Case Study

Tesla

Written by:

Luan Deda

Wien, am 29. November 2020

Semester: Wintersemester 2020

Studienfach: Operations Perspective

LV-Leiter: Dr. Wolfram Groschopf

 1. Describe the corporate/competitive strategies adopted by the company.

The Tesla brand was founded with a clear mission and vision by a group of engineers in
Silicon Valley with a clear and ambitious plan to change the mobility of the future and to
pave the way for more sustainable energy. From the beginning Tesla proved to be a
1
technology and innovation pusher in the automotive market.

Battery Cell - Tesla as a technology pusher has set its aim to produce nearly all the
components that they need for their car internally, so in this case we divide Tesla in two
parts, first as a car producer and second as a battery cell producer. The battery pack is
designed and engineered by Tesla, and they produce it in collaboration with Panasonic
in the Gigafactory. A sophisticated battery is one thing, but the cost-effective to produce
is the other, Tesla is constantly researching to improve its battery cells in terms of
efficiency, but economies of scale have allowed Tesla and Panasonic to develop and
produce one of the most efficient and cost-effective battery cells. Having one of the
World’s best and most advanced batteries, allows Tesla to work with other
manufacturers by supplying them with battery cells. The most notorious Tesla battery
cells costumers are Mercedes and Toyota. Investing in the Gigafactory has proven to be
a smart strategic investment, since the growing demand for Tesla and other
manufacturers EV`s is rising steadily.2

Charging Network - What Tesla is doing right is that it listens to its customers and
understands them, Tesla recognized very early on that customers want a fast and
uncomplicated charging process. With the increasing demand for EV's, the demand for
charging stations is also increasing and Tesla has again shown itself to be a pioneer and
has installed an excellent charging network, allowing Tesla customers to use the
charging network for a certain period of time free of charge and this is also exclusively
available for Tesla customers. The Supercharger network has meant that customers
3
would rather choose Tesla than another maker of EV's.

1
www.tesla.com
2
Tesla’s Competitive Advantages — Zach – November 2020 Online: http://evobsession.com/tesla-competitive-advantage-5-big-ones/
3
Tesla’s Competitive Advantages — Zach – November 2020 Online: http://evobsession.com/tesla-competitive-advantage-5-big-ones/
Software – We are used to cars being machines with small computers. However, the
future tells us that cars will be much more computers with wheels, so we can say that
Tesla is currently a moving computer and far superior to its competitors, you look in vain
for analog buttons because every function is controlled by the board computer. Here we
can see again that Tesla listens and understands its customer’s needs. Tesla keeps
bringing new updates and customers are no longer required to drive to the dealership to
update the software in the car, but rather to do so as normal throughout the night at
Tesla's EV's. 4

Reputation – As described above, Tesla is a young company, but Tesla has proven that
the costumers can believe and trust the company. Tesla has an excellent reputation as a
company that builds excellent cars that also count one of the safest cars in the entire
industry. Not only safety plays a huge role for the customers, but also the driving
experience and Tesla has excellently touted these two aspects. Another advantage is
that Tesla does not sell the cars through third parties, but follows the policy ``from the
manufacturer to the customer`` and thus it is possible for each car sold the so-called
markup that would be incurred by the dealers is passed directly on to the customer as a
discount.5

2. What are the supply chain strategies adopted? How do they fit/align with the
corporate and marketing strategies? Highlight good practices/room for
improvement!

The CEO of Tesla Elon Musk stated that Tesla has set its goal to produce 500,000 cars
annually by the FY 2020 (Monsellato, 2016). Setting such a goal is not only ambitious,
but also very demanding, as the supply chain needs to be restructured and designed for
greater efficiency. Tesla currently produces the cars in Fermont California, USA, in which
the cars are assembled, but other work steps are also carried out there, such as
stamping, painting, production of electric motors, etc. Tesla is trying to produce many
components that are needed in production by itself and thus follows a course of vertical
integration. This strategy means that Tesla is less dependent on suppliers, and this type
of integration can also make the supply chain less adaptable for the future. 6

