Originally published on EVANNEX. By Charles Morris
In the early days of industrialization, most manufacturing companies were vertically integrated. Car manufacturers like Ford owned mines and steel mills, produced their own power and operated their own supply fleets. Over the decades, as global supply chains became more sophisticated, outsourced automakers became more and more common, and today some automakers rely on external firms for anything but vehicle design and strategic planning.
The founders of Tesla relied on this established global web of products and services to produce the Roadster. It really was a world car: the carbon fiber body panels came from the French company Sotira; the brakes and airbags were made by Siemens in Germany; the chassis and much of the suspension were built by Lotus in the UK; and the gearbox was made in Michigan by BorgWarner. Roadsters sold in North America were collected by Tesla in California, but those on their way to customers in Europe and elsewhere were collected by Lotus in the UK.
As Tesla went on to produce Model S and X, it quickly began to find the outsourcing model problematic – suppliers could not implement innovations as fast as the fast young company wanted, and they sometimes assumed that sales forecasts were over-optimistic. , and therefore failed to produce parts in sufficient quantities.
Tesla executives knew they would need to secure a supply of batteries as they switched to mass production, so the company teamed up with Panasonic at the Nevada Gigafactory. Recently, Tesla has started working with other battery suppliers, and by 2020, they started making some of its own battery cells.
Tesla developed early versions of Autopilot in collaboration with the Israeli company Mobileye, but in 2016 the companies split up. When it introduced Autopilot 2.0, Tesla replaced Mobileye’s hardware with its own sensor system called Tesla Vision. “Close integration of hardware and software is critical to rapid and effective progress,” Tesla Autopilot Program Director Sterling Anderson said at the time. “Moving fast often requires bringing the solution internally.”
Tesla has gradually brought more and more design and production under its own roof – it is probably the only car manufacturer to build its own seats, for example. In 2017 The cable article, Greg Reichow, who was Tesla’s production director during the historic transition from low-volume Roadster production to the highly automated collection of Model S and X, described Tesla as “more vertically integrated than any car company since Ford Rouge’s heyday in the late 1920s. ‘erne. ” (These themes are discussed in detail in my book, Tesla: How Elon Musk and Company made electric cars cool and reshaped the automotive and energy industries.)
Now, as they have done in so many ways, old carmakers are following Tesla’s lead and going back to more vertical integration. As a recent piece in Wall Street Journal reports, carmakers have invested in joint ventures to secure their supplies of battery cells and raw materials. Volkswagen Group, GM and Stellantis recently announced agreements to set up lithium supplies. GM said in December that it would team up with Korean steel and chemical company POSCO to build a North American plant to produce cathode materials. Volkswagen plans to build a similar cathode material factory in collaboration with the Belgian material company Umicore.
Tesla Overcame Supply Chain Crisis in 2021, and Other Automakers Notice It (YouTube: Reuters)
The supply chain for electric vehicles looks very different from the one that car manufacturers have built up over decades for ICE vehicles, and the transition to electric cars disrupts the traditional relationship between car manufacturers and their suppliers, sources said. WSJ.
For automakers to rely on suppliers to develop their battery technology would be like not making their own engines, said Thomas Schmall, CEO of Volkswagen Group Components.
Ken Morris, GM’s VP of Electric and Autonomous Vehicles, said at a recent press event that it was crucial to bring more of its battery supply chain internally to meet the company’s profitability and environmental goals. “Vertical integration will help us do it faster, at a lower cost and more sustainably.”
There are several reasons why vertical integration comes back in style. The ongoing wave of supply chain disruptions is making manufacturers think twice about the current scale of global outsourcing. “Everyone wants to secure the supply chain and not repeat the very painful experience of the semiconductor shortage,” Umicore CEO Mathias Miedreich said. WSJ.
One of the reasons Tesla has navigated the semiconductor shortage far better than the old brands is its tight control over its computer software and hardware. “Tesla, born in Silicon Valley, has never outsourced their software – they write their own code,” said Morris Cohen, a professor at Wharton School at the University of Pennsylvania. New York Times. “They rewrote the software so that they could replace chips that were defective with chips that were not defective. The other automakers were not able to do that.”
Producing parts closer to final assembly plants can also reduce production’s CO2 footprint. “Right now, there are materials and inputs in this value chain that are zigzagging around the world,” said Anirvan Coomer, GM’s CEO, Global Purchasing and Supply Chain. “We see an opportunity in terms of making the value chain much more sustainable and slimmer.”
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