Going Bull With Tesla: A Vertically Integrated Gigafactory
As Tesla continues to surprise the market with its soaring share price, its name also shouldn’t be ignored when it comes to modern day innovation. The electric vehicle (EV) pioneer now holds 18% of the market share in global EV sales — a number more than doubles that of its second closest competitor. Now, everyone knows Tesla as one of the most popular automakers in the world and for its great accomplishment in dominating the electric car market. However, very few know about a time when Tesla struggled to scale its products and investors repeatedly questioned the company’s future outlook as deliveries kept on being delayed. What did Tesla do to quickly silence the doubts of the investors?
When Tesla first introduced its first mass production vehicle, the Model S, the company only had one manufacturing plant. The Tesla Factory, located in Fremont, California, was responsible for the company’s Model S mass production in the early days. After initial plans for a couple of plant locations fell through, Tesla decided to take over this ready-for-production plant in Fremont. Originally built as a General Motors assembly and most recently used by a GM-Toyota joint venture, the Fremont Assembly was renamed to the Tesla Factory in 2010. The plant officially began production in late 2010 and went from making just 20 hand-built Teslas to producing 1,000 cars per week within 4 years. However, Tesla’s production at roughly 50,000 cars only accounted for about 1.2% of the entire US production in 2015. The firm was facing mounting pressure from investors and consumers as it failed to consistently deliver cars on time and turn in profitable quarters. As a result, its share price fluctuated throughout 2015 and 2016.
Tesla’s aggressive strategy in high R&D spending casted doubt on the company’s future as market experts began to question whether the company was able to keep up with its ambitions. Tesla knew if the company wanted to improve its profitability and continue to grow, it needed to move towards producing a more cost-friendly vehicle. Model 3 was the company’s answer to these questions. In 2016, the company raised US$2 billion in equity financing to prepare for Model 3’s production. Model 3’s unveiling received incredible responses from auto consumers, as more than 300,000 reservations were made for the car within a week. Tesla’s biggest challenge to date arose as it needed to boost its production to meet customer’s demand for Model 3 in a short period of time.
To ramp up its production speed and accelerate vehicle deliveries, Tesla first introduced the concept of a Gigafactory in late 2013. The Gigafactory is supposed to produce anything Tesla sells — batteries, solar panels, home storage solutions, electric cars, and more. The idea is to put everything under the same roof to create a one-size-fits-all factory that is vertically integrated, from raw materials to finished products. This would create the most efficient supply chain process where the company is able to control every component that is pieced together in a Tesla vehicle. With the creation of Gigafactories, Tesla was able to reduce the cost of its lithium-ion batteries, practically the most important component found in an EV, through economies of scale. The mass production of Tesla’s lithium-ion batteries also gives the company years of advantage over its EV competitors and other automotive incumbents. Moreover, the company envisions the factory to be completely environmentally-friendly through every aspect of the assembly process, following a cradle-to-cradle approach. The Gigafactory also handles recycling old batteries into new. As Gigafactory 1 officially started operations in 2016, Tesla successfully scaled its production and almost delivered half a million cars in 2020 alone. Tesla’s Model 3 took over as the best-selling electric car in the world at about 160,000 sales in 2020. Tesla’s recent success in scaling its production brought 5 straight profitable quarters to the company, which served as a major contributing factor in its soaring stock price.
The Gigafactory now stands as the largest factory on the planet and is the main production house for Model 3. As of today, Tesla has built 3 Gigafactories around the world and already broke ground for two more that are scheduled to open in 2021. The company is looking to expand its dominance around the world. Are you ready to go bull with Tesla?
