The Supply Chain Matters blog highlights global EV automaker Tesla’s investor event held this week including product development, supply chain and production related connotations.
Investor Event and Master Plan 3
Tesla conducted is annual investor event this week at its Austin, Texas facilities and unveiled “Master Plan Part 3” which aims toward becoming the largest automaker by volume by 2030. That equates to the ability to produce and sell 20 million vehicles globally. Tesla sold and delivered upwards of 1.3 million vehicles last year falling short of its stated goal of 1.4 million vehicles.
Tesla’s CFO Zach Kirkhorn indicated to investors that the outlined master plan will require upwards of $175 billion of investment, of which, $28 billion has already been invested. Supply Chain Matters recently highlighted an announced incremental $3.6 billion investment in its existing Gigafactory complex located in Sparks, Nevada.
Once more, executives established an objective to half the costs for developing and producing the company next generation vehicle. Tesla powertrain engineering leader Colin Campbell acknowledged at this week’s event. “If we want to make EVs more accessible to people, they have to be cheaper. We can make lower cost products that are still efficient and compelling, and we can make them at scale.”
Founder and CEO Elon Musk indicated that the automaker would require roughly a dozen production facilities in order to meet the company’s sales goal outlined in the new master plan. There are currently four production facilities globally.
Business and investor media coverage of this week’s event communicated a consensus of disappointment regarding why Musk and his Tesla executive team did not provide any new product specifics, especially those relative to an expected next generation vehicle aimed to be more affordable for the global mass market. The company’s stock reportedly dropped 5 percent in late trading, after the investor event. Then again, this automaker’s stock has been the target of speculators and short sellers for quite some time.
Supply Chain Focused Announcements
During the investor event, CEO Musk confirmed an earlier announcement of an investment in a new production facility to be located in Monterrey, Mexico, and that this facility is destined to produce the termed next-generation EV vehicle.
Earlier this week, Bloomberg and other outlets reported that Mexican government officials had indicated that the Monterrey facility, to be located in the Nuevo Leon state bordering Texas, will involve upwards of a $5 billion investment initial investment: “for the installation of the largest electric vehicle plant in the world.” Nuevo Leon Governor Samuel Garcia later indicated that this facility would likely include a $5 billion additional investment in a subsequent expansion phase.
Other details shared by Bloomberg was that the facility will reportedly produce upwards of one million electric vehicles annually destined for the Mexican market as well as for export, and generate 6,000 jobs. Mexico’s President Andres Manual Lopez reportedly had preferred that the Tesla facility be located in the country’s southern-most region because of known water shortages in the border region with the United States. Because of that, Lopez reportedly insisted that Tesla initiate the use of recycled water throughout the planned Monterrey manufacturing complex which CEO Musk reportedly agreed to do.
At this week’s investor event, Tesla executives did not share any details related to this Mexican facility indicating that details would come later.
Other Manufacturing and Supply Chain Moves
At the time of the announcement of the incremental added investment in the Nevada gigafactory complex, published reports indicated that Tesla was in active negotiations with the government of Indonesia leverage the regions’ supply of key metals utilized in battery production. Reports cautioned that a deal had not been signed and could not come to pass. A follow-on report by Bloomberg indicated that deals were potentially in progress involving China based BYD, and South Korea based Hyundai Motors, in addition to Tesla.
In its reporting, The Wall Street Journal noted Tesla executives indicating a further move toward supply chain vertical integration including ongoing plans to produce battery cells. The automaker has additionally broken ground on a new lithium refinery located near Corpus Christi, Texas and in the building of an additional battery materials and components facility in the Austin, Texas area. From our Supply Chain Matters lens, we sense a supply network pattern evolving that could conceivably tie together the Nevada and now planned Monterrey gigafactories with battery cells and components within driving distance proximity.
Added Perceptions and Thoughts
We have chosen to tag this week’s Tesla’s announced master plan as audacious primarily for two reasons.
One is obviously the company’s track record to date. As Bloomberg astutely noted in its reporting, this EV producer took 12 years to produce and deliver its first million vehicle milestone. Each incremental one million vehicle milestone increase occurred in 18 months, 11 months and seven month intervals. We would quickly add, with added plant investments, significant executive and employee turnover and with a lot of pain and learning along the way. Musk himself has stated that the newest Austin, Texas and Berlin, Germany facilities are money pits for cash burn and for day to day challenges, thus seasoned operations management, scale and efficiency of product development and production are absolutely essential for this next phase of transformation. It was a wise move to appoint a global head of operations, but more management talent recruitment is needed.
Second, true to the company’s core Silicon Valley’s high tech culture of striving to shatter existing industry norms and practices, the company produced its first vehicle in 2008, nearly 15 years ago. Having benefited from first mover advantage, the opportunity to test, explore and learn different product management, supply network, production and vehicle delivery logistics practices at its various stages of growth was available. However, Musk’s micro-management style and manner have reportedly added to the challenges. That first mover advantage window is now narrowing as the rest of the global automotive industry begins their own transformations toward across the board EV model offerings targeting multiple buyer segments from entry to luxury levels. Traditional global brands, particularly the top five have years of experience in implementing highly efficient and scalable production and supply networks, and most have Tesla as their competitive target.
The competitive landscape seven years from now will be significant different than it is today and from our lens, Tesla will be well served by considering a broader investment in across the board talent at all levels. Especially since the industry’s supply and production networks are still a work in progress.
Bob Ferrari
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