{"id":21825,"date":"2017-11-13T16:37:17","date_gmt":"2017-11-13T21:37:17","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/tesla-versus-the-world-can-insourcing-beat-outsourcing\/"},"modified":"2017-11-13T16:37:17","modified_gmt":"2017-11-13T21:37:17","slug":"tesla-versus-the-world-can-insourcing-beat-outsourcing","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/tesla-versus-the-world-can-insourcing-beat-outsourcing\/","title":{"rendered":"Tesla Versus the World: Can Insourcing Beat Outsourcing?"},"content":{"rendered":"

Tesla challenges operational norms through their manufacturing and car-making endeavors. They produce electric vehicles with designs and features that are not found on any other automobiles. Furthermore, Tesla does not even sell its cars through a traditional dealership model. But the biggest difference of all is Tesla\u2019s push against globalization, eschewing global trade and choosing instead to insource their manufacturing needs.<\/p>\n

 <\/p>\n

\"\"<\/a><\/p>\n

Source: Tesla, Inc. https:\/\/www.tesla.com\/gigafactory, accessed November 2017 [1]<\/p>\n

 <\/p>\n

For decades, the expansion of global trade has spurred the growth of produced goods, under the thought that \u201ctrade is the economic glue that connects the world economy\u201d [2].\u00a0 For manufacturers, trade has not only increased the footprint of finished goods shipment but has also decreased the costs of parts and materials. Analyses of plant-level data in manufacturing have corroborated these findings; a study across electronics manufacturing plants in Ireland demonstrated that outsourcing material inputs had a direct and positive impact on the plants\u2019 profitability, and this impact grew as plant sizes increased [3]. The clear method to success in manufacturing was thought to be continued outsourcing as you grow in scale.<\/p>\n

However, two recent changes have hurt the advantages previously observed from outsourcing parts in manufacturing. The first change involves increased regulation and anti-outsourcing provisions by governments around the world. The Global Trade Alert, which monitors these regulations, says there have been \u201cnearly 350 regulations imposed world-wide since November 2008 requiring local sourcing, hiring or operations, including a profusion of Buy America provisions in the Obama administration\u201d [4]. These requirements eliminate the possibilities of outsourcing or make the cost hurdle of doing so far steeper than it would have been in an unregulated market. The second change is the rapidly decreasing cost of producing parts in-house. According to a recent report from The Economist, \u201cAs the price of capital goods continues to fall sharply, places with large pools of cheap labour, such as India or Africa, will find it harder to break into global supply chains\u201d [5]. This is because automated production from the low capital costs outweighs the labor benefits of outsourcing, making it cheaper for companies to produce the items in-house.<\/p>\n

Tesla is using the changing landscape and recent decline of globalization to their advantage. According to American University\u2019s Made In America Auto Index<\/em>, Tesla\u2019s Model 3 will have 95% of its parts manufactured in the United States; in comparison, the next two vehicles include the Buick Enclave (90% of parts manufactures in the US) and the Ford F150 (85% of parts manufactured in the US) [6]. What is perhaps even more significant is the fact that Tesla is not only manufacturing these parts in the United States, but that Tesla is manufacturing these parts in-house. Tesla has embraced a \u201cwe\u2019ll do it ourselves; we\u2019ll change the mold\u201d philosophy for almost all parts throughout the vehicle, including the vehicle seats [7]. Traditionally, auto manufacturers outsource seat production due to high labor and design costs; in contrast, Tesla created their own seat assembly line in a \u201ccommitment to a vertical integration strategy not seen in the auto industry for decades\u201d [7]. Tesla is further pushing away from outsourcing as they set up their Gigafactory, where they have been building and assembling batteries for vehicles and other products.<\/p>\n

These large moves against globalization put Tesla in a unique position to shrink their supply chain through internal production both in the short- and medium-term, but this has not come without a cost. Tesla has yet to turn a financial profit and continues to spend at a growing rate to build parts internally. Capital expenses were $1.1 billion USD in the 3rd<\/sup> quarter of 2017 and the company to reach out for an additional $4.1 billion USD in financing in 2017 to stay afloat [8]. The chart below shows the rise in spending needed to keep up with Tesla\u2019s strategy. The increasing financial expense of Tesla\u2019s insourcing leads to one very valid question: At what point does Tesla draw a line in the sand on building in-house versus finding strategic partners?<\/p>\n

 <\/p>\n

\"\"<\/a><\/p>\n

Source: Tesla Company Data compiled by The Financial Times. \u201cTesla model 3 production target falls further behind schedule\u201d.\u00a0<\/em> https:\/\/www.ft.com\/content\/e6fb20b8-bf5a-11e7-b8a3-38a6e068f464 [8]<\/p>\n

