Among the most frequent search terms for readers exploring Supply Chain Matters content is anything related to electric automaker Tesla Motors and its associated product demand and supply chain developments.  The name has become the darling of investors and day traders and the company’s stock often rises and falls on supply chain related developments.

Thus, we feed the machine with highlighting two rather interesting developments that have occurred in the context of other developments.


Tesla’s Relationship with Battery Technology Provider Panasonic

When Tesla initiated its supply management strategy to produce batteries in the 2009, the electric automaker elected to partner with Panasonic for battery technology development and production processes.  The electronics producer made a $1.6 billion investment with the automaker to help construct and operate what is now termed as the Tesla Gigafactory which is located in Sparks, Nevada.

Reportedly, in 2010, Panasonic invested $30 million to acquire 1.4 million shares of Tesla stock, probably as a hedge to assure a successful benefit to the supplier relationship.

Operations at this battery production facility resulted in multiple quarters of operating losses for Panasonic and it was not until this year that profitability occurred.  In April of 2019, this blog called reader attention to a published report by Nikkei Asia Review indicating that Tesla and Panasonic elected to suspend plans to expand capacity of the U.S. based Gigafactory battery production facility which was planned for 2020.  Further, in supporting its relatively new China manufacturing facility in Shanghai, Tesla elected to collaborate with a domestic battery technology and production supplier.  Part of that decision may or may not have related to its agreement with China’s government agencies regarding the remarkable start to finish cycle in constructing and opening the Shanghai facility.

This week, The Wall Street Journal reported that during its last fiscal year that ended in March, Panasonic sold its equity stake in Tesla for a sum of $3.6 billion.  According to the report, the move highlighted a more arms-length relationship that has now developed among automaker and supplier.  Panasonic itself indicated to the publication that its move would not impact its supply relationship with the electric automaker and the two companies maintain a good relationship.  Tesla elected to provide no comment to the WSJ report.

Interesting enough is that a spokesperson of Panasonic indicated to the publication that the proceeds of the stock sale would be directed at growth investments without providing details.  However, the Journal report made a link to Panasonic’s recent acquisition of supply chain technology provider Blue Yonder for $7.1 billion as possibly being part of the growth investment.

From our Supply Chain Matters lens, this stock sale seems to be a likely indication that both companies will be focusing on other relationships in the industry.  There have been reports that Panasonic has nurtured a battery joint-venture relationship with Toyota Motor and there may likely be others.


Tesla Vehicle Recall in China

On Saturday, reports indicated that Tesla began recalling around 211,000 Model 3 and 39,000 Model Y vehicles produced at the Shanghai facility, in addition to upwards of 35,000 imported Model 3 vehicles, over a safety risk related to the vehicle’s cruise control features.  Tesla owners in the country will either be receiving an online software update or an in person remote repair to correct the problem.

Reportedly, China’s State Administration for Market Regulation has indicated that the cruise control system in certain vehicles can be activated when drivers try to shift gears or accidently touch the gear selector, resulting in vehicle acceleration.

Tesla apologized to owners in a statement posted on its Weibo account and indicated that the automaker will keep improving in accordance’s with China’s auto safety regulations.

This recall does not appear to involve U.S. produced models, at least not for now.

As Supply Chain Matters and other publications have recently noted, the once honeymoon relationship among Tesla and the Chinese government are becoming strained over owner reports of quality lapses in vehicles. Reportedly, five various regulatory agencies are scrutinizing Tesla’s quality of vehicles produced at the Shanghai facility.

The electric auto maker experienced a significant sales drop in China during April, but sales rebounded in May, according to the automaker.  Overall demand for EV’s in the country have reportedly been robust and all eyes will likely be focused on Tesla’s sales performance in the country for this month.


Additional Developments

We highlighted both of the above developments because they reflect what we believe are fissures in the automaker’s supplier and regulatory relationships.

Compounding the above are other developments.

Recent statements made by Founder and CEO Elon Musk indicate that the ongoing shortage of semiconductors impacting the global automotive industry are also affecting Tesla. Musk indicated that prices may have to be raised to cover the added cost of providing adequate supply of semiconductors.

In April, an accident involving a Tesla Model S vehicle driving in a Houston suburb that crashed into a tree included the death of two vehicle occupants, neither of whom was found in the vehicle’s driver’s seat.  That accident has led to a lot of business and social media speculation as to whether the vehicle’s Autopilot functionality was engaged prior to the accident.  CEO Musk has openly declared that in no way was the functionality engaged, while a Tesla engineering executive indicated on the company’s recent financial performance briefing that at least one function of the Autopilot system, adaptive cruise control, was enabled at the time of the Houston crash. This accident. remains under investigation by U.S. safety regulators.  In March, the National Highway Traffic Safety Administration confirmed it was investigating 23 crashes potentially related to Tesla’s Autopilot system.

Earlier this month, Jerome Guillen, a company senior executive that reportedly was the perceived brain behind the initial ramp-up of the Model 3, and a top lieutenant to Elon Musk, parted ways with the company.  He previously led the company’s automotive business unit and in March, was tapped to lead the Heavy Trucking unit. This latest senior executive departure follows others over the past three years.

From our lens, these developments point to added fissures related to Tesla’s product value chain.  For many automakers, upscale luxury or volume in nature, such developments would tend not to be as broadly visible.  However, Tesla brings its own hyped visibility and tendencies to want to take full control of the narrative.

The difference is that with ongoing expansion of the auto maker’s global product value chain footprint, and that potentially being in the epicenter of the ongoing trade and supply chain weaponization tensions among the U.S and China, such fissures have some meaning.

Bob Ferrari


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