How Tesla is driving SCM forward

Romeo    February 23, 2016

To infinity and beyond. Why the desert, and not outer space could be the next great frontier for a company looking to push it’s supply chain into HYPERDRIVE!

It’s no secret Tesla Motors, an American automotive and energy storage company that designs, manufactures, and sells luxury electric cars, has seen better days. It’s signature 2015 Model S ranks as the world’s second best selling plug-in car in history after the Nissan Leaf, and despite that however, the company stock is hovering at prices not seen since back in 2013. With all the volatility present in today’s financial market, Tesla can ill afford to let any future uncertainty reek more havoc on it’s growing business, and aspirations of becoming the undisputed leader in the electric car space.

You see at the core of Tesla’s electric vehicles lies a lithium ion battery the size of your front door, and it’s this battery, along with one single moving rotor, that replaces the complex internal combustion engine found in most other vehicles. Currently these batteries are being sourced from China, the companies second largest market. While foreign manufacturing is not uncommon with today’s leading companies, Tesla isn’t a big player in the automotive space. Despite its high profile status, Tesla is still a small player in a massive, billion dollar industry dominated by relatively few players. Which makes outsourcing your most important piece of the pie that much harder to swallow – enter the Tesla Gigafactory.

The Gigafactory, is owner Elon Musk’s answer to uncertainty. It’s a 6-million sq-ft sprawling mecca, “big enough to hold up to 6 of Amazon’s biggest distribution centers, [and] flanked by a sea of tall metal windmills on one side on a campus that could grow to more than 1,000 acres”

In cooperation with Panasonic and other strategic partners, the Gigafactory will produce batteries for significantly less cost using economies of scale, innovative manufacturing, reduction of waste, and the simple optimization of locating most manufacturing process under one roof. We expect to drive down the per kilowatt hour (kWh) cost of our battery pack by more than 30 percent. The Gigafactory will also be powered by renewable energy sources, with the goal of achieving net zero energy.

By 2020 the Gigafactory is set to manufacture more lithium ion batteries annually than were produced worldwide in 2013. By the end of the first year of volume production of their mass market vehicle, Tesla expects the Gigafactory will drive down the per kWh cost of their battery pack by more than 30 percent.

Tesla’s mission is to accelerate the world’s transition to sustainable transportation.

It’s an enormous, but necessary investment for a company whose success is so closely aligned with the production of lithium ion batteries, and may some day lead to it becoming a major player in the distribution of these cells.

In addition to building it’s own plant, Tesla has taken additional steps to ensure improved supply chain management such as the Tesla Motors Supplier Portal, which allows the company and its suppliers to share key business and product information over a safe web. The company is also exploring plans to set up manufacturing hotels “where several suppliers could benefit from certain shared services, reaching better economies of scale by being in one location.”

Tesla states the ultimate goal is to get suppliers closer to their production home in Fremont CA, and “reduce logistics and inventory costs, reduce the carbon footprint from their supply chain and increase flexibility to be able to do modifications even faster because the supply chain is shorter.”

Lessons for Others

With Gigafactory Tesla is taking future matters into its own hands. It’s identified the gaps within it’s current production cycle and solidified what was already a revolutionary supply chain, we’re talking about the same company that pioneered online made-to-order luxury automobiles, by bringing in house not only its most important part, but what may likely be a predominant source of fuel for many more generations to come.

Haresh Kamath, energy storage expert at EPRI, notes “Tesla isn’t completely alone in this strategy. This was the basis of Nissan’s approach too, and we’ll see if its huge new factory in Tennessee pans out. But this strategy is risky. If the market doesn’t materialize, you’re stuck with this huge factory on your hands. Several other companies tried this just a couple of years ago, with government money no less, based on some pretty aggressive ideas on how quickly the market would materialize. But maybe it’s different with Tesla. This is a company that’s used to making its own market, and it’s been very successful with that.”

Organization: Tesla Motors
Industry: Automotive
Name of Organization Contact: N/A

Authored by: Romeo Crugnale

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