Over the last two years, the Covid-19 pandemic had a profound effect on the automobile industry, especially in regard to the microchip shortage which has had an impact on nearly every automobile producer as of late (Forbes, 2021). With an estimated cost of $210 billion in revenue for the auto industry, major producers like Toyota and Volkswagen having to cut their production by 40%, and no end in sight, it is clear that the consequences of the chip shortage are far reaching (Wayland, 2021). One automobile producer, however, has remained resilient during this crisis, and even recorded record deliveries in Q3. As others slashed production, Tesla increased their production by 20% in 2021 and was able to deliver 241,300 vehicles in Q3: a new record for the company (Wayland, 2021). How did Tesla manage to increase production while others were forced to cut production? A quick explanation below.
Modern Vehicle Architecture
When you compare Tesla to other auto giants like Daimler and Toyota, they are relatively new to the game: allowing Tesla to be more adaptable and quicker to change (Forbes, 2021). In Q1 & Q2 2021, Tesla was able to acquire different chips that would normally not work with their vehicle’s, however, due to Tesla’s advanced software engineering capabilities, they simply updated the software of their vehicles, allowing them to use different chips (Forbes, 2021). This form of adaptability not only allowed Tesla to have record deliveries, it also gave them a clear advantage over their competition. Large auto producers are still struggling to source chips and are relying on legacy chips/ systems in their vehicle’s, causing significant losses (Gartenberg, 2021).
Booming Business in China
Another reason for Tesla’s strong Q3 deliveries is their booming business in China. Nearly 40% of Tesla’s total production capacity is in China, and sales in the region have been growing exponentially (Forbes, 2021). With factories in China and powerful trade partners, Tesla holds a major advantage over its competitors in sourcing chips. Most micro-chips cars use are produced in China, however, many auto companies have little investment in China and nearly no bargaining power. Tesla on the other hand has quite a bit of bargaining power and investment in the area (Vercoe, 2021).
Future of Tesla
Tesla seems to be moving at lightspeed in terms of technological advancements and investment. In addition to this, they are planning on moving all car production from their California factory to a brand-new factory in Texas (Vercoe, 2021). Being at a clear advantage in the current chip shortage, Tesla is poised to continue being successful and could be a prime example of what competitors should be attempting to do.
Sources:
Forbes (2021) How Did Tesla Post Record Q3 Deliveries Despite The Chip Shortage? Available at: https://www.forbes.com/sites/greatspeculations/2021/10/08/how-did-tesla-post-record-q3-deliveries-despite-the-chip-shortage/?sh=35b907111041 [Accessed 8 October 2021].
Wayland, M., (2021) Chip shortage expected to cost auto industry $210 billion in revenue in 2021. Available at: https://www.cnbc.com/2021/09/23/chip-shortage-expected-to-cost-auto-industry-210-billion-in-2021.html [Accessed 8 October 2021].
Vercoe, P., (2021) Musk Says Chip and Ship Shortages Top Threats to Tesla Growth. Available at: https://www.bloomberg.com/news/articles/2021-10-08/musk-says-chip-and-ship-shortage-are-top-threats-to-tesla-growth [Accessed 8 October 2021].
Gartenberg, C., (2021) The chip shortage will likely get worse before it gets better. Available at: https://www.theverge.com/2021/6/23/22547826/chip-shortage-cars-playstation-5-gpus-semiconductors-time-foundaries-tsmc [Accessed 8 October 2021].
