Tesla showing signs of struggle – New plants losing billions

Recently, Elon Musk stated that the newest gigafactories used to manufacture Tesla electric vehicles are burning through billions of dollars, and a separate report from Bloomberg shows that Tesla may lose the world’s largest EV manufacturer title by 2024. What challenges have automotive manufacturers faced, what will Tesla be doing, and why will Tesla struggle to compete with other car manufacturers?

What challenges have automotive manufacturers faced?

Despite the COVID pandemic coming to an end, the effects of the virus are still being felt throughout all of society. The lockdowns forced businesses to operate remotely, and those that couldn’t go remote had to close (many of which never reopened). The automotive industry was lucky enough to be able to suspend operation during lockdowns, but the sudden drop in demand for automotive integrated circuits resulted in the semiconductor industry switching its focus to commercial devices.

When automotive sites finally reopened, the lack of new automotive IC parts prevented manufacturers from resuming full operation, which caused the semiconductor industry to focus its attention on automotive ICs. But this large overcorrection, combined with the time taken to manufacture new ICs (as long as 12-month lead times), caused long delays in automotive plants and affected the global semiconductor market, with commercial ICs also facing long delays.

Additionally, the COVID pandemic also saw significant changes in the labour market, and the drive for remote work combined with the increasing cost of living increased the difficulty for companies to retain staff. Thus, automotive manufacturers have been dealing with component shortages, staff shortages, and other supply chain issues caused by the pandemic and the ensuring global reaction.

Tesla struggling with new gigafactories

When it comes to electric vehicles, no company deserve more recognition than Tesla. While electric vehicles have existed for more than 100 years, it was Tesla that focused on developing a usable vehicle with a decent range, quick charge times, and high-capacity batteries. Furthermore, Tesla is focused on trying to bring the cost of EVs down as much as possible so that new buyers will be persuaded to go electric. When considering all of these factors, one can see why the recent US convention on EVs was shameful after it was discovered that Tesla wasn’t invited despite being the world’s largest EV manufacturer and US-based.

However, like every other automotive manufacturer, Tesla has had to deal with the same challenges caused by the COVID pandemic. Workers not allowed to leave their homes effectively halted production, the lack of automotive-grade ICs made it difficult to manufacture new vehicles, and the supply chain challenges have seen key equipment held up in other countries.

But recently, Elon Musk (Tesla CEO) stated that the new gigafactories in Texas and Berlin are currently losing billions of dollars due to these challenges and will consider laying off up to 10% of its salaried staff while increasing the number of hourly workers. Simply put, management and desk jobs will be partly replaced with those on the factory floor who produce physical products. This comes as no surprise after Elon Musk recently made statements regarding remote work and expecting all staff to return to the office full time.

One problem in particular that Tesla gigafactories have faced is scaling up production of their latest 4680 cell. To try and meet the demand for EVs, Tesla will also manufacture vehicles that use the older 2170 cells, but these require different tooling machines, which have been stuck in China. Thus, Tesla has been unable to produce enough batteries for its vehicles.

Will Tesla struggle to compete against larger automakers?

There is no doubt that the work Tesla has done has been somewhat revolutionary. Not only do their vehicles demonstrate the capability of EVs, but EVs can also be luxurious vehicles. But while Tesla may be the world’s largest EV maker, it could lose this title in the coming years to other manufacturers, including Ford, Volkswagen, and Toyota.

Most car manufacturers have been around for decades (some are over 100 years old) and, as such, have experience in production lines. Even though Tesla has demonstrated production lines of extraordinary complexity, they still don’t have the experience of manufacturing vehicles like more established car makers (as demonstrated by the issues found in NAND chips in Tesla). Additionally, Tesla will not be able to scale manufacturing in the same way that other car manufacturers will be able to, and the moment electric vehicles become cheap enough for the average driver, Tesla could quickly find itself priced out.

Those wanting a cheap electric vehicle would not choose Tesla due to their high prices, and those wanting a luxury car may be able to get EVs from more prestigious brands (i.e., Land Rover, Jaguar, etc.). Of course, Tesla may be able to reduce its price to stay competitive, but other more established car manufacturers will be able to do this with greater ease.

Overall, Tesla has a lot of teething problems to solve, and the COVID pandemic certainly didn’t help. But unless Tesla can manufacture affordable vehicles, other automakers will likely step in and take the EV crown for their own.