Tesla Advanced Automation Is Now Working Solutions For BMW, VW Contracts

5 months ago by Steven Loveday 26

Tesla Advanced Automation

Tesla acquired Grohmann Engineering, now coined Tesla Advanced Automation Germany (Image Credit: flickr via TC)

Tesla Advanced Automation Germany has shifted its focus to only in-house, leaving obligatory contracts with BMW, VW, Daimler, and Bosch high and dry. Now, Tesla is working to facilitate viable solutions.

The response was understandably varied when the media learned that Tesla Advanced Automation Germany (formerly Grohmann Engineering) was cutting ties with its former business customers. Some felt that this is exactly what was expected to happen. What automaker works to help supply its competition, especially during a time when it needs all resources on hand? Others said that this decision by Tesla was a low blow to Grohmann’s existing customers, and should have never happened.

Tesla Advanced Automation

The acquisition of Grohmann Engineering to form Tesla Advanced Automation was a key play in upcoming Tesla Model 3 production

We don’t know for sure if Tesla went into the deal fully aware that the contracts would be immediately cancelled, or if it happened as a matter of necessity. Although German works councilor, Uwe Herzig, told a German newspaper (translated from German):

“The workload caused by new Tesla projects was so great, that it has only been working on Tesla projects for a few weeks.”

Grohmann was a substantial supplier for Daimler, BMW, Volkswagen, and Bosch. Essentially, the company assured that those customers’ plants were outfitted with the “machines that build the machines,” as Tesla CEO Elon Musk would put it.

Tesla has made it clear that the newly acquired entity will focus all of its energies on work for the upcoming Model 3. To some, this was pretty cut and dry when the deal happened. However, German automakers don’t feel the same way. Though, having a small U.S.-based electric car startup work for highly developed and successful German ICE vehicle manufacturers might suggest hell froze over, Tesla Advanced Automation is doing what it can to help assure that the competitors’ contracts are fulfilled.

According to BMW and VW, the problem lies in the fact that Tesla never officially made them aware that the contracts were to be dropped. German union IG Metall, and the German works council are now involved, because the transition didn’t go smoothly, as Tesla had previously promised. The Silicon Valley automaker already avoided a potential strike by raising wages, and the expectation is that Tesla will comply once again. A spokesperson for BMW explained:

“We assume that Grohmann fulfills its contractual obligations.”

VW chimed in as well:

“Grohmann meets the existing contracts.”

According to Electrek, Tesla recently produced a statement in regards to the demands of the German automakers.

“We have been in contact with every client for weeks on this issue and are on the way to finding individual solutions with each of them.”

Surprisingly, Daimler hasn’t commented, and nothing has hit the press regarding Bosch.

Source: Wirtschaftswoche

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26 responses to "Tesla Advanced Automation Is Now Working Solutions For BMW, VW Contracts"

  1. Taser54 says:

    Reads like Tesla hasn’t complied with the terms of the contract, now it has to backtrack.

  2. Victor says:

    I would be surprised if there was no exit clause in the contracts that Grohmann made originally. Longer term I guess Tesla will simple let the contracts expire with appropriate notice.

    1. ¯\_(ツ)_/¯ sven says:

      If any party had an exit clause in these contracts, it would be the purchaser/customer (BMW, Mercedes, & VW) and not the seller Grohmann.

      1. Pushmi-Pullyu says:

        Somehow, I don’t think we should depend on the uninformed opinion of a very biased serial Tesla FUDster (like Sven) on this subject. 🙄

        1. sven ¯\_(ツ)_/¯ says:

          Somehow InsideEvs doesn’t ban trolls like you who do nothing but launch ad hominem attacks in effort to shill for Tesla and prop up its stock price.

          And which EV do you drive Pu-Pu? Oh now I remember, you don’t own or drive an EV! Why not? IIRC, you drive a gas guzzling minivan. You’re a wanna-be poser, who only comes here to troll. You should be banned from posting here.

          1. Jim Whitehead says:

            My Dad always said you know when someone is losing the argument, when they can’t win an argument and instead launch a vicious Ad Hominem attack. Who cares if P-P drives a fossil car? I drive a Prius myself and can’t afford a $100K fully loaded Tesla (until the Model 3 is available by next year).

            P-P is a smart tech guy who I would hire in an instant for a tech firm, if I could. He once corrected me when I confused the dying Faraday Future with the exciting Lucid Motors, and I appreciated the correction. He is often the only voice of reason here, when a flock of Tesla haters take turns gang-banging Tesla.

