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Home / Business / Tesla vertical integration unlocker hidden flexibility and innovation – #CleanTechnica Field Trip

Tesla vertical integration unlocker hidden flexibility and innovation – #CleanTechnica Field Trip

30. March 2019 by Kyle Field

1990s and early 2000s saw companies around the world expanding their supply chains to global markets in a way that the world had never seen before, or perhaps even with imagined. The business models that emerged from the outsourcing movement were widely disseminated, with key organizations extending the control of their supply chains through quality-specific sheets, service level agreements, and detailed vendor contracts.

Image Credit: Kyle Field, CleanTechnica

Sourcing sub-units, parts and components from the low-cost supplier put global suppliers at the top, and over time, fewer and fewer suppliers that globally dominant companies emerged in each segment of the market. The automotive industry is an example of this outsourcing, with parts coming from all over the world being bolted into "American-made" cars like the Chevrolet Bolt, which only sources 26% of its components from the United States and Canada, with bulk of the car (54 %) comes from LG in Korea.

Tesla learned the difficult way through the development of Tesla Model X, which quickly puts 10,000 components from hundreds or thousands of globally distributed vendors into a cure cats exercise. Stuck on top of that the complexity of global shipments and logistics, and you can already begin to feel the gray hair popping up in the minute.

To solve this complex equation, Tesla began to stack suppliers. Instead of just one supplier for bolts, Tesla made two or three suppliers to dilute the risk and increase the chances of success. In April 2016, we said about the chaos that "unsatisfactory vendor capacity validation and the company's lack of own production capability for many of the relevant parts" was to blame on the delayed ramp up against the model X production. Tesla taught her lesson and has the scars to show for it.

"It's complicated." Image Credit: Tesla

Model X pulled the company over rocky roads and through towers. Having come out on the other side to lick the wounds, Tesla had learned a valuable lesson on global supply chains, vendor validation, and perhaps most importantly, the value of not being afraid to just do things even where it makes sense to do so. 19659007] Tesla does not build the same vehicles that others have built over the past 50 years in the automotive industry. This stems from the belief that every decision should be analyzed, verified, cross-checked, and continually, thoroughly investigated. This comes from a basic belief in "first principles" that are thinking of starting from the basic principles that support their solutions, one at a time, from scratch.

This thinking has led to a whole new type of vehicle, with seats, batteries, motors and windows all different from the competition. Different are not the same for better, but in this case, this unique approach sets Tesla apart, over the competition. Tesla's desire to put the best seats in the vehicles led him to bring his production of seats, and took full control of a critical part of the vehicle experience in the hands of Tesla's experts.

Image Credit: Zach Shahan, CleanTechnica [19659006] CleanTechnica toured Tesla's seat production in March, and we were impressed that the seat factory, located just two and a half kilometers from Tesla's Fremont factory, was retrieved online during months as part of the solutions of the vendor issuing Tesla experienced with model X.

Coming out of the challenging model X production ramp, Tesla CEO Elon Musk said on the earnings call Q1 2016 in May 2016 that " I think we should actually increase the amount of vertical integration we have, and I think it is very important for us to have the ability to produce almost any part of the car that will, because it alleviates the risk of suppliers, where we return to 2 % of the suppliers are not ready, we cannot make a car, and having the ability to adapt internally to make 2% of the parts internally really reduce the risk associated with the production ramp. Very important thing. "

Having seats in the house was a completely new factory in Tesla, California, where salaries are significantly higher than in supplier countries. Growing up to higher salaries is lower transport and logistics costs, as Tesla no longer sends seats around the world.

Today, Tesla has a fleet of diesel semi-trailers to move the seats to 2.5 miles to the Fremont factory, but talk about a subterranean tunnel from the seat manufacturer to the main automotive factory would allow a direct line and an automated carrier and further scrape shipping costs. . These types of optimizations are just not possible when it comes to an external vendor, and they support Tesla's movement toward pulling more and more of their critical manufacturing processes under a red, white, and gray Tesla roof.

The benefits of Tesla go far beyond simply improving shipping costs, such as bringing more of the company's parts into production internally, giving Tesla infinitely more flexibility in creating improvements in its products than it would have bought those from a supplier. Tesla makes sensible 20+ improvements per week in its vehicles on a continually improving river, which allows the Silicon Valley company not only to improve the cost of its products, but also the efficiency, flow and quality of these products.

Establishing a culture of continuous improvement is very much in line with the wonderful world of software development, where the flexible method provides a framework for requirements collection, iterative development, functionality validation, testing and deployment. The idea of ​​Tesla is the same, with everyone we talked to at the factory, commenting on how much focus Tesla places on continuous improvement in production. Vertical integration gives Tesla more control over more detail in the manufacturing process, and allows Tesla to respond much faster to potential improvements and at a lower cost.

Image Credit: Kyle Field & Chanan Bos, CleanTechnica

Production flexibility, lower cost parts and innovative products have made it possible for Tesla to push the front of not only the electric vehicle revolution but also to disturb the competition in luxury cars and to and in all passenger cars throughout California and several countries in Europe. A Tesla speaker told CleanTechnica that "The number of working hours needed to complete a vehicle has declined 33% since early 2016. Of the 250,000 Tesla cars ever produced, more than half were built. Over the past 18 months, while before it took three shifts with significant overtime to produce our target annual output of 100,000 model S and X vehicles, now it can be done with only two shifts and minimal overtime. "


Tags: Elon Musk, sourcing, Tesla, Tesla Fremont factory, Tesla Model 3, Tesla Model X, Tesla Seat Factory, vertical integration

About the author

Kyle Field I am a technological geek passionate about looking for real ways to reduce the negative impact my life has on the planet, save money and reduce stress. Live on purpose, make conscious decisions, love more, act responsibly, play. The more you know, the less you need. TSLA investor.

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