in 2021, an 87 percent increase for the year. Ford, GM
and Stellantis, the company formed from the merger of Fiat Chrysler and
Peugeot, all sold fewer cars in 2021 than they did in 2020.

Measured by
vehicles delivered globally, Tesla vaulted past Volvo and Subaru in 2021, and
some analysts predicted that it could sell 2 million cars this year, as
factories in Berlin and Austin, Texas, come online and a plant in Shanghai
ramps up production. That would put Tesla in the same league as BMW and
Mercedes — something few in the industry thought possible just a couple of
years ago.

GM and Ford,
of course, sell many more cars and trucks. Both companies said last week that
they sold around 2 million vehicles last year just in the United States.

Tesla, which
rarely answers questions from reporters, did not respond to a request for
comment for this article. It has said little publicly about how it managed to
soar in a down market.

“We have
used alternative parts and programmed software to mitigate the challenges
caused by these shortages,” the company said in its third-quarter earnings

performance is a stark turnaround from 2018, when Tesla’s production and supply
problems made it an industry laughingstock. Many of the manufacturing snafus
stemmed from Musk’s insistence that the company make many parts itself.

Other car
companies have realised that they need to do some of what Musk and Tesla have
been doing all along and are in the process of taking control of their onboard
computer systems.

for example, plans to use fewer specialized chips in coming models and more
standardized semiconductors, and to write its own software, said Markus
Schäfer, a member of the German carmaker’s management board who oversees

See also  Two more Abhijan launch drivers sent to jail over fire

In the
future, Mercedes will “make sure we have customized, standardized chips in the
car,” Schäfer said in an interview Wednesday. “Not 1,000 different chips.”

will also design its own vehicle hardware, he said. Without mentioning Tesla,
Schäfer added, “Probably some others were earlier going down this road.”

Doing more
on its own also helps explain why Tesla avoided shortages of batteries, which
have limited companies like Ford and GM from selling lots of electric cars. In
2014, when most carmakers were still debating whether electric vehicles would
ever amount to anything, Tesla broke ground on what it called a gigafactory
outside Reno, Nevada, to produce batteries with its partner, Panasonic. Now, that
factory helps ensure a reliable supply.

“It was a
big risk,” said Ryan Melsert, a former Tesla executive who was involved in
construction of the Nevada plant. “But because they have made decisions early
on to bring things in-house, they have much more control over their own fate.”

As Cohen of
Wharton pointed out, Tesla’s approach is in many ways a throwback to the early
days of the automobile, when Ford owned its own steel plants and rubber
plantations. In recent decades, the conventional auto wisdom had it that
manufacturers should concentrate on design and final assembly and farm out the
rest to suppliers. That strategy helped reduce how much money big players tied
up in factories but left them vulnerable to supply chain turmoil.

It also
helps that Tesla is a much smaller company than Volkswagen and Toyota, which in
a good year produce more than 10 million vehicles each. “It’s just a smaller
supply chain to begin with,” said Melsert, who is now CEO of American Battery
Technology Co, a recycling and mining firm.

The Tesla
lineup is also more modest and easier to supply. The Model 3 sedan and Model Y
SUV accounted for almost all of the company’s sales in 2021. Tesla also offers
fewer options than many of the traditional carmakers, which simplifies manufacturing.

“It’s a more
streamlined approach,” said Phil Amsrud, a senior principal analyst who
specialises in automotive semiconductors at IHS Markit, a research firm. “They
are not trying to manage all these different configurations.”

software, which can be updated remotely, is considered the most sophisticated
in the auto business. Even so, the company’s cars likely use fewer chips,
analysts said, because the company controls functions like battery cooling and
autonomous driving from a smaller number of centralised, onboard computers.

See also  Sudan braces for ‘the worst’ after prime minister resigns

“Tesla has
fewer boxes,” Amsrud said. “The fewer the components you need right now, the

Of course,
Tesla could still run into problems as it tries to replicate the growth it
achieved in 2021 — it is aiming to increase sales about 50 percent a year for
the next several years. The company acknowledged in its third-quarter report
that its creative maneuvering around supply chain chaos might not work so well
as it increased production and needed more chips and other parts.

The electric
vehicle market is also becoming much more competitive as the traditional
carmakers belatedly respond with models that people want to buy rather than the
small electric vehicles typically made to appease regulators. Ford said this
past week that it would nearly double production of the Lightning, an electric
version of its popular F-150 pickup truck, because of strong demand. Tesla’s
pickup truck won’t go on sale for at least another year.

The outlook
for the traditional carmakers is likely to improve this year as shortages of
semiconductors and other components ease, and as manufacturers get better at

vehicles still suffer from quality problems. The company told regulators in
December that it planned to recall more than 475,000 cars for two separate
defects. One could cause the rearview camera to fail, and the other could cause
the front hood to open unexpectedly. And federal regulators are investigating
the safety of Tesla’s Autopilot system, which can accelerate, brake and steer a
car on its own.

“Tesla will
continue to grow,” said Stephen Beck, managing partner at cg42, a management
consulting firm in New York. “But they are facing more competition than they
ever have, and the competition is getting stronger.”

carmaker’s fundamental advantage, which allowed it to sail through the chip
crisis, will remain, however. Tesla builds nothing but electric vehicles and is
unencumbered by habits and procedures that have been rendered obsolete by new
technology. “Tesla started from a clean sheet of paper,” Amsrud said.

© 2022 The
New York Times Company

Related Articles

Back to top button