{"id":24710,"date":"2017-11-15T19:54:26","date_gmt":"2017-11-16T00:54:26","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/a-tesla-can-elon-musk-really-revolutionize-the-auto-industry\/"},"modified":"2017-11-15T19:54:26","modified_gmt":"2017-11-16T00:54:26","slug":"a-tesla-can-elon-musk-revolutionize-the-auto-industry","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/a-tesla-can-elon-musk-revolutionize-the-auto-industry\/","title":{"rendered":"\u201cA-Tesla\u201d, Can Elon Musk Revolutionize The Auto Industry?"},"content":{"rendered":"

The Electric Battery Problem<\/strong><\/p>\n

For a long time the American auto industry has been located in the Midwest, but in particular my hometown Detroit, Michigan where the three American automakers are based.\u00a0 However, it was announced in 2014, that Tesla would build the largest auto factory and facility in the world in Reno, Nevada.<\/p>\n

Tesla to date has completed 30% of this $5 billion, 15 million square foot Gigafactory, which is expected to produce 35 gigawatt-hours (GWh) annually.\u00a0 The facility is being built out of necessity as Tesla\u2019s estimated demand of 500,000 cars per year will require more lithium-ion batteries than is currently produced worldwide [2]<\/a>. \u00a0Not only does Tesla need to produce more batteries, but it needs to produce them for much cheaper to be competitive in the mass market.\u00a0 It is believed that $100\/kilowatt-hours (kWh) is where electric-powered vehicles become cost competitive with gas-powered vehicles.\u00a0 Tesla has not released its battery cost, but a 30-35% reduction is believed to make them competitive at a $35,000 price point for the Model 3 [3]<\/a>.<\/p>\n

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

Source: Bloomberg New Energy finance, Ford, GM, Tesla, survey participants [4]<\/p>\n

The Gigafactory will not only allow for price reduction, but also supply chain reliability.\u00a0 Tesla currently receives thousands of parts from hundreds of suppliers who are mostly single source suppliers [5]<\/a>. \u00a0The desire to consolidate suppliers couldn\u2019t be more prevalent then now after Tesla missed Q3 earnings because of only producing 20% of the Model 3 cars due to \u201cproduction bottlenecks\u201d from a battery supplier.\u00a0 Tesla was forced to fire the supplier, redirect engineers and redesign the process [6]<\/a>.\u00a0 Tesla can no longer rely on the old auto supply chain to achieve its mission.<\/p>\n

Elon\u2019s Future for Tesla<\/strong><\/p>\n

Elon has stated that the Gigafactory will be completed by the end of 2020.\u00a0 In order to accomplish this goal, Tesla partnered with Panasonic for production investment and research & development. \u00a0However, Tesla plans to purchase the full output from Panasonic at a negotiated price and be less reliant on Panasonic\u2019s R&D once the Gigafactory is completed [5]<\/a>.\u00a0 The facility will be self-reliant on energy due to a 70-megawatt solar rooftop [7]<\/a>.<\/p>\n

\"\"<\/a>
Source: Tesla [3]<\/figcaption><\/figure>The completion of Gigafactory 1 in 2020 will be a significant accomplishment, but Tesla is already looking for new locations in the US, Europe and Asia to build 2 or 3 more Gigafactories [8]<\/a>. \u00a0There have not been many details released on the potential locations or plants themselves, but the goal is to get closer to having the capabilities to produce enough batteries for global car demand. It is a lofty mission that few besides Elon Musk could speak of.<\/p>\n

 <\/p>\n

 <\/p>\n

 <\/p>\n

Some Advice For Elon<\/strong><\/p>\n

Although Elon is a genius, he still has areas of improvement like us all.\u00a0 There are two critical areas that he needs to focus on to accomplish his mission.<\/p>\n

Improved labor Conditions In The Short Term<\/u><\/p>\n

The reduction of the price of batteries is a critical component to achieving mass market.\u00a0 The variable cost reduction will not only need to come from the battery materials, but also from labor improvements.\u00a0 Tesla already utilizes several robotic machines to reduce cost and increase output, but the Gigafactory will still have up to 6,500 employees [1]<\/a>. Given that the Freemont facility has an 8.8% incident rate, which is 31% higher than the auto industry, it will be critical to remained focus on the \u201chuman\u201d aspects of the factory to avoid union issues and reduced productivity [9]<\/a>. \u00a0It would be ashamed if the Gigafactory fails because of a lack of focus on the team versus the technology.<\/p>\n

Diversify Suppliers In The Medium Term<\/u><\/p>\n

Tesla is still reliant on various single source suppliers even with the automation processes in place. \u00a0It will be extremely difficult to prevent any supplier issues, similar to the recent bottleneck, without either internalizing or dividing the processes more.\u00a0 During the Q3 earnings call, Elon said, \u201cObviously, there are bottlenecks. There are thousands of processes in creating the Model 3, and we will move as fast as the slowest and least lucky process among those thousands. [10]<\/a>\u201d\u00a0 It likely does not make sense to internalize too many processes from an efficiency perspective so Tesla should find more suppliers.\u00a0 However, this will not be possible until there is more scale in production.<\/p>\n