 <\/p>\n

Additionally, there are limitations to Tesla\u2019s strategy based on greater macroeconomic trends. Externalities such as rising raw material costs or economic trends that decrease consumer demand for their products could disrupt Tesla\u2019s business model. To mitigate these issues, Tesla has a pre-order system for their products and they likely have contracts for their material purchases. These stop-gaps are near-term solutions, so Tesla may need to find more sustainable partnerships to keep costs down and demand up.<\/p>\n

Despite the challenges, Tesla is pushing forward\u2014 and it is likely that manufacturers across all industries are watching. Will other companies, inspired by Tesla, start producing more in-house? Tesla\u2019s success or failure could set a precedent, but it could also prove once and for all that globalization is needed for financial success in product manufacturing.<\/p>\n

 <\/p>\n

(792 words)<\/p>\n

 <\/p>\n

 <\/p>\n

References<\/strong><\/p>\n

[1] Tesla, Inc. \u201cTesla Gigafactory\u201d, Image, https:\/\/www.tesla.com\/gigafactory, accessed November 2017.<\/p>\n

[2] Warsh, K., & Davis, S. (2012, Oct 16). The retreat of globalization.\u00a0The Wall Street Journal Asia<\/em>\u00a0Retrieved from http:\/\/search.proquest.com.ezp-prod1.hul.harvard.edu\/docview\/1112075637?accountid=11311<\/p>\n

[3] G\u00f6rg, Holger and Hanley, Aoife. (October 2004). Does Outsourcing Increase Profitability? IZA Discussion Paper No. 1372. Available at SSRN:\u00a0https:\/\/ssrn.com\/abstract=612228<\/p>\n

[4] Mann, Ted and Spegele, Brian. (2017, Jun 29).\u00a0GE, the ultimate global player, is turning local. Dow Jones Institutional News<\/em>\u00a0Retrieved from http:\/\/search.proquest.com.ezp-prod1.hul.harvard.edu\/docview\/1914715982?accountid=11311<\/p>\n

[5] Anonymous. (2016, Oct 01).\u00a0An open and shut case; the world economy. The Economist,\u00a0421<\/em>, 3. Retrieved from http:\/\/search.proquest.com.ezp-prod1.hul.harvard.edu\/docview\/1826246599?accountid=11311<\/p>\n

[6] Ashton, Dave. (2017, Jan 10).\u00a0 Tesla Praised As The \u2018Most American Car\u2019. Torque News<\/em>. Retrieved from https:\/\/www.torquenews.com\/3855\/tesla-praised-most-american-made-car<\/p>\n

[7] Sage, Alexandria. (2017, Oct 26).\u00a0 Tesla\u2019s seat strategy goes against the grain\u2026for now. Reuters Business News<\/em> Retrieved from https:\/\/www.reuters.com\/article\/us-tesla-seats\/teslas-seat-strategy-goes-against-the-grain-for-now-idUSKBN1CV0DS<\/p>\n