4
Forbes; Tesla's Unique Position In The Car Market Is One Of Its Biggest Strengths – November 2020 Online:
http://www.forbes.com/sites/greatspeculations/2015/07/02/teslas-unique-positionin-the-carmarket-is-one-of-its-biggest-
strengths/#3a159b5b22ec
5
Forbes; Tesla's Unique Position In The Car Market Is One Of Its Biggest Strengths – November 2020 Online:
http://www.forbes.com/sites/greatspeculations/2015/07/02/teslas-unique-positionin-the-carmarket-is-one-of-its-biggest-
strengths/#3a159b5b22ec
6
Barkai, J. Tesla Will Have a Tough Time Ramping up Production. Here's Why. Retrieved from Industry Week: - . (November 2020)
https://www.industryweek.com/continuous-improvement/teslawill-have-tough-time-ramping-production-heres-why
Building a car without dependence on suppliers is also unthinkable by Tesla, so Tesla
places particular emphasis on being close to suppliers when planning the new
manufacturing units, in addition to the production unit in Fermont, California, Tesla also
operates smaller manufacturing units in Lathrop, California and Tilbourg, and the
Gigafactory, where the battery cells are produced. 7
It's no longer a secret that Tesla is one of the largest manufacturers of EV's and has a
huge demand for lithium, which will increase significantly since the introduction of the
new mass-market Tesla Model 3 and Model Y. Since we also mentioned above that
Tesla manufactures most of the components itself and thus enjoys independence from
the parts suppliers, Tesla needs raw materials and one of the largest and most important
raw material for Tesla counts lithium. Lithium is important not only for the battery cells
used in cars, but also for other products Tesla manufactures, such as the Powerpack,
which is used for both homes and commercial businesses to store excessive Energy
produced by solar panels. Tesla and other manufacturers that produce lithium-based
batteries are fighting a battle over who can secure their lithium needs. Tesla has several
contracts with various manufacturers that supply their lithium to Tesla, and in order to
avoid a dependence on a single manufacturer, Tesla has various suppliers from all over
the world, such as China being one of the largest suppliers to be followed by Australia
and Canada.8

Figure 1 Value Chain of Tesla9

7
Thompson, A.Tesla, Inc.’s Operations Management: 10 Decisions, Productivity. Retrieved from Panmore . (November 2020). Institute:
http://panmore.com/tesla-motors-inc-operationsmanagement-10-decisions-areas-productivity
8
McKenna, B. (n.d.). Who Are Tesla’s Lithium Suppliers? Retrieved from https://www.nasdaq.com/articles/who-are-teslas-lithium-suppliers-
2019-03-26

9
Christaininoa. (2016, June 17). Tesla’s Value Chain. Retrieved from wordpress:
https://youareallwrongblog.wordpress.com/2016/06/17/teslas-value-chain/
Tesla can be less concerned about lithium utilities, but the company is heavily dependent
on other suppliers. As a result, the volatility in the supply chain, where only one supplier
supplies only one component, fluctuates more than the other car
manufacturers. Normally, a car manufacturer has up to 5 suppliers for one
component. This problem with the lack of suppliers is due to the, until short red numbers
that the company has written.10

Tesla is doing its job well, but like any young company, there is a lack of experience in
dealing with the supply chain, by increasing output, the relationships with the suppliers
need to be strengthened, given that Tesla is now building a new Gigafactory in Germany
and another joint venture in China, it is very important now to turn the eyes to the
suppliers and to work together to find an optimal solution. These problems can be
eliminated by investing in R&D, production equipment and tools.

3. Elaborate on the (total/distribution) network design adopted by the company.

The Archiles heel for Tesla right now is that customers have no way to buy spare parts
and Tesla still refuses to provide spare parts for the customers.
Customers are almost forced to have their cars repaired directly at Tesla, but because
Tesla doesn't have a widespread network of service points and those that are there are
very busy, and customers have to expect a longer wait until their car is fixed. Tesla is the
master of its distribution network but has planned to expand its network by 75% to
11
ensure better customer satisfaction.

Why does Tesla want to keep control of its own network?

The facts suggest that it is cheaper to market the cars through third-party, i.e.
independent dealers, but out of competitive perpecitation it is wiser to sell the cars
through own stores. A classic car manufacturer sells its cars to independent dealers who
also take care of the repairs. At Tesla, the car is handed over directly to the customer by
the manufacturer, meaning that the car remains owned by Tesla until it is handed over to
the customer.12

10
Supply Chain Dive. 2020. Case Study: How Tesla Changed The Auto Industry. [online] Available at:
<https://www.supplychaindive.com/news/case-study-how-tesla-changed-the-auto-industry/517251/> [Accessed 21 November
2020].
11
https://finance.yahoo.com/news/why-tesla-distribution-model-differs-130018483.html?
guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAEmDMrTXh5MfsizI0HzTsKc
9GtfoSScXc34yKPnD8tYsBEMz__UofbFsDGvVaLoV4NYMO60SDZZEj3EW2B2edbgmz5UGbDHOW5Trt-
wrAYA2Lea4Z44FYBHs0BK7yrXo2tKsQK-_9GmjXDlJr807vDbgRC39HvNxr-yKM2bPNNWl> [Accessed 22 November 2020].
12
https://www.tesla.com/blog/tesla-approach-distributing-and-servicing-cars?redirect=no> [Accessed 22 November 2020].
At Tesla you can only find one car in the showroom and the showrooms are usually
found in places where there are a high number of people movements. Another reason
why Tesla doesn't sell its cars through independent dealers, that if a customer wants to
buy a new car and there's a gasoline and an electric vehicle in front of them, it's more
likely that the customer would choose an incinerator because it's a product they're
familiar with, and with an EV, they'd be in an unknown terrain. Selling the cars directly to
the customer has many advantages for Tesla because this allows Tesla to better
maintain the relationship with customers and collect a lot of data in the process as well.
Even with the introduction of new models, it is possible to get better feedback and thus
better control and, if necessary, optimize the quality of the product. This model also
significantly reduces logistical dependence. 13

