Question

What are the limitations, special business relationships, special requirements that may exist with some or all suppliers and partners of Tesla?

Answer 1

Tesla was founded in 2003 by a group of engineers, who wanted to show people that, they didn’t need to compromise to drive electric and that electric vehicles can be better, quicker, and more fun to drive than gasoline cars.

In order to ensure that the required materials, technologies, and services are purchased from the right sources, at the right time, and of the right quality, an organization’s supply chain is important. Responsible sourcing is becoming a vital issue for suppliers as issues with compliance and ethics become more accepted.

Supply chain issues have been prominent to companies if they expect to make a profit. Threats, like not meeting demand, delivering past deadlines, and returns due to quality, are not really sustainable over the long run. Without supply chain stability, there is no way to ensure consistent speed and reliability.

In one of the facilities of tesla in California, they underpaid workers who were sourced from Slovenia and Croatia. The workers were paid as low as $5 an hour and was not given any payment for overtime. The CEO, Elon Musk, claimed ignorantly and opened an investigation about the matter, the damage had effectively been done. This news followed reports of supervisors harassing a foreign employee that was injured at work and threatening him to leave the country instead of seeking medical treatment within the United States.

While sourcing was typically focused on the bottom line and creating the cheapest product possible, organizations know the risks involved in sourcing materials in a sustainable, conscientious, and ethical manner. While profit is still in focus, we know that this is affected more than ever by brand image and how you’ve been viewed by consumers who expect a certain degree of morality.

By October of 2017, only 220 of the ordered vehicles were delivered, strikingly contrast to the 400,000 consumers that paid to preorder the car nearly 2 years before.

As supply issues became many, the goal of producing 10,000 vehicles a week dropped. In a letter to investors, their expectation for production reduced to a rate of 5,000 Model 3 vehicles per week by late Q1 2018.

One of the largest issues faced by Tesla has been the supply of batteries from Panasonic, which remains an issue today since the initiation of their contract in 2014. This was doubled with the issues in the Model 3 assembly line automation, making them largely inoperable in the initial stages.

This leads to the practice of choosing a supplier with a proven record and ability to meet your needs. Among many other reasons, choosing a supplier requires due diligence in analyzing compliance, cost, reliability, and sustainability with all required standards. Tesla failed in this regard by hoping to save money and have the batteries produced In the U.S. instead of having them shipped from Japan, ignoring the risk of creating a new production site for the supplier.

Tesla learned not to overpromise the consumers. When selling a product that is composed of roughly 10,000 individual parts, they need to have 100% faith in their supply chain and production line. Anything less than that is considered irresponsible.