[8] Waters, R., & Platt, E. (2017). Tesla model 3 production target falls further behind schedule.\u00a0FT.Com,\u00a0<\/em>Retrieved from https:\/\/www.ft.com\/content\/e6fb20b8-bf5a-11e7-b8a3-38a6e068f464<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Tesla has chosen to produce their parts and products in-house. Will this start a new manufacturing trend or lead to the demise of the company?<\/p>\n","protected":false},"author":10105,"featured_media":21826,"comment_status":"open","ping_status":"closed","template":"","categories":[1301,3222,2515,3239,161,1114,169,1708],"class_list":["post-21825","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-automobiles","category-global-supply-chain","category-international-trade","category-isolationism","category-manufacturing","category-mass-production","category-outsourcing","category-trade","hck-taxonomy-organization-tesla","hck-taxonomy-industry-manufacturing","hck-taxonomy-country-united-states"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"\nTesla Versus the World: Can Insourcing Beat Outsourcing? - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/tesla-versus-the-world-can-insourcing-beat-outsourcing\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Tesla Versus the World: Can Insourcing Beat Outsourcing? - Technology and Operations Management\" \/>\n<meta property=\"og:description\" content=\"Tesla has chosen to produce their parts and products in-house. Will this start a new manufacturing trend or lead to the demise of the company?\" \/>\n<meta property=\"og:url\" content=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/tesla-versus-the-world-can-insourcing-beat-outsourcing\/\" \/>\n<meta property=\"og:site_name\" content=\"Technology and Operations Management\" \/>\n<meta property=\"og:image\" content=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2017\/11\/gigafactory-1.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1440\" \/>\n\t<meta property=\"og:image:height\" content=\"675\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data1\" content=\"5 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/tesla-versus-the-world-can-insourcing-beat-outsourcing\\\/\",\"url\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/tesla-versus-the-world-can-insourcing-beat-outsourcing\\\/\",\"name\":\"Tesla Versus the World: Can Insourcing Beat Outsourcing? - Technology and Operations Management\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/tesla-versus-the-world-can-insourcing-beat-outsourcing\\\/#primaryimage\"},\"image\":{\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/tesla-versus-the-world-can-insourcing-beat-outsourcing\\\/#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/wp-content\\\/uploads\\\/sites\\\/4\\\/2017\\\/11\\\/gigafactory-1.jpg\",\"datePublished\":\"2017-11-13T21:37:17+00:00\",\"breadcrumb\":{\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/tesla-versus-the-world-can-insourcing-beat-outsourcing\\\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/tesla-versus-the-world-can-insourcing-beat-outsourcing\\\/\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/tesla-versus-the-world-can-insourcing-beat-outsourcing\\\/#primaryimage\",\"url\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/wp-content\\\/uploads\\\/sites\\\/4\\\/2017\\\/11\\\/gigafactory-1.jpg\",\"contentUrl\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/wp-content\\\/uploads\\\/sites\\\/4\\\/2017\\\/11\\\/gigafactory-1.jpg\",\"width\":1440,\"height\":675},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/tesla-versus-the-world-can-insourcing-beat-outsourcing\\\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Submissions\",\"item\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/\"},{\"@type\":\"ListItem\",\"position\":3,\"name\":\"Tesla Versus the World: Can Insourcing Beat Outsourcing?\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/#website\",\"url\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/\",\"name\":\"Technology and Operations Management\",\"description\":\"MBA Student Perspectives\",\"potentialAction\":[{\"@type\":\"性视界Action\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"}]}<\/script>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Tesla Versus the World: Can Insourcing Beat Outsourcing? - Technology and Operations Management","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/tesla-versus-the-world-can-insourcing-beat-outsourcing\/","og_locale":"en_US","og_type":"article","og_title":"Tesla Versus the World: Can Insourcing Beat Outsourcing? - Technology and Operations Management","og_description":"Tesla has chosen to produce their parts and products in-house. Will this start a new manufacturing trend or lead to the demise of the company?","og_url":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/tesla-versus-the-world-can-insourcing-beat-outsourcing\/","og_site_name":"Technology and Operations Management","og_image":[{"width":1440,"height":675,"url":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2017\/11\/gigafactory-1.jpg","type":"image\/jpeg"}],"twitter_card":"summary_large_image","twitter_misc":{"Est. reading time":"5 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"WebPage","@id":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/tesla-versus-the-world-can-insourcing-beat-outsourcing\/","url":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/tesla-versus-the-world-can-insourcing-beat-outsourcing\/","name":"Tesla Versus the World: Can Insourcing Beat Outsourcing? - Technology and Operations Management","isPartOf":{"@id":"https:\/\/d3.harvard.edu\/platform-rctom\/#website"},"primaryImageOfPage":{"@id":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/tesla-versus-the-world-can-insourcing-beat-outsourcing\/#primaryimage"},"image":{"@id":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/tesla-versus-the-world-can-insourcing-beat-outsourcing\/#primaryimage"},"thumbnailUrl":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2017\/11\/gigafactory-1.jpg","datePublished":"2017-11-13T21:37:17+00:00","breadcrumb":{"@id":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/tesla-versus-the-world-can-insourcing-beat-outsourcing\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/d3.harvard.edu\/platform-rctom\/submission\/tesla-versus-the-world-can-insourcing-beat-outsourcing\/"]}]},{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/tesla-versus-the-world-can-insourcing-beat-outsourcing\/#primaryimage","url":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2017\/11\/gigafactory-1.jpg","contentUrl":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2017\/11\/gigafactory-1.jpg","width":1440,"height":675},{"@type":"BreadcrumbList","@id":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/tesla-versus-the-world-can-insourcing-beat-outsourcing\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/d3.harvard.edu\/platform-rctom\/"},{"@type":"ListItem","position":2,"name":"Submissions","item":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/"},{"@type":"ListItem","position":3,"name":"Tesla Versus the World: Can Insourcing Beat Outsourcing?"}]},{"@type":"WebSite","@id":"https:\/\/d3.harvard.edu\/platform-rctom\/#website","url":"https:\/\/d3.harvard.edu\/platform-rctom\/","name":"Technology and Operations Management","description":"MBA Student Perspectives","potentialAction":[{"@type":"性视界Action","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/d3.harvard.edu\/platform-rctom\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"}]}},"_links":{"self":[{"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/hck-submission\/21825","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/hck-submission"}],"about":[{"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/types\/hck-submission"}],"author":[{"embeddable":true,"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/users\/10105"}],"replies":[{"embeddable":true,"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/comments?post=21825"}],"version-history":[{"count":0,"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/hck-submission\/21825\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/media\/21826"}],"wp:attachment":[{"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/media?parent=21825"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/categories?post=21825"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}