Tuesday, 05 October 2021 22:39

Morgan Stanley: How Tesla 'Found Chips' to Break Delivery Records

Written by Steven Loveday, Inside EVs


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Tesla broke delivery records yet again in Q3 2021, and by a huge margin.

At 241,300 global deliveries of the Model Y, Model 3, Model S and Model X combined, Tesla beat expectations. The target numbers ranged from about 222,000 to 233,500, so Tesla came out above those expectations.


Additionally, Tesla once again set an all-time record for deliveries by easily beating the previous high mark of 201,250 set in Q2 2021.


However, naysayers insist Tesla is lying about its numbers, and there's no way it could have produced or delivered so many cars amid a global chip shortage, as well as many other supply chain issues, not to mention the seemingly everlasting impact of the global pandemic.


Lead analyst at Morgan Stanley Adam Jonas put out a letter to investors entitled, “How Did Tesla Find Chips?” While the note was likely a way to assure investors the false narratives are untrue, Teslarati points out we already knew how Tesla was handling the chip shortage based on a discussion on the Q2 2021 Earnings Call.


According to Tesla's shareholder deck, it was working to curb any production stoppages by using a series of new, in-house chips. Tesla explained in the deck:


“Our team has demonstrated an unparalleled ability to react quickly and mitigate disruptions to manufacturing caused by semiconductor shortages. Our electrical and firmware engineering teams remain hard at work designing, developing and validating 19 new variants of controllers in response to ongoing semiconductor shortages.”


Jonas went into more detail, breaking down the part shortage situation into a number of categories, including Vertical Integration, Sophistication, Negotiation and Scale.


Tesla has been vertically integrating for years, and some would argue it's...

...much more of a software company than an automaker. The less Tesla has to rely on suppliers and other companies, the more control it has over its development and production processes.


Jonas pointed out Tesla's in-house development allows it to produce vehicles much more sophisticated than those using run-of-the-mill chips and parts shared by most automakers.


Added to this, Tesla's inside expertise gives it an advantage when it comes to negotiating with suppliers. The suppliers know if they can't get Tesla what it needs when it needs it, the company can simply produce its own. As the industry transitions, suppliers likely don't want to lose Tesla as a customer, so they have to work hard to satisfy the EV-maker's demands.


Finally, Jonas wrote about scale. Tesla is smaller than the competition, but it's growing exponentially. Its record-shattering quarter was reliant on just two factories. Meanwhile, two more factories are set to open in the very near future. Jonas said many suppliers are aware Tesla is a "strategic customer," so it's wise to keep that relationship positive.


We thank Inside EVs for reprint permission.


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