The Tesla Approach: Automaker’s Unique Full Stack Startup Process Is A Powerful Disruptor

8 months ago by EVANNEX 39

Tesla Model S

HOW TESLA TAKES THE ‘FULL STACK’ APPROACH TO DISRUPT THE AUTO INDUSTRY

Silicon Valley’s legendary venture capital firm, Andreessen Horowitz, has been talking a lot about the full stack startup. One of the firm’s partners, Chris Dixon, explains the differences between an older, antiquated approach and the new, full stack approach: “The old approach startups took was to sell or license their new technology to incumbents. The new, ‘full stack’ approach is to build a complete, end-to-end product or service that bypasses incumbents and other competitors.”

*This article comes to us courtesy of Evannex (which also makes aftermarket Tesla accessories). Authored by Matt Pressman.

Dixon explains, “A good example from big companies [to look at] is Apple versus Microsoft. For years, Microsoft just built pieces of the stack — the OS, apps — and relied on partners to build semiconductors, cases, assembly, do retail etc. Apple does everything: they design their own chips, their own phone hardware, their own OS, their own apps, the packaging, the retail experience etc. Apple reminded the world that you could create a really magical experience if you did many things well at once… [e.g.] for end users, full stack startups deliver a much better experience, because they have complete control. It’s the difference between buying a beautiful, pristine Apple product versus a crappy Frankenstein PC cobbled together from dozens of vendors.”

Looking at some of the newer tech trailblazers, Forbes* argues that full stack is critical and, “we need more start-ups like Tesla… Tesla could have just been a battery company trying to convince other car makers to go electric, or a software company enabling a host of features for the auto industry. That would have enabled small incremental improvements to the dinosaur auto vertical. But instead Tesla is completely upending how cars are designed, built, sold and maintained.” So what can other startups or young companies learn from Tesla?

Tesla vehicles getting serviced at a company-owned service center

Well… when looking at Tesla as an example, look at: “how you approach the business stack. What layers you take on first to build and what comes later. When Tesla built their first car, a majority of the components were outsourced and the charging stations were geographically limited. They didn’t sell the car in all the states. Eventually they started building most of the components themselves, innovated on the manufacturing of these components and built out a full infrastructure of sales, maintenance and charging of these vehicles.”

Tesla Superchargers

Tesla vehicles charging at company-owned Supercharger stations

Furthermore, “An important question to answer in such startups is where to find your entry point in the vertical. Tesla made a deliberate choice of starting at the high end of the automotive market and slowly work down to more affordable cars. This allowed them to not be as cost sensitive initially as would have been the case if they started with a mass market automobile.”

Tesla Model S

Forbes concludes, “Full stack startups can bypass incumbents and give them an independent path to innovation. It’s a powerful concept.” Indeed. And, Tesla’s full stack approach has served them well. Coupled with their unique approach to vertical integration, Tesla seems poised to disrupt the automotive world like no other car company in years.

===

*Source: Forbes

*Editor’s Note: EVANNEX, which also sells aftermarket gear for Teslas, has kindly allowed us to share some of its content with our readers. Our thanks go out to EVANNEX, Check out the site here.

Tags: , , , , , , , ,

39 responses to "The Tesla Approach: Automaker’s Unique Full Stack Startup Process Is A Powerful Disruptor"

  1. Kdawg says:

    Meh. What’s the difference between designing it and having someone else built your design, vs. building it yourself? If someone else already has the facilities and personnel for building the item, that seems more cost effective/faster/and less risky.

    1. xman says:

      Let’s see how the Chevy/LG Bolt does over the next 3-5 years.

      1. Kdawg says:

        How is that relevant? Wouldn’t it be more relevant to say “let’s see how the Model S/X/3 does over the next 5 years”? Even then, Tesla isn’t really a full-stack company as they have a lot of suppliers.. just like every other car company.

        Also, it’s only 1 company. For a real comparison, you would need a traditional car company to build a car all from parts at from it’s own plants. So if it was Ford, all castings would have to come from a Ford foundry. All glass from a Ford glass factory. Etc. I don’t see this happening, and if it ever did, those cars would cost a fortune.

    2. John says:

      Coming from a manufacturing standpoint, the answer is simple, and vitally important:

      QUALITY CONTROL

      Without it, you risk your entire reputation on someone saying the did something that may or may not be true.

      1. Kdawg says:

        You can still have quality control. Vendors must meet your quality standards. That is what Tesla is dealing with now w/their suppliers.

