Tesla is competitive with traditional global vehicle manufacturers in new ways. Since the Covid-19 buying spree by consumers traditional manufacturers have prioritized earnings. Prices went up by price increases and supply chain shortages. The most expensive ‘trims’ have been supplied with less expensive models seeing almost no availability at dealers. Not following, at the start of 2024, Tesla reduced prices.
Tesla is using advantages to build market volume. Advantages come from an emphasis on low manufacturing costs and lower marketing costs. Traditional competitors have attacked Tesla while attempting to transform to Electric Vehicles/New Energy Vehicles (EV/NEV). Now Tesla’s manufacturing methods are being copied. The adoption of new manufacturing and business models are a new strategy for traditional manufacturers – and one with different risks.
At the start of 2023 Tesla’s manufacturing was still increasing volume targeting 1.8M vehicles in the year. A Mexican low-cost manufacturing plant was acknowledged. Other products (CyberTruck in Austin, lower cost sedans in China) were also tapped with manufacturing changes in 2023. Gigafactories in Buffalo (solar) and Germany were focused on building production volumes. Countries from the EU/UK to India to Indonesia sought a Tesla manufacturing plant. Choices in battery technologies (CATL LFP) were made to keep prices down for existing models. Tesla used manufacturing cost management to successfully deliver volume products at an acceptable profit margin.
Announcements from traditional global manufacturers can be seen as validating Tesla’s early innovator manufacturing methods. GM has announced the purchase of a Tesla gigacasting supplier (Tooling and Equipment International) to bring the technology into GM manufacturing faster. Toyota, Geely (Volvo), Nio (Chinese EV), VW Group, and Hyundai are all known to be deploying the manufacturing method or similar techniques. The competition is on to eliminate parts counts, reduce assembly labor costs, increase cost-reducing automation, and simplify supply chains. Deploying core automation, like gigacasting, is a key to reducing manufacturing costs even as labor, globally, is becoming more expensive.
The risks are not trivial for traditional global manufacturers. The time to build new production lines for EV/NEV vehicles is still measured in years. The rapid pace of adoption of EV/NEV is at odds with the assumed gradual transformation pace favored by existing manufacturers and labor. Forcing traditional global manufacturers to simultaneously transform existing internal combustion manufacturing and bring up EV/NEV manufacturing capacity is straining them. The scale of investment alone, with no profit margins seen for years into the future, is a high-risk financial strain on traditional manufacturers.
Labor cost increases (in markets as diverse as North America, China, Japan, and the EU/UK) reduce free cash flow available to pay for front-end loaded manufacturing tooling. Political pressures on technology choices, raw mineral resources, and battery manufacturing supply chains increases manufacturing risks. Plants face higher risks of not having the right components when a new assembly line is reading to be started. Limitations on Joint Venture partnerships, raw material sourcing, and plant location create capital investment demands not easily fulfilled or spread out with business partnerships. In the North American market GM and Ford are ‘pausing’ or adjusting product line plans to better fit likely capital availability. Manufacturers from Toyota to VW Group to new-generation Chinese enterprises are adjusting to high-costs of capital with limited choices.
Traditional manufacturers face the simultaneous costs for R&D expenses, capital costs of manufacturing tooling/lines, and cash flow demands of legacy products. The currently rising costs of investment capital, inflationary cost pressures, and marketing competition are additional pressures. The critical manufacturing costs follow high product design, and manufacturing engineering, for EV/NEV products where legacy manufacturers have no real advantages from incumbency.
For additional insights and analysis on Tesla’s Alien Invasion see
\
For more on how these transformations in the economy will affect your enterprise please contact us at
Comments