Last week, Tesla wowed investors with the release of its overall production and vehicle delivery performance in the first quarter. The electric automaker reported a total of 180,338 vehicles produced along with 184,800 vehicle delivered in the quarter. The Q1 delivery performance beat the analyst estimate and actually fell just shy of the high-end estimate. The performance was especially noteworthy because the automaker’s Fremont California facility had to suspend production for several days in February, reportedly due to parts shortages.

The company’s previous high mark in vehicle deliveries was in the final quarter of 2020 with an all-out effort in delivering 180,570 vehicles in the midst of high levels of COVID-19 infections across California at the time.

The quarter’s production performance consisted of both Model 3 and Model Y crossover models, with a considerable boost coming from the auto maker’s Shanghai China facility. The upscale Model S and Model X models were in the process of new model changeovers during the quarter, and thus what deliveries there were from inventory.

News of the Q1 production and delivery performance caused analyst firm Wedbush to declare in a research note, “a massive home run in the eyes of the bulls.” While the company has provided no guidance for 2021, those bulls holding Tesla are anticipating a blowout year.

Tesla supply chain

What About the Rest of the Year?

Not to dampen the ongoing Tesla euphoria, but Supply Chain Matters focuses on global supply chain challenges. With the global automotive industry now facing a series of ongoing supply and global transportation focused disruptions, there are certainly challenges for Tesla’s supply chain management teams to overcome.

The first and most obvious is the global wide shortage of semiconductor devices, compounded by the recent factory fire that occurred at a Renesas Electronics facility in Japan. While Tesla managed to overcome chip supply challenges thus far, the industry wide shortage is expected to worsen in the coming months.  After the Suez Canal blockage incident, global transportation schedules are in disarray, that will likely continue during the current quarter.

The automaker also has aggressive plans underway to complete a second U.S. based production facility in Austin Texas and a new European presence in a production plant being constructed near Berlin.

Beyond demand and supply challenges is Tesla’s ongoing relationship with China’s government leaders. Up to now there has been a symbiotic relationship concerning the Shanghai facility, serving as a model of the new cooperation of China with foreign investors, granting Tesla full ownership of the facility. The China facility was constructed and fitted out in near record time after being announced early in 2019. The government made sure that any obstacles were quickly removed.  However, of late, reports indicate that the relationship has shown some signs of tension and added scrutiny from China’s regulators. That motivated CEO Elon Musk to make a fast trip to the country to smooth over any friction.

Finally, there is the marching hooves of electric vehicle competitors.

Bloomberg Businessweek recently reported on global auto market leader Volkswagen, and its March 15 “Power Day” event modelled after Tesla’s iconic Battery Day events. After becoming recognized as the top electric automaker in Europe, the German automaker reiterated plans to deliver one million plug-in and fully electric vehicles this year, with plans to surpass Tesla no later than 2025. The report indicated that some industry watchers expect that goal to be earlier. Other main line and luxury automakers have aggressive plans as well in deploying electric vehicle battery supply investments and in aggressive production targets. As Bloomberg opined in its report, CEO Mark encouraged competition and now he has it.

We would add that an important difference is that auto makers such as Volkswagen and Toyota already have global manufacturing presence and scale coupled with manufacturing engineering and production expertise. Their design teams are developing models for various price and customer segments, from mass output to luxury and sport. Tesla will have to compete in both scale, global supply and other dimensions.

This not to state that Tesla cannot continue to compete, but rather the competition is closing in.

Supply Chain Matters believes the stakes and the differentiators will indeed be design and manufacturing scale.

 

Bob Ferrari

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