How Tesla pivoted to avoid the global chip shortage that could last years (2024)
Tesla explained how it pivoted to avoid the global microchip shortage that Intel now says could last for several more years.
The pandemic has resulted in an increase in demand for many electronics and computers that the supply chain couldn’t handle, especially the semiconductor industry.
This microchip shortage, in turn, affected the automotive industry, which has increasingly become a big consumer of microchips.
Pat Gelsinger, CEO of Intel, one of the biggest semiconductor companies, recently said that it could take a “couple of years” for the industry to catch up to the surging demand.
During Tesla’s Q1 2021 earnings call last week, CEO Elon Musk said that Tesla had some very important supply chain issue, mentioning the chip shortage, and even compared Tesla’s logistics difficulties to World War 2 logistics challenges:
“This quarter, and I think we’ll continue to see that a little bit in Q2 and Q3, had some of the most difficult supply chain challenges that we’ve ever experienced in the life of Tesla and same difficulties with supply chain, with parts — over the whole range of parts. Obviously, people have heard about the chip shortage.”
Tesla uses several chips inside its vehicles for different control systems and its infotainment system. Most famously, the automaker uses a chip that it designed itself for its self-driving software.
That chip is produced by Samsung.
Interestingly, Tesla disclosed that it managed to avoid being too affected by the chip shortage through pivoting to microcontrollers and developing new firmware to work with new chips from different suppliers.
“In Q1, we were able to navigate through global chip supply shortage issues in part by pivoting extremely quickly to new microcontrollers, while simultaneously developing firmware for new chips made by new suppliers.”
The automaker did note that the supply chain issues could still affect them through the next few quarters, but Tesla only had to close its Fremont factory for a few days last quarter, which is not as bad as the production halts that some other automakers are reporting.
Electrek’s Take
I don’t know about logistics issues comparable to WWII, but the supply chain pivot that Tesla did to avoid the bulk of the chip shortage is impressive.
Tesla is showing the advantages of its startup mentality to move quickly and stay nimble.
This could be a big deal in the next few years if the chip shortage indeed persists like Intel predicts.
What do you think? Let us know in the comment section below.
Interestingly, Tesla disclosed that it managed to avoid being too affected by the chip shortage through pivoting to microcontrollers and developing new firmware to work with new chips from different suppliers.
Beyond securing added suppliers and multiple chip options, Tesla had to rely on its software focus to make alternatives work — which is ultimately why the automaker has weathered the shortage better than others.
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.
"Fear of running out [of computer chips] is causing every company to overorder — like the toilet paper shortage but at epic scale." Tesla depends on Taiwan Semiconductor to produce its processors, but it's far from the only U.S. company that relies on overseas manufacturing for the technology.
Tesla is rewriting software to make the most of its limited supply of semiconductors, CEO Elon Musk said during a Q2 earnings call last week. The automaker reengineered software for vehicles to use different types of chips. In some cases, a single chip can serve dual functions, “which is even better,” Musk said.
Other steps that are needed to tide over users and prevent similar shortages in the future include: focus on resiliency, not just production capacity; don't just focus on advanced chips; take steps to make the most of existing supplies; and establish common chip standards.
This shortage has highlighted the critical role that semiconductors play in modern industries and the need for proactive strategies to mitigate its impact.
Diversify Your Supply Chain. ...
Plan Ahead and Invest in Long-Term Relationships with Suppliers. ...
Tesla is best known for its innovations in the automotive industry. They make electric vehicles, which makes them a more environmentally friendly option. In terms of design, their cars are very modern and high-tech (autopilot system), which allows for semi-autonomous driving.
Additionally, it's more than just a single semiconductor chip that Tesla's electric vehicles use. Each uses a wide array of chips for everything from seatbelts to airbags. This means that a shortage in any department can affect Tesla's overall deliveries, as Musk plainly explained in the call.
Tesla's incredible success comes from its history of solving big problems. Electric vehicles weren't cool, weren't fast, lacked usable range, and had no infrastructure for charging. The company roundly handled each issue, creating the coolest, quickest, longest-range, best-supported range of EVs.
Last year, Tesla chose Taiwan Semiconductor Manufacturing Co.(TSMC) as its sole partner for the production of the HW 5.0 auto chip. Now, Tesla plans to work with both TSMC and Samsung, or could switch from TSMC to Samsung altogether, for mass production of the fifth-generation auto chips, industry officials said.
Tesla has plans to build more than just two Dojo computers. Nvidia is a primary supplier of GPUs that go into Dojo computers. Taiwan Semiconductor makes chips for both Nvidia and Tesla.
Tesla to use TSMC's N3P process for Full Self-Driving smart driving chips. N3P offers improved performance, reduced power consumption, and increased chip density. Tesla's collaboration with TSMC crucial for future of electric and autonomous vehicles.
Tesla's operated at median total debt / fcf of 219.7% from fiscal years ending December 2019 to 2023. Looking back at the last 5 years, Tesla's total debt / fcf peaked in December 2019 at 1,498.0%. Tesla's total debt / fcf hit its 5-year low in December 2022 of 76.0%.
Tesla has been facing more uncertainty on Wall Street than at any point since its near-bankruptcy several years ago. Its share price has plunged by nearly two-thirds — from about $407 at its November 2021 peak to about $145 as of Tuesday's market close.
" Tesla would have gone bankrupt and disappeared without California's ZEV mandate," he said. Sperling said what Tesla has accomplished is "extraordinary" in terms of its role in establishing a global EV market.
Many people have said that the car chip shortage will clear up by the second half of 2022 but they are wrong. The car chip shortage will last until 2024. Tesla has already been handling the shortage better than the other car companies and I have made a video that explains why Tesla is managing better.
Tesla Motors has overcome many barriers to pioneer electric cars. Starting with partnerships and a minimum viable product, Tesla is working to innovate and scale up. Tesla now produces a top-selling luxury car and has a market capitalization twice that of Fiat Chrysler and half that of General Motors or Ford.
Samsung Electronics Co., the world's largest memory chipmaker, will make Tesla Inc.'s next-generation Full Self-Driving (FSD) chips to be used in the top US electric carmaker's Level-5 autonomous driving vehicles.
Introduction: My name is Neely Ledner, I am a bright, determined, beautiful, adventurous, adventurous, spotless, calm person who loves writing and wants to share my knowledge and understanding with you.
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