Even Elon Doesn\u2019t Have All The Answers<\/strong><\/p>\n

Tesla has made significant progress, but still only sold 83,922 of the 77 million cars sold globally in 2016 [11]<\/a>.\u00a0 Does Tesla even have a chance of becoming a real threat regardless of their supply chain improvement?\u00a0 Will GM beat Tesla at its own game given GM is planning the release of 23 electric models by 2023?<\/p>\n

(776)<\/p>\n

[1]<\/a> Nevada, E. (2017).\u00a0Everything investors need to know about Tesla’s massive ‘Gigafactory’ in Nevada. [online] Business Insider. Available at: http:\/\/www.businessinsider.com\/tesla-stock-price-giga-factory-nevada-elon-musk-2017-9 [Accessed 16 Nov. 2017].<\/p>\n

[2]<\/a> Tesla.com. (2017).\u00a0Tesla Gigafactory | Tesla. [online] Available at: https:\/\/www.tesla.com\/gigafactory [Accessed 16 Nov. 2017].<\/p>\n

[3]<\/a> Lambert, F. and Lambert, F. (2017).\u00a0Tesla is now claiming 35% battery cost reduction at \u2018Gigafactory 1\u2019 \u2013 hinting at breakthrough cost below $125\/kWh. [online] Electrek. Available at: https:\/\/electrek.co\/2017\/02\/18\/tesla-battery-cost-gigafactory-model-3\/ [Accessed 16 Nov. 2017].<\/p>\n

[4]<\/a> Randall, M. (2017).\u00a0Tesla Flips the Switch on the Gigafactory. [online] Bloomberg.com. Available at: https:\/\/www.bloomberg.com\/news\/articles\/2017-01-04\/tesla-flips-the-switch-on-the-gigafactory [Accessed 16 Nov. 2017].<\/p>\n

[5]<\/a> Tesla, 2016 Annual Report. http:\/\/ir.tesla.com\/secfiling.cfm?filingID=1564590-17-3118#TSLA-10K_20161231_HTM_ITEM_7<\/a>, accessed November 2017.<\/p>\n

[6]<\/a> Tesla, Third Quarter 2017 Update. http:\/\/files.shareholder.com\/downloads\/ABEA-4CW8X0\/5560482989x0x962149\/00F6EB90-2695-44E6-8C03-7EC4E06DF840\/TSLA_Update_Letter_2017-3Q.pdf<\/a>, accessed November 2017.<\/p>\n

[7]<\/a> The Verge. (2017).\u00a0Tesla will power its Gigafactory with a 70-megawatt solar farm. [online] Available at: https:\/\/www.theverge.com\/2017\/1\/11\/14231952\/tesla-gigafactory-solar-rooftop-70-megawatt [Accessed 16 Nov. 2017].<\/p>\n

[8]<\/a> Lambert, F. and Lambert, F. (2017).\u00a0Elon Musk says 2 or 3 more Tesla Gigafactories are coming to the US. [online] Electrek. Available at: https:\/\/electrek.co\/2017\/07\/15\/elon-musk-tesla-gigafactory-us\/ [Accessed 16 Nov. 2017].<\/p>\n

[9]<\/a> Clifford, C. (2017).\u00a0Tesla workers say factory safety is worse than sawmills and slaughterhouses. [online] CNBC. Available at: https:\/\/www.cnbc.com\/2017\/08\/01\/tesla-workers-complain-about-factory-safety.html [Accessed 16 Nov. 2017].<\/p>\n

[10]<\/a> Tesla, Q3 2017 Results Earnings Call Transcript. https:\/\/seekingalpha.com\/article\/4119419-tesla-tsla-q3-2017-results-earnings-call-transcript<\/a>, accessed November 2017.<\/p>\n

[11]<\/a> Number of cars sold worldwide from 1990 to 2017 (in million units) | Statista. [online] Statista. Available at: https:\/\/www.statista.com\/statistics\/200002\/international-car-sales-since-1990\/ [Accessed 16 Nov. 2017].<\/p>\n","protected":false},"excerpt":{"rendered":"

Elon Musk said, \u201cThe factory is more important than the cars it produces [1].\u201d Tesla is transforming the auto manufacturing industry, not through electric cars, but through the digitalization of the Gigafactories production of lithium-ion batteries.<\/p>\n","protected":false},"author":10038,"featured_media":25355,"comment_status":"open","ping_status":"closed","template":"","categories":[2123,128],"class_list":["post-24710","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-digitalization","category-tesla","hck-taxonomy-organization-tesla","hck-taxonomy-industry-auto","hck-taxonomy-country-united-states"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"\n\u201cA-Tesla\u201d, Can Elon Musk Revolutionize The Auto Industry? - 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\/a-tesla-can-elon-musk-revolutionize-the-auto-industry\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"\u201cA-Tesla\u201d, Can Elon Musk Revolutionize The Auto Industry? 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