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Last week, Tesla announced its Q3 earnings call reporting an adjusted earnings per share of $US0.76 on top of $US8.77 billion in revenue. Bloomberg ran a poll with Wall Street analysts who expected $US0.55 per share and $US8.2 billion of revenue. Tesla’s stock price increased about 3% in late trading following the release last Wednesday and the company’s shares have surged nearly 400% higher this year. In its latest press release, Tesla said, “We continue to see growing interest in our cars, storage and solar products and remain focused on cost-efficiency while growing capacity as quickly as possible.”
But the CEO has bolder plans. The Tesla management board hosted a conference call with analysts and investors to discuss the results and what really stood out was CEO Elon Musk’s drive to ensure that Tesla does things differently from its counterparts in the motor vehicle industry. He aims to fully develop a vertically-integrated industry and he emphasized his preoccupation with manufacturing, which he feels could be Tesla’s greatest achievement yet.
Musk said: “We’re very vertically integrated, so we’re designing and building so much more of the car than others who will largely go to the traditional supply base and like I call it, catalogue engineering.” This is the reason why Musk says that most new cars today look much like older cars.
Ever since the 80s, car manufacturers used the manufacturing model, which was based on the Toyota Production System. It is a methodology created by Toyota and later adapted to incorporate “lean manufacturing” when it came to vehicle assembly. Lean manufacturing is dependent on global supply chains to deliver components to production factories all over the world so that car manufacturers didn’t have to accumulate massive inventories for parts and could simply tap into that supply chain based on market demand.
This is in stark contrast to Musk’s vision of a vertically-integrated model that the Tesla CEO called the alien dreadnought – a completed automated factory to build and assemble cars. Tesla is already focused on this becoming a reality by getting the Gigafactories online that will in future, join other production facilities that make solar panels and battery cells. Not every EV manufacturer shares this big ideal.
Some automakers simply want to build electric cars, such as the likes of Fisker who is partnering with Canada’s Magna International to build its first electric car at Magna’s contract-manufacturing factory in Austria. Fisker’s business model is to hire a manufacturer to manufacture its cars.
But with Elon Musk, it was never just about building cars. Musk has always had grand manufacturing ambitions, whether it was building rockets or high-speed underground tunnels. And now for Tesla, it’s not just about cars, it about the factories. If you think of Toyota, it wasn’t just their Corolla or Camry models that skyrocketed the company to fortune, it was their way of doing things and the Toyota Production System that replaced Henry Ford’s moving assembly line, became Toyota’s trademark. Now, in the 21st century, we see Tesla being that new breed of carmaker developing a completely different approach to the traditional car business.
Tesla’s market capitalization is nearly $US400 billion, making it the most valuable car manufacturing company in the world today, but yet its vehicle production numbers are less than Ford’s or GM’s if looking at their production numbers in the United States alone. With Musk’s vision of vertical integration, Tesla would be able to leverage that to manufacture far more than just electric cars.