    3. MikeG says:

      Whenever you outsource something, you ultimately lose some control. Apple (and more recently Tesla) have their suppliers on a very tight leash, so this loss is minimal.

      Tesla has learned through repeated supplier failure and is ready to manufacture a part in-house at a much higher cost when a supplier can’t produce. An example is the FWD on the Model X. Tesla brought the lift assembly manufacture in-house after the supplier messed up, which caused delays in the Model X rollout.

      1. Kdawg says:

        I would argue all/most automakers have their suppliers on a “tight-leash”. It’s the equivalent of keeping an internal department on a “tight-leash”.

      2. Brian says:

        Ugh. What is it with Tesla fans completely misusing (or do they thing they are “redefining”) industry standard abbreviations.

        Folks, FWD = Front Wheel Drive (not Falcon-Wing Doors). Also, M3 is a BMW, not a Tesla Model 3.

        I seriously had to read your comment 3x before I realized what you were saying. This is just sloppy.

        1. Pushmi-Pullyu says:

          In the real world, words and even abbreviations acquire new meanings over time. You can be sure that in InsideEVs’ comments, “M3” is going to mean the Tesla Model 3 far more often than it means a BMW car.

          BTW — You might want to read up on the “etymological fallacy”:

          https://en.wikipedia.org/wiki/Etymological_fallacy

          1. Brian says:

            Interesting. Guilty. Ish. I never said words are immutable (English is a living language after all). I said that it is unnecessarily confusing to randomly redefine these terms.

            As for the BMW M3, that is its proper name. It is just lazy to call the Model 3 an M3. It would be better to call it either a TM3 or just a 3.

    4. Bryan Whitton says:

      You also pay for their margin on low volume products. It may be a wash but overall I think that this approach gives the company better control of or at least responsibility of the components and schedule.

    5. JIMJFOX says:

      Many of Tesla’s delays have resulted from unreliable third party suppliers. Then there’s the problem of choosing the best supplier from maybe dozens, even hundreds. Supplier quality control is out of your hands. As the man said, Apple -v-Microsoft, best-v-second rate?

  2. leafowner says:

    Ford used to be one of the worlds biggest glass makers…..then they found out others could do it better and cheaper. Same for the electronics and many other car components. Heck, GM even owned a rubber plantation at one time.

    Good for some areas — very bad for others.

    1. Kdawg says:

      This.

  3. Damocles Axe says:

    The key is when you are doing something new, or different from the industry, then you *have* to develop the process yourself. Only once the new process is worked out and proven can it then be outsourced.

  4. Loboc says:

    There are some things that can be done faster, cheaper and still JIT outside.

    Does Tesla directly manufacture:
    – carpet
    – floor mats
    – mirrors
    – glass
    – wire-loom-electrical connectors
    – hose
    – tires
    – fasteners
    – liquids like gear oil and washer fluid

    It’s not like you can pour metals, oil and sand in one end and get a car out the other.

    1. Pushmi-Pullyu says:

      Tesla’s description (or hype?) about the Gigafactory production process reads like they really do pour raw materials into one end and get finished batteries (and battery packs) out the other end.

      Tesla also recently acquired a glass manufacturer, and says it will be making its own auto glass. But even if all that is so, no auto maker is going to make, for example, its own tires, or its own microprocessors.

      As you say, Tesla is unlikely to make its own mirrors, even if they do make their own auto glass windows and windshields.

      Some parts really are better left to specialty manufacturers, regardless of how much vertical integration the manufacturer wants.

      In my opinion, “vertical integration” is always a matter of degree, not kind.

      * * * * *

      Gigafactory 1 flow chart:

      1. FPD says:

        It’s worth adding that the GigaFactory is not a single vendor operation, but just a single site assembly point. Panasonic is doing all the cell manufacturing with other resident manufacturers such as Heitkamp & Thurman (German) making the metal cans for the cells with their own employees and equipment inside the Gigafactory.

  5. pjwood1 says:

    Model 3 suppliers wouldn’t be what we hear about so much, if Tesla weren’t getting away from “Full Stack”. Over the last year, we’ve heard them say how suppliers take their growth as more serious opportunity.

    “Full stack” is also unique in the sector because it proves the automotive market isn’t free. Workhorse and Deutsshe Post aren’t building electric service vehicles because they’re better at it. No one else will.

  6. Brian says:

    Why did my comment get deleted and thrown into the abyss?

    1. Jay Cole says:

      Hey Brian, it isn’t you…it is everything.

      Having some delay issues from our spam filter today for some reason…comments are all getting through/posted, but there is some lag unfortunately.