            Many of the Tesla haters were stock bears who were recently cleaned out and now gone. Their weak arguments (a million reasons why Tesla makes junk and will fail) have popped like vampires from “Buffy the Vampire Slayer”: they went up in smoke in the daylight.

            P-P has won most of his arguments from years past, and I bet with winners like Tesla, not losers. 🙂

  3. Rich says:

    What does German law require when a corporation is purchased. Is the purchasing company (Tesla) responsible for old contracts signed by the purchased corporation (Grohmann Engineering)? I would assume the new corporation has no accountability for contracts signed by a corporation (Grohmann Engineering) that no longer exists. Any corporate lawyer familiar with German law on the boards?

    1. Mr. M says:

      Since the company never changed only the owner changed i would assume the company has to fullfill all the contracts.

      1. ¯\_(ツ)_/¯ sven says:

        Correct, this was a sale of Grohmann’s stock to Tesla (giving it control/ownership of the company), not a sale of Grohmann’s assets and IP to Tesla.

    2. Pushmi-Pullyu says:

      “Any corporate lawyer familiar with German law on the boards?”

      I can’t speak to that (being a faithful watcher of “Paper Chase” doesn’t make me an expert on international contract law!), but in general, the terms of a contract remain legally binding even if the entity owning the contract changes. As they say, “A contract is a contract.”

      I don’t think this is actually a complex issue, despite the tempest-in-a-teapot controversy here. Either the contracts in question had an exit clause which Grohmann Engineering could exercise, or they didn’t. It’s quite common for contracts between suppliers and manufacturers to have exit clauses that either party can exercise.

      If the contracts had such exit clauses, then what Tesla is doing is perfectly legal, and frankly should be expected given that Tesla needs to ramp up its production very rapidly. Furthermore, BMW at least, if not also some of those other companies, is a strong competitor of Tesla. BMW should have expected their contract to be terminated ASAP, and if they didn’t, then they were being naive.

      If the contracts didn’t have such exit clauses, then Tesla breaking the contracts would be illegal, and of course BMW et al. could take prompt legal action against Tesla. Since there’s no suggestion they are doing that, I think it’s reasonable to conclude that Tesla is exercising its legal rights under the existing contracts.

      1. ¯\_(ツ)_/¯ sven says:

        Somehow, I don’t think we should depend on the uninformed opinion of a very biased troll and Tesla shill (like Poo-Poo) on this subject. ?

        1. Four Electrics says:

          PP respects all opinions. That agree with his own, that is. Dissent will be censored with juvenile ad hominem attacks. Tolerance for a diversity of opinions remains a challenge.

        2. Jim Whitehead says:

          Sven, suppose a German auto giant like BMW had bought Grohman instead. Would they have been happy letting Grohman continue working with their competition? Duh.

          Speaking as a guy who founded two successful private companies, Tesla is simply doing what is their rational self-interest, Duh.

          Musk has so many projects, from cars to Boring machines, to batteries to solar to rockets (in SpaceX), they have needed to hire the best, in Silicon Valley buyout style, with retention bonuses and stock options for key people. (This has not been reported much).

          While auto giants sometimes do joint projects, they usually fail like the NUMMI plant between GM and Toyota. (Corporate egos between giants probably prevent real cooperation).

          Suppose BMW or Daimler had bought Grohmann; they could have tried the sneaky route of slowing the competition, by giving them the “C” team people and keeping the best “A” team for themselves.

          German automakers are NOT left hanging. They can hire away key “A” team employees of Grohman. They may not like it, but are likely learning Silicon Valley style hiring, which is persuading people to give up pension and seniority for huge signing bonuses and rich stock options. (Some people may have already left this way, quietly).

  4. Doggydogworld says:

    Good thing Musk doesn’t do many acquisitions as he botched both this and Silevo.

  5. Roy_H says:

    The way I read it is that Tesla planned on letting the contracts expire, but didn’t tell everyone that they would not renew contracts for future orders. I find it difficult to see how these companies wouldn’t see this coming or why they feel that Tesla should be obligated to renew contracts not yet signed.

    1. realistic says:

      Renewal is one thing — honoring existing agreements is another.

      1. ¯\_(ツ)_/¯ sven says:

        It would be like a company whose mission is to save the world, buying SolarCity and then refusing to honor Solar City’s contracts with their customers (solar PV system lessees) by not paying the lessees their monthly payments or not maintaining the lessee’s solar panel PV systems.

