Context
For decades the car industry was built on suppliers, dealers and gradual improvements to models. Tesla released the Roadster sports car in 2008 and began producing the Model S sedan in 2012. The company developed key components and software itself and sold cars directly, without dealers.
Symptom
Controlling every layer gave advantages but created risk: a failure in any layer stopped the whole system. The company had no experience in mass production, and every expansion of output tested how solid it was.
Cause
Tesla was changing several layers of the business at once: product, production, software and sales. Such a rebuild demands money, time and a readiness to take losses that an industry of gradual improvements does not bear.
The fork
Improve the car piece by piece, as the industry did, or rebuild the whole system and accept a high execution risk.
Decision
The company chose to rebuild. Since late 2012 its cars have received software updates over the air, without a visit to a service center: the car changes after purchase. In 2010 Tesla bought the former NUMMI plant in Fremont, and in 2014 it began building a battery plant in Nevada.
Execution
When the mass-market Model 3 launched in 2017–2018, production could not keep up with the plan. In April 2018 the company's head, Elon Musk, wrote that excessive automation at Tesla had been a mistake, his own, and that humans are underrated. Some operations were given back to people, and an additional assembly line was set up in a temporary structure.
Outcome
By the end of June 2018 the company reached output of about 5,000 Model 3 cars a week. Tesla became one of the largest makers of electric cars, and many carmakers adopted over-the-air updates. The road there came with losses and sharp swings.
What it means for you
Rebuilding the whole system can create an advantage that is hard to copy. But it requires a cash reserve and the readiness to admit a mistake in time, as with the automation.
- Which links of the value chain do you need to control yourself, and which can you hand over?
- Where will combining things bring savings, and where only complexity?
- Will your cash reserve last through a year in which the rebuild goes worse than planned?
We would start by working out which links of the chain directly affect unit economics, and begin the rebuild with them.
Key dates
| Year | Event |
|---|---|
| 2008 | Roadster |
| 2010 | Purchase of the former NUMMI plant in Fremont |
| 2012 | Model S; first over-the-air software update |
| 2014 | Construction of the battery plant in Nevada begins |
| 2017–2018 | Model 3 launch and production difficulties |
| 2018, April | Excessive automation admitted to be a mistake |
| 2018, June | Output of about 5,000 Model 3 cars a week |
Sources
- Bloomberg. *Musk Says Excessive Automation Was 'My Mistake'*, April 13, 2018: Source
- CNBC. *Elon Musk admits humans are sometimes superior to robots, in a tweet about Tesla delays*, April 13, 2018: Source
- Electrek. *Tesla software updates: How they work and how to install them*, November 5, 2021: Source
- Wikipedia. *NUMMI*: Source
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