      Apologies on the hiccup, working to get fixed

      1. Pushmi-Pullyu says:

        Thanks for explaining.

        The first three comments I posted today received a “Your comment is awaiting moderation” notice. I wasted some time looking over my first post to see if anything could be parsed for an unintended swear word or the like, but found nothing. After the second, I just assumed it was some glitch in the system.

        Seems okay now, though.

        1. Jay Cole says:

          Yeah, not exactly sure what happened earlier today, the delay was unfortunate…I’m sure everyone was wondering what the heck was going on. It wasn’t intentional, (=

          Think we got it all fixed up now, comments seem to be posting in real-time/no moderation again.

      2. Brian says:

        Thanks Jay! I know you have a light staff for all that you do. My comment is now up there but it was “awaiting moderation” and then disappeared. It was unusual.

  7. Assaf says:

    IOW, that article is 5000 words’ worth of Duh.

    It’s not “old” vs. “new” or crap like that. It’s whether the incumbency is already swept under the new wave (as happened with PCs, and happening now with smartphones) – in which case leading new companies can focus on parts of the full product –
    – or whether it’s so entrenched that offering a complete alternative, rather than parts of one, becomes a viable strategy.

  8. Pushmi-Pullyu says:

    When Ford had 90% of the market with its Model T, it did the same thing: Built the River Rouge industrial complex as an extreme case of vertical integration.

    But as the market developed, Ford found that at least some of its parts and subassemblies could be more cheaply produced by hiring suppliers to make them. The River Rouge industrial park was abandoned, or largely so.

    Apple’s approach does very well for such things as iPhones and iPods. But let’s not forget that Apple computers only capture a small fraction of the market. Sure, Apple computers are more reliable as far as things working well together; the IBM clones’ “plug ‘n play” is somewhat iffy.

    But that doesn’t alter the fact that Apple’s products are significantly more expensive than competitors. That’s why the iPhone no longer has the largest smartphone market share; the Android does.

    Tesla’s approach certainly does well for making very desirable, “sexy” cars. Whether or not Tesla can capture a significant portion of the market… well, that remains to be seen. History suggests we should be highly skeptical of claims that Tesla will capture a majority of the new car market, or even that it will become the largest auto maker on the world market.

    1. As Elon has said, his goal with Tesla is “To accelerate the move to sustainable transportation”, not ‘To become the Worlds Biggest Electric Car Maker’, or such!

      So while it is growing pretty fast, it does still leave others options as to product categories it does not yet cover.

      For example, there has been no (Company) talk of a 2-Door Coupe, or Station Wagon variant of the Model S, nor a Streched Version, for Chauffeur Driven Business owners, or as a Limousine.

      Even the understanding that the CUV variant of the Model 3 is coming, the Model Y, it is hiding still from any details as to even when it will come, or what it will look like!

      However, I expect Tesla to continue beyond the 7-8 basic announced product types/models they have covered in their ‘Master Plans’, or Product Announcements:
      Roadster, Large Sedan, SUV, Small Sedan, CUV, Pickup, Mini Bus, Semi, 2+2 Roadster (& Airplane?).

      Short of a major financial meltdown, or big corporate screw up, I expect most of these items to be in production before SpaceX gets a human to Mars!

      Then there is Tesla Energy… Awhole other beast to digest as to…what is that step, in which ‘Master Plan?’

      1. Pushmi-Pullyu says:

        Okay, I should have stipulated that it’s not Tesla itself that is making claims that it will become the world’s largest auto maker; it’s some of the cheerleading self-described “analysts” who are doing so. That appears to me to be stock pumping, and little if anything more.

        Tesla is guilty of a lot of hype, but I don’t think they are guilty of that.

    2. JIMJFOX says:

      “Apple… more expensive….”
      Not so much these days- top-line Windoze laptops/tablets cost much the same. Apple wins on TCO, resale values are way ahead of the big seller.
      Being biggest does not equate to ‘best’.
      Anyway, ‘Imitation is the sincerest form of flattery’ certainly applies here- most PC devices/smartphones etc.
      are shameless copies of the Original…

      All my recent phones though have been Chinese Androids- cheap and excellent. But very poor security features.

  9. HVACman says:

    Uh, doesn’t Foxconn make many of Apple’s products? Didn’t Apple get processors from Motorola, and don’t they use Intel now? I think Apple actually prides themselves at designing everything and manufacturing nothing. Full stack on design, zero stack on fabrication.