An important part of the Tesla network is also the Supercharger network, which allows
customers a charge up to 80% in about 30min.
expanding the charging network is seen as an advantage for Tesla because with the
expansion of the Supercharger, customer satisfaction increases because they no longer
have to worry about the range. This service is offered free of charge for the Model S and
X, but it is chargeable for the owners of the Model 3. As production of the Model 3
increased, so has the demand for charging stations, and Tesla has increased the
number of superchargers worldwide from 9300 to 14,700 between the first quarter and
the third quarter alone.14

Figure 2 DC Fast Charging Stations15

13
https://www.tesla.com/blog/tesla-approach-distributing-and-servicing-cars?redirect=no> [Accessed 22 November 2020].
14
https://www.tesla.com/supercharger?redirect=no> [Accessed 22 November 2020].
15
https://www.evgo.com/about/news/evgo-1-fast-charging-stations-according-u-s-department-energy/
4. Discuss the role of collaboration in the supply chain of the company. How
does the bullwhip effect affect the supply chain? Highlight notable practices.

The Bullwhip effect is a concept that reflects the fluctuation in the Supply Chain, or
shows the parts in which there is an inefficient allocation of resources. The more you go
at the top of the Supply Chain, the harder it is to see the demand beforehand.

Figure 3 Inventory in the Supply Chain16

To measure inventory performance, taking into into view that Tesla has different
inventorys, they use different types of measurement. However, the most important at
Tesla are the EV's and the Energy Storage Systems.
Inventory Information Systems - As an EV manufacturer, Tesla uses a sophisticated
inventory management system, these systems have been trimmed and customized only
for Tesla so that the needs for information can be met. However, Tesla uses not only an
information system, but various that have been tailored for the individual areas of your
company and all the information is then collected, analyzed and, if necessary, sought for
improvement.
Inventory Value in the Supply Chain – Inventory value is analyzed and optimized by
Tesla's data frameworks, thus checking data and detecting and correcting potential
problems as early as possible.17

With the ever-increasing demand for EV's, Tesla is facing the challenge of satisfying this
demand, especially after the launch of the new Model 3, which is also considered the
16
https://www.tesla.com/blog/tesla-approach-distributing-and-servicing-cars?redirect=no> [Accessed 22 November 2020].
17
https://www.tesla.com/blog/tesla-approach-distributing-and-servicing-cars?redirect=no> [Accessed 22 November 2020].
Volkswagen. Tesla's goal with the Model 3 is to provide a low-cost car for the masses,
but they have been estimating themselves with the demand for the Model 3. In FY 2019
alone, demand for the 3 model was 80% higher than in the previous year, and on the
contrary, other car manufacturers have suffered a 30% decline. [18]

The number of cars produced depends heavily on which segment the company wants to
position in. The problem with the segmentation of the Ev's is that one cannot make a
clear comparison to the Gasoline cars. However, in order to saturate the rising demand
and thus relieve the supply chain and avoid a Bull Whip Effect, Tesla could change the
way the cars produce by letting the cars by third-party manufacturing, until its own
capacity is sufficient for the required number of EV's to be produced. 18

Contract manufacturing is nothing new in the branch and is also used by various major
manufacturers, such as .B Magna in Styria, who specialize not only as an automotive
supplier, but also as an automobile manufacturer. Leaving the production of the cars to
third would relieve Tesla's supply chain and meet the growing demand for Ev's, as these
third manufacturers have their own supply chain and are much more flexible than the
major manufacturers we know.
In the long run, this solution would not be optimal for Tesla, because by passing
production to third parties, the profit that the third manufacturers would receive would not
be passed on to the customer. However, as a short-term transitional solution until the
Gigafactory is completed in Germany and reaches the projected production output,
would be optimal.19

The new Gigafactory in Germany will produce 250,000 Model Y cars by the end of 2021,
which is also expected to be in high demand. It is not only the cars that are produced
there, but also other components, such as the engines, battery cells and other parts. The
design of the Gigafactory also allows to produce other models, such as the Model 3,
since the model Y is the brother car of the model 3 and is based on the same platform. 20

18
Berry, W.L. and Cooper, M.C. (1999), “Manufacturing flexibility: methods for measuring the impact of product variety on performance in
process industries”, Journal of Operations Management, Vol. 17, No. 2, pp. 163-178.
19
Klug, F. (2011), “What we can learn from Toyota on how to tackle the bullwhip effect”, in: Logistics Research Network Conference
Proceedings, Waterson B. (Ed.), Southampton, pp. 1-10.
20
https://www.tesla.com/gigafactory-berlin
 5. Describe sustainability initiatives and potentials.

