How Tesla overcame the global supply chain issues that plagued rivals

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San Francisco – Tesla Inc’s ability to design components in-house has given the automaker the agility to make part modifications and deal with supply chain issues that hit other automakers much harder, sources and experts said.

Tesla increased deliveries by 87% to a record high in 2021, pushing shares up more than 13% on Monday.

Here are some of the ways Tesla has tackled supply chain challenges.

HOW TESLA DEALED WITH THE GLOBAL FLEA SHORTAGE

Tesla has told some customers that they can take delivery of the vehicle with some parts missing, such as Bluetooth chips and USB ports. Tesla also removed some features like radar sensors and lumbar support for the front passenger seats, which made the car less complicated to build. Tesla did not respond to Reuters’ request for comment.

Tesla has also raised vehicle prices to deal with higher costs, including “accelerated costs” for parts. US consumers have to wait seven months if they order a Model Y version, which prices rose 18% last year.

Tesla chief executive Elon Musk said Tesla was also able to substitute alternative chips for some that were in short supply. Volkswagen CEO Herbert Diess said Tesla’s ability to rewrite software to support new chips in 2-3 weeks was impressive.

HOW IS TESLA DIFFERENT FROM OTHER AUTOMAKERS?

Tesla designs more hardware and writes more software than many competitors, who rely on the efforts of automotive suppliers. Musk called the company “absurd vertical integration with other automakers.”

“We design circuit boards ourselves, which allows us to quickly change their design to accommodate alternative chips such as power chips,” a Tesla insider said.

In-house engineers design much of the complex software that powers Tesla vehicles, which Musk described as a “computer on wheels.”

Tesla also designs the chips used in its driver assistance systems and in-house manufactures parts ranging from seats to battery cells. It also has its own direct sales, service and recharging networks.

“We design and build so many more cars than other OEMs (original equipment manufacturers) that will largely go into the traditional supply base and, as I call it, catalog engineering. so is not very adventurous, ”Musk said.

Ambrose Conroy, CEO of Seraph Consulting, said: “They are controlling what goes into this vehicle on a level that no other automaker wants to. It is much more in line with the integration that Henry Ford had at the time. ‘origin with the model T. “

HOW TESLA SECURE THE CHIPS ORDERS

In 2020, many automakers cut chip orders as the pandemic and lockdowns hit demand. But Tesla never cut its production forecast with suppliers because it expected rapid growth, which helped it overcome the chip shortage, Tesla CFO Zach Kirkhorn said.

“They’ve just been smarter about it than other companies to make sure there is buffer stock,” said an official at a Tesla supplier.

Tesla’s direct ties to chip suppliers have allowed it to move faster than traditional automakers, which rely on top-tier suppliers that have relationships with chipmakers, said Kevin Anderson, consultant. principal at Write-Tek.

(Reporting by Hyunjoo Jin; Editing by Peter Henderson and Richard Pullin)

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