    Tesla is in partnership with Panasonic for their cells. Tesla relies upon 3rd party vendors for all kinds of parts and sub-systems – so much so that Elon has pre-assigned Tesla’s suppliers as the scapegoats for the Model 3 retail release delays that haven’t even happened (yet).

    This article reads more like a “full pile of…” than a “full stack”.

    1. John C says:

      That’s the old Apple.

      With iPhone they got down and dirty to the chip manu level and used it for competitive advantage.

      Their low power chips are now better than droids.

  10. jim stack says:

    I REALLY like this FULL STACK approach.

    Jim Stack

  11. EVA-01 says:

    Let me first start off by saying that I am a huge fan of vertical integration. I believe that if you do everything yourself, you can correctly claim achievements that others cannot.

    I see that Apple was brought up in this discussion. Apple doesn’t manufacture anything, it uses suppliers to fabricate what Apple designs. All the components may be designed by Apple but they are certainly not built by Apple and can’t claim ownership of that fact.

    Another thing brought up is that some you in the comments section seem to defend the idea of sourcing parts from 3rd parties. It may be for the reason that suppliers may manufacture the same part as you at a lower price per unit or at a higher quality. These have valid reasons if your worried financially but there is no replacement for the pride of 100% designed & built. The price may be high but the company can be proud that it is 100% their product in every way. Unfortunately, I don’t know any business that does this.

    As an ending remark, I have read from several people on this website calling the Bolt EV the “LG Bolt”. If I was the head of Chevrolet or GM, that remark wouldn’t sit right with me. Interestingly enough, I have never seen a comment like “Panasonic S” or “Panasonic X”.

    1. Pushmi-Pullyu says:

      It certainly is an exaggeration — or more likely, a deliberate slam against GM — to call the Bolt EV the “LG Bolt”. However, LG Chem and LG Electronics, between them, do make the entire Bolt powertrain, including battery pack.

      Contrariwise, Panasonic makes only the cells for Tesla cars. Not the battery pack, and certainly not the electric motor, inverter, or power electronics.

      * * * * *

      A lot of the arguments here seem hair-splitting to me. Tesla surely gains something in not having to ship some parts or sub-assemblies to the Fremont assembly plant, by having some suppliers and vendors set up manufacturing right inside the Fremont plant.

      Contrariwise, it looks like LG Chem can offer GM a lower cost on its batteries by making them in LG’s home country of S. Korea, even including the cost of shipping those batteries to the USA.

      From the account I’ve read, GM worked very closely with LG Electronics & LG Chem to develop the Bolt EV’s powertrain, including battery pack.

      As far as vertical integration and “putting it all under one roof” goes: Aside from the savings in shipping time and costs, I’m not sure there is really any significant difference in how much oversight the manufacturer can choose to exercise, whether the vendor has their manufacturing onsite, or a factory located elsewhere — even overseas. Having the vendor work onsite may make it easier to oversee them closely, but both GM and Apple demonstrate that a manufacturer which makes the effort can exercise effective oversight at a distance.

      We’ve seen reports that Tesla is overseeing its Model 3 foreign suppliers closely, too. After Tesla’s problems with Model X development, perhaps some learning has taken place regarding the need for close oversight.

  12. JoeP says:

    For me, it is not tesla’s goal to be full stack. They seem to make their decisions on a case – by- case basis.

    For example insurance. They feel that insurance companies are not going to take into account that autopilot will reduce accidents when they charge customers, so they saw an opportunity.

    Similarly, they began building superchargers when they realized that charging is an impediment to adoption of Eva.

    It’s what Musk calls using “first principles”

    1. JoeP says:

      Eva.

      Stupid autocorrect.

  13. Martin T. says:

    Yes Full stack (Or as much as possible) is the very best.
    – As long as it still cost effective.
    Bad example with Apple though as their products are overpriced and not the very best in all areas – even if they are “marketed” as such.

  14. Jason says:

    Super Charger is a good example. Totally required for good EV adoption, but not being well met by market forces, so Tesla did it themself. How it works out in the longer term will be interesting to see.

    I do find it interesting that no other manufacturer has taken the Super Charger network, even though most admit charging infrastructure is a main problem. Also interesting that Tesla had not offered any solution. As a Leaf owner, of Tesla could offer me a CHAdeMO to Super Charger adaptor, not only could they charge me for that, but it makes my EV ownership that much better. If Elon really wants to accelerate EV adoption, then embracing all EV’s into their charging infrastructure would be a great step. If they can do Chademo to SC, then it stands to reason the opposite could be true as well.

    Opening Super Charger to other EV’s would also bring revenue and assist to roll out more Super Chargers.