Tesla was founded with the goal of proving that people don't have to compromise to drive
electrically, but want to make driving an experience. The idea was to produce not only
EV's, but also clean energy and energy storage systems. 21

In this case study, I have already explained that Tesla's cars are purely electric and they
do a very good job in every step, be it in the extraction of raw materials, to save
emissions until handover to the customer. However, Tesla is going a step further to make
the supply of electricity needed for the cars greener, as we know that in many countries
electricity is still produced with coal-fired power plants. To ensure clean electricity, Tesla
also produces solar panels and solar roofs, which serve as solar panels, which can be
purchased from both commercial and private customers and thus supply their homes
with clean electricity. To make sure you can save the power you need, Tesla offers the
Powerwall, which allows you to store the power you don't need to use later for peak
22
times, where there is a high energy requirement.

Figure 4 Teslas Powerwall23

21
https://www.tesla.com/ns_videos/tesla-impact-report-2019.pdf
22
https://www.tesla.com/ns_videos/tesla-impact-report-2019.pdf
23
https://teslamag.de/news/100000-tesla-powerwalls-verbaut-kooperation-groesste-us-solarfirma-28355
The manufacturing centers where Tesla makes its cars and other products have also
been equipped with solar panels, so Tesla has succeeded in significantly reducing
energy consumption and giving customers the feeling that they are buying a car that was
also produced with clean electricity. Like .B at the Tilburg factory, which is used for local
manufacturing, distribution center and quality testing, Tesla has managed to build a
nearby solar park that produces 3.4MW of energy enough to meet the factory's energy
needs for the year. This example was followed by Gigafactory 1 in Nevada, where
24
battery cells and motors are made with pure solar energy.

Battery recycling - Another step that Tesla is taking for sustainability is the recycling of
the disused batteries, this is parallel with the production at the Gigafactory in Nevada,
where the battery cells are 100% recycled. The majority of the batteries delivered are
those used by commercial customers, such as.B of taxi companies, which are more
stressed than by private customers and thus the service life is reduced faster than those
used by private customers. However, Tesla expects a rise in battery cells to be recycled
in the coming years.25

Water usage – Tesla has a water treatment system at all manufacturing sites that allows
filters to clean the water from chemicals or other components and reuse it. In addition,
water consumption per produced car fell from 5.2 cubic meters in 2018 to 2.9 cubic
meters in 2019, which is an improvement of 45%. 26

Emissions Credits – The idea behind the Emissions Credits is to help companies
produce emission-free products. In order to meet emissions targets, non-emission
products companies buy credits to zero-emission companies such as Tesla, allowing the
company to invest the money in expanding its clean energy infrastructure to provide
clean electricity to the growing output of EVs. Since purchasing Solar City in 2016, Tesla
has installed nearly 3.7 gigawatt of solar systems that together have produced more than
16.6 terawatts of clean electricity.27

24
https://www.tesla.com/ns_videos/tesla-impact-report-2019.pdf
25
https://www.tesla.com/support/sustainability-recycling?redirect=no
26
https://www.tesla.com/ns_videos/tesla-impact-report-2019.pdf
27
https://www.tesla.com/ns_videos/tesla-impact-report-2019.pdf
What can Tesla do better? (My Opinion)

I think Tesla is a standout company, of course it's not perfect and the road to zero
emissions is and will still be a challenge for the company, but there's a lot of evidence
that the company is doing a lot of work in this case and it also needs the action of politics
to help such a company.
I believe that more attention should be paid to the extraction of the raw materials needed
for production, because they are one of the biggest polluters. Sustainability should start
when the metals are extracted from the earth and should only end when the car itself, or
its components, needs to be recycled. Energy supply would have to be won in a
sustainable way, with sun, wind or water, so that the Ev's remain clean even after they
are on the road.

It is clear that the Ev's are our future, but the road to a 100% share of vehicles powered
by electricity is quite long, but you can see that people are becoming more aware and
want to do their part for the environment. In this case, the automotive industry must take
a step, especially the German manufacturers.