How Did Tesla Overcome 'Chip Shortage' While Rivals Struggled

The automotive industry, among most global industries these days, has been up against supply shortages that have made it next to impossible to meet production and delivery goals. Meanwhile, Tesla has been breaking records every quarter.

In the fourth quarter of 2021, Tesla produced nearly 306,000 electric cars and delivered nearly 309,000. The US electric automaker’s grand total for 2021 soared to nearly 1 million vehicles sold. 

While these numbers may seem small compared to giants like Toyota and GM, they’re not as far off as you might expect. In fact, GM sold just over 400,000 cars in the US in Q4 2021, and a total of 26 electric vehicles. Toyota beat GM with a total of about 460,000 US car sales in Q4.

A report from Automotive News points out that Tesla’s ability to design parts and components in-house has given it an edge over legacy OEMs. The automaker is able to adapt parts and even switch to newly available parts, which most other automakers either aren’t choosing to do or don’t have the immediate ability to carry out.

Tesla actually went so far as to offer the delivery of vehicles with missing parts, which it will install later when the parts become available or replacements are secured. The company also simply removed certain features completely, or at least temporarily, in order to keep the ball rolling. For example, some Tesla vehicles were delivered with missing or watered-down USB ports, and front passenger-seat lumbar features were eliminated.

Tesla CEO Elon Musk noted that the automaker has been able to use substitutes for the chips that are difficult or impossible to acquire. According to VW Group CEO Herbert Diess, Tesla can spend just a few weeks rewriting software and then switch to a new chip.

The publication also mentions that Tesla increased prices during this time. Since the brand doesn’t rely on the antiquated dealership model, it controls its prices. Since demand for the electric carmaker’s vehicles is so high and wait times to take delivery are so long, it can arguably raise prices to cover rising costs all while not impacting the demand in such a way that deliveries will plummet.

It’s important to emphasize here that Tesla is as much a software company as it is a car company. The automaker is constantly innovating, and it doesn’t rely on traditional model years, midcycle refreshes, or complete redesigns. Instead, the company makes hardware changes when necessary, and in-vehicle software gets updated on a regular basis, remotely, via Tesla’s free over-the-air software update feature.

Tesla’s focus on software and vertical integration are clearly key to how it’s able to quickly adapt and overcome obstacles like the global chip shortage. The company also owns and manages its own network of public fast chargers, as well as its own stores and service centers. Musk shared via Automotive News:

“We’re designing and building so much more of the car than other (automakers) who will largely go to the traditional supply base and like I call it, catalog engineering. So it is not very adventurous.”

CEO of Seraph Consulting Ambrose Conroy added about Tesla:

“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.”

What does the future hold for legacy automakers? Will they begin to follow suit with Tesla? Let us know your thoughts in the comment section below.

Source: Automotive News


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