How Tesla will win The Supply Chain Game

m234ali    October 26, 2015

At Yorkdale’s Tesla Showroom: Brother about to joyride as Dad recovers from the awesome pick-up and autopilot function.

Sources: Tesla’s Industry Supply Chain, Tesla Supply Chain Creation, Tesla electrified by social media, Tesla Selling Directly, Innovating Innovation: Tesla, Looking into the Future with Elon Musk, Elon Musk on Social Media

Company: Tesla.
Industry: Automobile.
Tesla’s goal is to accelerate the world’s transition to electric mobility with a full range of increasingly affordable electric cars. California-based Tesla produces Model S, the world’s first premium sedan built from the ground up as an electric vehicle.  Tesla vehicles deliver both unprecedented range and a thrilling drive experience

When we think of supply chain management, the most popular examples that come to mind derive from the automobile industry—largely because of references in the literature to Ford’s assembly line and Toyota’s lean manufacturing techniques. In fact, most students of supply chain management learn about these processes and how they have influenced the development of other industries. In 2015, we are still learning from auto-makers how incredibly important a supply chain system is towards the customer experience, thanks to Tesla.

Our visit to Yorkdale Mall’s Tesla Showroom was magical.  Okay not really, but my brother skipped around like a kid in a candy store looking at all the cool Tesla retail–the cars in the showroom but also the shirts, hats, information on technology etc–while my dad, a car enthusiast who spends long months researching and test driving before making his next purchase, began his long list of questions with our Ownership Advisor, Zlad Dujsic.  Patient, passionate and professional, Zlad tried to simplify the awesomeness for me:

“You’re sitting in literally the best car in the world, made by our CEO who designs the finest rockets and aerospace technology out there.  Imagine: If he can build rockets that launch into outer space at ridiculous speeds with ridiculous accuracy, just imagine what he can do with something that stays on the ground”

Supply Chain Strategy

So what’s the big deal about this lean, electric machine anyway? Apart from the obvious fact that it has no engine but a battery instead, when it comes to the procurement cycle, Tesla is unique in that it designs, manufactures, sells and services through an independent network — truly a reformation of the automobile business and the customer-facing practices.  Here’s 2 major areas that Tesla’s supply chain is winning:

First – It has a highly intelligent and innovative VP of Supply Chain: Peter Carlsson.  He has fashioned the engineering and production of the company’s procurement so that Tesla can still be competitive in a large scale industry while being the smallest automobile manufacturer in the world.   Instead of taking the traditional car making approach, Carlsson has guided Tesla to leverage it’s own hardware and software engineering capability to design and build an independent system, focusing on it’s own design rather than using components from a supplier.

Going further, Carlsson sources suppliers that are outside of the traditional automotive space, building partnerships with companies that work with power distribution of high current or high power electricity applications, furthering their supply chain network that mimics the futuristic appeal of their cars.  This has lead to Tesla developing it’s own unique supply base that leverages new players and contributes to competitive pricing — allowing them to become more competitive in the field overall.

Second – Tesla is the first of it’s kind to successfully launch an online order process that includes a financing option.  This means consumers in the US can purchase their Tesla online and choose from a list of customization options.   Today in 38 cities in China, not only can you purchase online but you can even process payment through ChinTesla-expands-sales-across-China-now-shipping-to-customers-in-38-citiesa’s most popular mobile messaging app, WeChat.  Leveraging it’s product catalog, Tesla featured it’s Model S at the base price of RMB 734 000 (120 000 US) and took advantage of the integrative functionality that WeChat offers to it’s customers for information on models or directions to the nearest dealership.  This fundamentally changes the way automobile organizations, or any organizations for that matter, can access expensive products and services from the ease of their home and comfort of their cell phone, tablets and laptops.

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Sharing technological expertise

SpaceX is Tesla’s sister company that focuses on rocket science–literally.  The company leads, designs, manufactures and launches the most advanced rockets and space craft engineering — they have made several missions to the International space station.  You wouldn’t be wrong to assume a SpaceX influences the technological experience in Tesla’s cars and the EV components it makes for shareholder partners like Toyota and Daimler (though intimate knowledge doesn’t exist) it’s clear that Tesla embodies the same spirit of world class engineering.  This is largely due to the development philosophy of high inter-disciplinary collaboration incorporated through a flat organizational structure and technical contribution by individuals at all levels.


Back-seat view of the incredibly large touch screen display!

Another cool fact Zlad filled us in on while my dad took control of the wheel (then gave up control to the Autopilot function that took over the car completely, even making turns on it’s own!) was how Tesla in fact has a smart system built in that transfers knowledge from one Tesla car’s experience on the road (ie. a particular road’s curve, for example) and sends an automatic update to Tesla’s internal database in which the knowledge is stored and shared amongst all Tesla cars in the international Tesla community.  It’s a collaborative system of automatic knowledge sharing for which the Product Development teams can use to further enhance product and user capabilities.  Not to mention it creates a community for Tesla owners to contribute back to the organization, which also leads to system upgrades that they later reap the benefits from.

The CEO and His Tweets

So how does a small car manufacturing company, that does no advertising, manage to evolve it’s supply chain success beyond the points already discussed?  Already having touched on Tesla’s use of smart integration into social media via WeChat in China, we can take one step further and examine the mastermind behind Tesla’s social media success as a whole: enter Elon Musk.

Adam Jonas, the analyst that covers Tesla for Morgan Stanley, describes him as “a marketing genius, in our view.  A tactful use of social media means a tiny car company has the best known financing program on the planet…. Mainstream OEMs (original equipment manufacturers) are being taken to school here.”  Basically, Elon Musk’s intrigue and popularity as a real life Tony Stark (Ironman) has fans watching his every move and he has used this strategy to communicate to his followers about his ambitions and new moves that his companies are making.

In conclusion, we can see how Tesla Motors takes advantage of the tools and options available to a small car manufacturer to leverage it’s capabilities internally and externally to manage it’s supply chain and procurement — and how social media, alongside a collaborative network of Teslas around the world, assists great Leaders like Musk and Carlsson to learn and develop.  Though I didn’t get a chance to get behind the wheel this time, rest assured — I will get there!