Tesla prospered while Ford and GM struggled

As Cohen, the professor at Wharton, pointed out, in many ways Tesla’s approach is a throwback to the early days of the automobile, when Ford owned its own steel plants and rubber plantations. In recent decades, conventional automotive wisdom said that manufacturers should focus on design and final assembly and delegate the rest to suppliers. That outsourcing strategy helped reduce the amount of money large companies invested 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 each produce more than 10 million vehicles in a good year. “It’s a smaller supply chain to begin with,” said Melsert, who is now CEO of American Battery Technology Company, a mining and recycling company.

The Tesla line is also more modest and easier to stock. The Model 3 sedan and Model Y sports utility vehicle accounted for nearly all of the company’s sales in 2021. Additionally, Tesla offers fewer options than many traditional auto companies, simplifying manufacturing.

“This is a more streamlined approach,” said Phil Amsrud, a senior principal analyst at research company IHS Markit with an expert on automotive semiconductors. “They don’t try to handle a lot of different setups.”

Tesla’s software, which can be remotely updated, is considered the most sophisticated in the automotive industry. However, the company’s cars likely use fewer chips, analysts say, because the company controls functions such as battery cooling and autonomous driving from fewer centralized on-board computers.

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

Of course, Tesla may still struggle when it tries to replicate the growth it achieved in 2021: Its goal is to increase annual sales by roughly 50 percent for the next several years. The company acknowledged in its third quarterly report that its creative maneuvering in the face of supply chain chaos may not work as well when it ramps up production and requires more chips and other components.

Additionally, the market for electric cars is becoming much more competitive as traditional auto companies are belatedly responding with models that people want to buy rather than the small electric vehicles that are typically built to please regulators. Last week, Ford mentioned that due to high demand, it will almost double production of the Lightning, an electric version of its popular F-150 pickup truck. The Tesla pickup truck will take at least another year to go on sale.


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