How Elon Musk outsmarted the auto industry's supply chain crisis

Nearly all automakers suffered a massive blow in 2021. Except one. According to the Wall Street Journal, "Tesla has emerged as one of the auto industry’s biggest winners in a year plagued by semiconductor shortages and snarled global supply chains. It owes that success in some measure to its Silicon Valley roots."

Above: Tesla's CEO Elon Musk (Flickr: Steve Jurvetson)

"Tesla has been able to keep production lines running in part by leaning on in-house software engineering expertise that has made it more adept than many rival auto makers at adjusting to a global shortfall of semiconductors," according to WSJ. "Tesla was able to quickly rewrite the software necessary to integrate alternative chips into its vehicles."

“They are more plugged in, in many cases, and I think as a result also have been able to be more flexible in what they have built,” explains Ganesh Moorthy, CEO of semiconductor supplier Microchip Technology Inc.

Tesla may have also gotten some preferential treatment by suppliers. Dan Sharkey, a Detroit-area attorney who represents automotive suppliers said some of his clients are willing to do things for Tesla that they aren’t for other automakers. Dealing with Tesla, “they think they’re catching a rising star.”

In addition, Tesla's steadfast commitment to vertical integration has proved invaluable. "Anything where they decided to make something by themselves, well then they had to have a direct relationship with the semiconductor supplier,” says Nakul Duggal of Qualcomm Inc., who designs and supplies chips for Tesla.

Above: Traditional automakers have been struggling while Elon Musk, early on, telegraphed a more upbeat outlook (YouTube: TRT World)

"We [also] design circuit boards by ourselves, which allow us to modify their design quickly to accommodate alternative chips like powerchips," a Tesla insider told Reuters.

Discussing Tesla, CEO Elon Musk has called the company "absurdly vertically integrated compared to other auto companies." In-house engineers design the software that runs the Tesla vehicles, which Musk has described as a "computer on wheels."

Musk explains, "We're designing and building so much more of the car than other OEMs (original equipment manufacturers) who will largely go to the traditional supply base and like I call it, catalog engineering. So it is not very adventurous."

Ambrose Conroy, CEO of Seraph Consulting, concludes, "They control what's going on in that vehicle at a level that no other automaker wants to do it. It is much more aligned to the integration that Henry Ford had originally with the Model T."

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 Source: Wall Street Journal, Reuters