Tesla is an innovative company that has combined technology with automotive production to build clean energy electric vehicles that are competitive to gasoline cars in quality, performance, and cost. As Tesla faces increased market demand for their cars, specifically with the latest release of the Model 3, their focus on production speed and yield has become the company’s priority. Despite reporting record net orders and deliveries of the Model S and Model X, Tesla’s stock dropped 5% after Q3 earnings due to greater than expected losses spent investing in the Model 3 production , and under-delivering only 266 of an expected 1,500 Model 3s. Elon Musk attributed the cause to cars having been built by hand, rather than automation . For Tesla to achieve their production goals on both timing and output, they must thoroughly leverage technology to automate production and digitize their logistics network to accurately manage their supply chain.
Investments in Automation
Tesla has actively been investing and acquiring resources to improve the factory’s automation capabilities. Elon Musk frequently speaks about “building the machine that builds the machine,” where the factory first becomes a product in their overall process. In a manufacturing facility, this means investing in resources to increase the velocity of production and the density of manufacturable goods to increase output . Musk sees at least an order of magnitude improvement in overall manufacturing efficiency by improving automation and increasing yield. Tesla acquired the German company Grohmann Automation in November 2016, which Elon Musk acknowledges as their first major investment towards automation and improved manufacturing capabilities . This acquisition reflects Tesla’s goals to accelerate production and increase yield, with a long-term plan to drive down production costs through their investment .
Another example of Tesla doubling down on this space is their latest acquisition of PERBIX, a factory automation company. On Tesla’s website, they state “With the acquisition of PERBIX, Tesla further advances its efforts to turn the factory itself into a product.”  Prior to the acquisition, PERBIX was already a supplier that helped design and build automated manufacturing equipment for Tesla’s factory for almost three years . As the supply chain becomes more automated and consistent, Tesla will be able to improve their production processes and output rate. Additionally, without the constraints of labor laws, Tesla will be able to run their factory for longer periods of time at a lower cost, further increasing productivity. These costs savings can then be passed on to the customer, which will make Tesla vehicles more affordable and attractive to a greater customer base. These benefits all align with “Tesla’s mission to accelerate the world’s transition to sustainable energy .”
How to Increase Predictability in Supply Chain
As automation within the factory increases, the supply chain must be monitored even closer through technology since the human awareness within the process has been reduced. As they continue to scale, Tesla will need to find trusted partners and develop deep supplier relationships while still maintaining the quality and focus that the company is known for. Data and predictability will be powerful tools to ensure that their supply chain is well-managed and coordinated. There are many innovative companies such as Samsara (www.samsara.com) and Shoof Technologies (www.shooftech.com) which have developed technology to digitize supply chains and track assets and inventory in real time  . Tesla can leverage the tools these startups are building (and as a key customer even influence product development with feature requests) to improve their supply chain logistics and ensure that all their assets are monitored. Being able to track all the inputs for each vehicle on the line will be important to reducing variability and proactively addressing any potential disruptions to the flow. With such a complex supply chain, parts coming from various external suppliers, and an increased focus on production speed and yield, Tesla must ensure they have visibility into their inventory and where components are in the supply chain.
Considerations for the Future
Tesla has captured the car and technology industries’ attention with their innovative design, but all eyes are on the company’s ability to transition from a loss making and low volume carmaker into a profit generating and high volume one. This is a challenge that will require the company to manage its manufacturing, supply chain, and logistics with new technology and data that will become critical assets to the company as they scale. While the plan to build an automated supply chain seems to be aligned their goals of speed and quality, how fast can Tesla truly move to automate their factories in order to meet customer and shareholder demands? Another major consideration is with such a transparent strategy of moving towards automation, how will Tesla manage their current labor workforce and will this transition cause internal uncertainty and new challenges?
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