Supply Chain Matters ponders on EV automaker’s Tesla’s recent quarterly vehicle delivery performance and how a business model developed to challenge existing industry norms was apparently not immune to ongoing global supply chain events.
There should be little doubt that the past three years has provided a lot of both revelation and learning opportunities for multi-industry supply chains. The notions of an unanticipated global-wide pandemic, unprecedented disruptions in supplier lead times, global transportation, and the burden of a sevenfold increase in ocean container shipping rates have tested prior product business strategies and supply chain practices. For the global automotive industry specifically, an ongoing global wide shortage of needed semiconductor devices has constrained or delayed vehicle output levels.
Industry disruptors such as Tesla and others developed business models that challenged existing business practices in either how products were developed, produced and distributed. In the case of Tesla, it is a business model that shuns a nationwide or global dealer and automotive vehicle delivery and post-sales maintenance services network. Instead, vehicles are sold online and then shipped directly to consumers globally, relying on transportation and logistics services networks. Post delivery vehicle services are delivered either directly via the Cloud for all software related maintenance needs, or the dispatching of company technicians directly to driveways and consumer garages for hardware repair or replacement needs.
Now, there are evident signs that this ongoing and unprecedented period of supply chain disruption is testing the timeliness and costs of this innovation. For Tesla, there have been a series of challenges and in Q2, a shortfall in expected delivery performance. Thus, the stakes grow higher with each passing quarter.
For the quarter ending in September, the EV automaker reported that 343,830 vehicles were delivered in the quarter, short of the upwards of 358,000 that were anticipated by equity analysts. The company actually produced a reported 365,923 vehicles in the most recent quarter, A press release reporting on vehicle deliveries, noted in part:
“Historically, our delivery volumes have skewed towards the end of each quarter due to regional batch building of cars. As our production volumes continue to grow, it is becoming increasingly challenging to secure vehicle transportation capacity and at a reasonable cost during these peak logistics weeks. In Q3, we began transitioning to a more even regional mix of vehicle builds each week, which led to an increase in cars in transit at the end of the quarter. These cars have been ordered and will be delivered to customers upon arrival at their destination.”
The immediate news of the vehicle shortfall caused the company’s stock to decline a reported 6.3 percent.
If readers have been following our ongoing Supply Chain Matters commentaries specifically focused on the automaker, we have long made mention of the company’s “hockey-stick” track record, where vehicle completions always tended to skew toward the final weeks of the quarter, usually because of parts or other delays. As noted in the statement above, parts delays are now compounded by both end of quarter shipment surges with transportation availability and the term. “reasonable costs.”
This week, The Wall Street Journal citing China Passenger Car Association data, reports that the automaker’s Shanghai production facility delivered more than 83,000 total vehicles in the month of September, establishing a delivery record. Vehicle deliveries from the Shanghai facility reported represented over half of Tesla’s global deliveries in the quarter. The company sales strategy for China was the operation of glitzy company owned showrooms mostly in the country’s largest cities where prospective buyers can arrange test drives. A published report by global business broadcast network CNBC reported in late September indicated that the strategy is being revised to have vehicle showrooms more concentrated in suburban cities and to further feature local service technicians to maintain vehicles. The report references Tesla’s challenges in the country regarding perceptions of unacceptable vehicle quality and lack of company responsiveness to vehicle quality and service needs.
Domestic rival BYD also established a monthly delivery record in the delivery of 95,000 vehicles. The report points out how BYD has dominated the EV market in China, overcoming parts shortages while accomplishing a threefold increase in year-over year EV and plug-in hybrid vehicle sales. The latter has vertically integrated its supply network including the in-house production of batteries. Further reported is that BYD continues with its global expansion plan by consummating partnerships with in-country dealers across Europe and Australia.
When our research arm published its annual predictions at the start of 2022, given the sheer magnitude of disruptions that occurred in the prior two years, our stated theme for industry supply chains was a reexamination of business and supply chain strategies would dominate as the various implications were assessed. Investors, C-Suite executive and teams themselves would collectively be addressing the questions of what measures are required to avoid the painful lessons that occurred, and how can they be either avoided or better mitigated.
For the automotive and vehicle sector itself, as optimism grows that global semiconductor production levels will soon be able to adequately support sales and output expectations, rising global-wide interest rates and the real threat of an economic recession are a looming risk to future vehicle sales volumes.
That challenge applied not only to mainstream players but industry disruptors as well. The scope of risk levels have increased as are global trade assumptions. No company seems immune.
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