Supply Chain Matters continues with our profiling of financial performance of high visibility companies which have a lot of supply chain management connotations.

How could we not avoid one of the darling of investors, electric vehicle producer Tesla.

Tesla supply chain

Financial Performance

The company reported its final quarter and full year financial performance for 2020 to mixed reviews. The overall headline was a miss on fourth quarter profit expectations but a described blowout in announcing the company’s first full-year profit.

For the final quarter that ended on December 31, the company reported that operating margins declined by 5.4 percent primarily because of vehicle price cutting in China, increased supply chain costs and lucrative pay packages for Founder and CEO Elon Musk and other executives. The company’s stock has soared over 900 percent since the start of 2020, and has mustered an $819 billion market capitalization, more than any other global auto company. Musk has now been crowned the world’s richest person, as his net worth crossed $185 billion with the recent valuations of Tesla’s stock.

For all of 2020, the company reported a profit of $721 million on upwards of $31.5 billion in sales. That compared to $862 million loss and $31.1 billion in sales during 2019.  Tesla has further managed to more than double the sale of regulatory credits to rival auto producers. Such credits amounted to upwards of $1.6 billion in 2020, up from $519 million during 2019.

 

Operational Performance

As noted in our Supply Chain Matters early January 2021 update, total annual production total was reported as 509,737 vehicles and 499,550 deliveries in 2020. That included a final quarter performance of producing 179,757 vehicles with deliveries of 180,570 vehicles after the usual all-out hockey-stick curve performance in the final weeks.

The year 2020 was also the first year that included volume operations of the auto maker’s Shanghai China production facility, producing mainly Model 3 vehicles.

A Bloomberg Businessweek report published in mid-January (Paid subscription or metered view) indicated that the company literally had favored status among China’s rulers which resulted in an extraordinary bounce back after the initial COVID-19 virus outbreak that impacted that country in the first quarter of 2020. A passage from that report indicates:

Tesla’s rapid return to normal was consistent with the relationship the electric vehicle maker has enjoyed with the Chinese state since 2018, when it announced plans to build the Shanghai plant. Again, and again, it has extracted perks other international companies have struggled to obtain, including tax breaks, cheap loans, permission to wholly own its domestic operations, and assistance constructing a vast facility at astonishing speed. Support from the government has helped Tesla turn China into its most important market outside the U.S.

The result was that Musk’s declaration that the Shanghai plant would be up and running with unprecedented speed turned out to be the case, and the Model 3 became China’s most popular electric vehicle all last year. However, the electric auto maker reportedly had to trim the price of the Model 3 to meet existing domestic market competition. The Bloomberg report does caution that while Musk has played the China game very well, his company continues to walk a tightrope among the increased tensions and threats of the de-coupling of high-tech supply networks among the two nations.

The newest twist in this relationship is today’s published report by The Wall Street Journal which indicates that China’s State Administration for Market Regulation and four other regulators: “…had instructed Tesla to abide by Chinese laws and regulations and strengthen internal management to ensure the quality and safety of its products.” Noted was that this was a rare rebuke regarding Chinese consumer complaints regarding the quality of vehicles and in particular, malfunctions of vehicle autopilot systems.

Last week Tesla announced the U.S. recall of 135,000 Model X, Model S vehicles for reported faulty display. The company also recalled 134,951 of its 2016–2018 Model X and 2012–2018 Model S vehicles for a problem with the infotainment system’s media control unit (MCU). A prior recall involving China reportedly included over 48,000 imported Model S and Model X vehicles over concerns of faulty suspension systems.

The automaker has declined to share a specific amount of auto deliveries this year, other than to indicate expectations of beating 2020’s 50 percent growth rate. That has led business media to speculate a delivery rate of between 750,000 to 800,000 vehicles. All of this must be accomplished within the ongoing U.S. wide disruptions caused by coronavirus infections. Musk himself tested positive for the virus in late 2020.

Musk has indicated that one challenge this year is availability of batteries from its three primary suppliers, Panasonic, LG Chem and Contemporary Amperex Technology. He recently told Bloomberg that; “We will take as many batteries as they can produce. We urge them to increase their production, and we will buy as much as they can send us.”

During the recent financial performance briefing, Musk indicated that the company’s new products plan, especially the announced Tesla Class 8 semi-truck have been challenged by the availability of required battery-cells. The vehicle that was initially announced in 2017 for 2019 market availability, is now planned for first vehicle delivery by the end of this year. The heavy-duty truck is planned to be produced at the new Austin Texas production facility currently under construction.

All in all, another high visibility year is in store for Tesla, both from an investor and from a global product demand and supply network perspective.

So, what else is new!

 

Bob Ferrari

 

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