“Tesla, born in Silicon Valley, never outsourced their software. They write their own code,” said Morris Cohen, a professor emeritus at the Wharton School of the University of Pennsylvania who specialises in manufacturing and logistics. “They rewrote the software so they could replace chips in short supply with chips not in short supply. The other carmakers were not able to do that.”
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“Tesla controlled its destiny,” Cohen added.
Tesla sold 936,000 cars globally in 2021, an 87 per cent increase for the year. Ford, GM and Stellantis, the company formed from the merger of Fiat Chrysler and Peugeot, all sold fewer cars in 2021 than they did in 2020.
Measured by vehicles delivered globally, Tesla vaulted past Volvo and Subaru in 2021, and some analysts predicted that it could sell 2 million cars this year, as factories in Berlin and Austin, Texas, come online and a plant in Shanghai ramps up production. That would put Tesla in the same league as BMW and Mercedes — something few in the industry thought possible just a couple of years ago.
GM and Ford, of course, sell many more cars and trucks. Both companies said last week that they sold around 2 million vehicles last year just in the United States.
Tesla, which rarely answers questions from reporters, did not respond to a request for comment for this article. It has said little publicly about how it managed to soar in a down market.
“We have used alternative parts and programmed software to mitigate the challenges caused by these shortages,” the company said in its third-quarter earnings report.
The performance is a stark turnaround from 2018, when Tesla’s production and supply problems made it an industry laughingstock. Many of the manufacturing snafus stemmed from Musk’s insistence that the company make many parts itself.
Other car companies have realised that they need to do some of what Musk and Tesla have been doing all along and are in the process of taking control of their onboard computer systems.
Mercedes says it will standardise its computer chips rather than having 1000 different types.
Mercedes, for example, plans to use fewer specialised chips in coming models and more standardised semiconductors, and to write its own software, said Markus Schäfer, a member of the German carmaker’s management board who oversees procurement.
In the future, Mercedes will “make sure we have customised, standardised chips in the car,” Schäfer said in an interview Wednesday. “Not 1000 different chips.”
Mercedes will also design its own vehicle hardware, he said. Without mentioning Tesla, Schäfer added, “Probably some others were earlier going down this road.”
Doing more on its own also helps explain why Tesla avoided shortages of batteries, which have limited companies like Ford and GM from selling lots of electric cars. In 2014, when most carmakers were still debating whether electric vehicles would ever amount to anything, Tesla broke ground on what it called a gigafactory outside Reno, Nevada, to produce batteries with its partner, Panasonic. Now, that factory helps ensure a reliable supply.
“It was a big risk,” said Ryan Melsert, a former Tesla executive who was involved in construction of the Nevada plant. “But because they have made decisions early on to bring things in-house, they have much more control over their own fate.”
The Tesla lineup is also more modest and easier to supply. The Model 3 sedan and Model Y SUV accounted for almost all of the company’s sales in 2021. Tesla also offers fewer options than many of the traditional carmakers, which simplifies manufacturing.
‘Because they have made decisions early on to bring things in-house, they have much more control over their own fate.’
Ryan Melsert, former Tesla exceutive
“It’s a more streamlined approach,” said Phil Amsrud, a senior principal analyst who specialises in automotive semiconductors at IHS Markit, a research firm. “They are not trying to manage all these different configurations.”
Tesla software, which can be updated remotely, is considered the most sophisticated in the auto business. Even so, the company’s cars likely use fewer chips, analysts said, because the company controls functions like battery cooling and autonomous driving from a smaller number of centralised, onboard computers.
“Tesla has fewer boxes,” Amsrud said. “The fewer the components you need right now, the better.”
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Of course, Tesla could still run into problems as it tries to replicate the growth it achieved in 2021 — it is aiming to increase sales about 50 per cent a year for the next several years. The company acknowledged in its third-quarter report that its creative maneuvering around supply chain chaos might not work so well as it increased production and needed more chips and other parts.
The electric vehicle market is also becoming much more competitive as the traditional carmakers belatedly respond with models that people want to buy rather than the small electric vehicles typically made to appease regulators. Ford said this past week that it would nearly double production of the Lightning, an electric version of its popular F-150 pickup truck, because of strong demand. Tesla’s pickup truck won’t go on sale for at least another year.
The outlook for the traditional carmakers is likely to improve this year as shortages of semiconductors and other components ease, and as manufacturers get better at coping.
Tesla vehicles still suffer from quality problems. The company told regulators in December that it planned to recall more than 475,000 cars for two separate defects. One could cause the rearview camera to fail, and the other could cause the front hood to open unexpectedly. And federal regulators are investigating the safety of Tesla’s Autopilot system, which can accelerate, brake and steer a car on its own.
“Tesla will continue to grow,” said Stephen Beck, managing partner at cg42, a management consulting firm in New York. “But they are facing more competition than they ever have, and the competition is getting stronger.”
The carmaker’s fundamental advantage, which allowed it to sail through the chip crisis, will remain, however. Tesla builds nothing but electric vehicles and is unencumbered by habits and procedures that have been rendered obsolete by new technology. “Tesla started from a clean sheet of paper,” Amsrud said.
This article originally appeared in The New York Times.
