You probably already know that Tesla broke delivery records yet again in Q3 2021, and by a huge margin. However, naysayers continue to insist that Tesla is lying about its numbers, and there's no way it could have produced or delivered so many cars amid a global chip shortage, as well as many other supply chain issues, not to mention the seemingly everlasting impact of the global pandemic.
Lead analyst at Morgan Stanley Adam Jonas put out a letter to investors entitled, “How Did Tesla Find Chips?” While the note was likely a way to assure investors that the false narratives are untrue, Teslarati points out that we already knew how Tesla was handling the chip shortage based on a discussion on the Q2 2021 Earnings Call.
According to Tesla's shareholder deck, it was working to curb any production stoppages by using a series of new, in-house chips. Tesla explained in the deck:
“Our team has demonstrated an unparalleled ability to react quickly and mitigate disruptions to manufacturing caused by semiconductor shortages. Our electrical and firmware engineering teams remain hard at work designing, developing and validating 19 new variants of controllers in response to ongoing semiconductor shortages.”
That said, Jonas went into more detail, breaking down the part shortage situation into a number of categories, including Vertical Integration, Sophistication, Negotiation, and Scale.
Tesla has been vertically integrating for years, and some would argue it's much more of a software company than an automaker. The less Tesla has to rely on suppliers and other companies, the more control it has over its development and production processes.
Jonas points out that Tesla's in-house development allows it to produce vehicles that are much more sophisticated than those using run-of-the-mill chips and parts that are shared by most automakers.
Added to this, Tesla's inside expertise gives it an advantage when it comes to negotiating with suppliers. The suppliers know that if they can't get Tesla what it needs when it needs it, the company can simply produce its own. As the industry transitions, suppliers likely don't want to lose Tesla as a customer, so they have to work hard to satisfy the EV-maker's demands.
Finally, Jonas writes about scale. Tesla is smaller than the competition, but it's growing exponentially. Its record-shattering quarter was reliant on just two factories. Meanwhile, two more factories are set to open in the very near future. Jonas says many suppliers are aware that Tesla is a "strategic customer," so it's wise to keep that relationship positive.
It seems thus far, some suppliers are keeping Elon Musk happy and impressed.
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