        Oops! I hope that I didn’t give Elon any ideas on how to screw Solar City customers. 🙁

  6. realistic says:

    There is no major contract purchase by Automotive companies that does not contain some kind of novation clause. The very idea that Tesla imagined they could just say “buh bye, we own it now” would not only violate contracts terms that almost certainly there, but in addition their European operation would get crushing fines under EU commercial codes. (This would even be true here in Murica under the UCCs). In defense of Musk: I can’t imagine he was ever that dumb. I believe this issue has been poorly reported, mostly by adherents of Musk whose imaginations are large enough to think he could/would do this and get away with it.

    1. Alonso Perez says:

      We don’t know what we don’t know. I suspect part of the problem is loyalty by unions and German workers to German brands. The fulfillment of existing orders is far from satisfactory for these people. However I doubt they can legally strike over this.

    2. Brian says:

      Right on, realistic. No contract is absolute, but all contain clauses that deal with a full range of circumstances that may occur and which require some kind of early exit. As far as how to interpret the response of the German automakers, you only need to ask what would the proper response be if the shoe were on the other foot.

      1. Pushmi-Pullyu says:

        “No contract is absolute, but all contain clauses that deal with a full range of circumstances that may occur and which require some kind of early exit.”

        Well, that’s certainly an overstatement. Marriage vows contain no such provision! “Till death do us part.”

        Contracts may be simple or complex, and are highly varied. Certainly not all contracts contain exit clauses. But it would be typical for a contract between manufacturer and supplier to contain exit clauses which either party can exercise. Not to have either an exit clause or a termination date to the contract is basically saying you expect the current arrangement to continue to be mutually beneficial to both parties, forever, regardless of what may happen in the future. That would be pretty foolish.

  7. Pushmi-Pullyu says:

    Frankly, I don’t see what the fuss is all about. The reason contracts exist is so both parties will have a clear understanding of the deal they made. If the contracts contain an exit clause, then neither party has the right to complain about that exit clause being exercised. So long as Tesla abides by the terms of the contract and follows the law, this seems like just whining to me.

    And for those who think Tesla is being unethical or not following standard business procedures here, let me just ask this: If Grohmann Engineering had a former contract with Tesla, and BMW bought out the company, don’t you think that BMW would terminate its contract with Tesla as soon as possible? Do you think they would not exercise an exit clause in any such contract, if it was there?

    If you think BMW would not do exactly that, then please do respond. I’d like to from someone with a different opinion (so long as it’s an honest opinion, not just more FUD from serial Tesla bashers.)

    * * * * *

    Surprisingly, Daimler hasn’t commented…”

    “Given that Tesla and Daimler had a former business arrangement, and Daimler was a former investor in Tesla, and given that the separation was apparently amiable, this doesn’t surprise me at all.

    I certainly understand that BMW sees Tesla as a bitter rival, and rightly so, given how deeply Tesla has eaten into their market. It’s no surprise that BMW would use any opportunity to slam Tesla publicly. But that doesn’t mean they’re actually on either the moral or ethical high ground. Maybe they just climbed up on their high horse. 😉

    1. ffbj says:

      Having not seen the contract I can’t really say, though the point of a contract is that both sides fulfill it, so best business practice would be to do so.

      In the long run the repercussions of not honoring those contractual agreements seems much worse that doing so. Already that decision has been an unhappy one.

  8. Four Electrics says:

    I suspect Elon pushed to defer work on existing contracts as long as possible so that the critical path for Model 3 production wasn’t affected, knowing full well that such a move would be violating the spirit of the contracts and that other customers would complain. Who cares as if it’s unethical as long as the M3 stays on schedule, though? Once the majority of the M3 work is done the company can resume work on existing contracts. There is a threshold below which BMW, etc cannot or will not sue. Elon is going to stay just inside that boundary.

  9. Dr. Steelgood says:

    As you may have heard, Mr. Grohman has left the company, or was kicked out in the meantime due to differences with Elon. When you compare this to the past, two very important and innovative persons come into my mind who were kicked out of (or left) their company: first, Leo Fender, who then founded a new company, called “Music Man”, and next, Gene Amdahl, who was the genius of System \360 at IBM, who founded the Amdahl corporation after he left IBM.

    So, why should Mr. Grohman not found a new company with his intellectual capital and service his previous customers, once he is operative again ?

  10. ffbj says:

    It seems to me it’s just fair business practice to fulfill existing contracts. Certainly going over them is fair, but cancellation, or renegotiation seems counterproductive.

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