Nikola Tesla and An Electric Vehicle Business

When hearing the company name, Tesla many people automatically associate it with self driven cars and Elon Musk. But, Tesla. Inc was actually founded by Martin Eberhard and Marc Tarpenning in 2003. They named the company after Serbian American investor Nikola Tesla (Schreiber and Gregerson). Tesla is based in Alto, California. Their company was formed to develop an electric sports car but on a safe economical scale. The most notably funding that Tesla obtained was paypal co founder Elon Musk, who contributed more than $30 million to the new venture and served as chairman of the company in 2004 (Schreiber and Gregerson).

Tesla signed a contract with Lotus Cars in 2006. Lotus Cars is a British company that makes sports and racing cars. Lotus provided the framework and design of Tesla’s first car. (CNN Business). In 2007 Elon Musk was announce to be the entrepreneur of the year. In 2008, Tesla Motors released its first complete electric car named, Roadster. Achieving 245 miles on a single charge. The Roadster was made out of carbon fiber so the car was light weight having no tailpipe emission, as it did not use an internal-combustion engine. The vehicle’s electric motor was powered by lithium-ion cells; often used in laptop computer batteries, that could be charged from a standard electrical outlet (Schreiber and Gregerson). Tesla receives a $465 million loan from the US Department of Energy (CNN Business).

In 2008 Elon Musk become the CEO of Tesla. In 2010 Tesla’s raised $226 million through a public offering. In 2012 Tesla stopped production of the Roadster to start the new Model S sedan, which was praised by automotive critics for its performance and design. The difference between the Roadster and the Model S; the Roadster carried its batteries at the front of the car; where as, Model S had its underneath the floor, which gave extra storage space in front and improved handling because of its low centre of gravity. Tesla moves its facility in Fremont, California. The factory previously housed an auto plant jointly operated by GM and Toyota. Tesla begins producing of the Model S, and eventually adds the Model X and Model 3 lines to the facility (CNN Business).

Tesla is in an electric vehicle (EV) business including affordable options for different types customers in the market. Tesla’s mission in the company is to accelerate the world’s transition to sustainable energy. The products are purchased; sourced globally from hundreds of suppliers. Tesla’s Supplier Code of Conduct, has a Human Rights and Conflict Minerals policy that outlines their expectations to all suppliers and partners that work with them. Strictly following all U.S. and foreign law, and requires their supply chain to do the same. All of the contracts require the suppliers to adhere to the human rights policy and environmental and safety requirements. Resulting work conditions to be safe and humane as the workers are treated with respect and that manufacturing processes are environmentally responsible.

The complex supply chain that Tesla obtains is a unique hybrid of the traditional automotive and high-tech industries and encompasses suppliers from around the world. In the Tesla Conflict Minerals Report, Tesla states, “Many of our Tier 1 suppliers (i.e., direct suppliers) do not purchase all their raw materials directly and instead obtain them from downstream suppliers and sub-suppliers. Therefore, reliably determining the origin is a difficult task, but the due diligence practices outlined below provide additional information and transparency that help us, and our suppliers, adhere to the responsible sourcing principles of our Supplier Code of Conduct

Our Tier 1 suppliers are required to register and complete the domestic and international material compliance requirements in the International Material Data System (“IMDS”) to meet European Union and other international material and environmental related regulations. This requirement is mandated for all suppliers who supply their products or raw materials to us as part of our production part approval process. Supplier-provided data collected via the IMDS process is the starting point for our conflict minerals due diligence efforts. In addition to the material requirements above, we require our Tier 1 suppliers to fully disclose material sourcing of certain materials as specified in supply chain purchasing contracts” (Tesla).

Tesla conducts vehicle manufacturing and assembly operations at their facilities in Fremont, California; Lathrop, California; and Tilburg, Netherlands. They have also built and expanded a cell and battery manufacturing facility, Gigafactory 1, outside of Reno, Nevada. According to Forbes, Tesla is pioneering the practice of shipping products directly rather than physically. Tesla has 208 stores, worldwide. In order to effectively manage their supply chain, They implemented a low inventory management strategy. This is for the demand of a non custom vehicle or if customers don't want to wait months for their car to arrive.

The make-to-order model is to minimize the capital and risk of the demand decreasing. While Tesla has a low inventory holding cost, this allows them to have the freedom to invest into other areas of the company. Tesla’s construction of a Gigafactory, allows them to scale down the production cost by half. Tesla’s battery is currently over half the price of the car. So, by tesla lowering the cost of the battery, they will now be able to make more profit. I’d recommend them putting that money into improving their supply chain processes and risk management. Sourcing from local suppliers allows Tesla to save in tax break. Also, by having control over the sales of the cars allows them to save on third party costs, and gives them a better interaction with customers.

Tesla has a vertical integration of a supply chain, which gives them complete control over the quality of their processes, as now they are responsible for making sure that they are using the best materials and components. Tesla uses an assembly line operation to produce their own vehicles at the Tesla Factory. The growth of the company is based on a triple bottom line, “is the result of capital reinvestment, strategic partnerships, a variety of funding sources and a vision.”

The profits from the competitive advantages are reinvested into the company to continue the innovation growth of their cars, towards the end goal of being able to mass produce cheap electric vehicles. Due to the rapid change from low volume to high volume, Tesla ran into a few obstacles. This includes the supply chain. There were multiple reporting of long shipment dates, inventory holding cost and more.