By the end of 2020, electric vehicle (EV)-maker Tesla had met its goal of delivering almost half a million vehicles despite a global pandemic and multiple factory closures throughout the spring. Fulfilling such a tall task set shares soaring and vindicated its charismatic CEO and founder Elon Musk, whose sometimes wildly optimistic declarations are often met with market scepticism.
The year ended well for Tesla as it joined the S&P 500 Index in December after five consecutive quarters of profit, making Musk the world’s richest person by early January 2021. Company revenues doubled from $11.76bn in 2017 to $21.46bn in 2018 and continued to rise to $24.58bn in 2019. Profit also doubled in 2018 to $4bn from $2.2bn the previous year, while remaining steady in 2019. According to the International Energy Agency (IEA) the delivery of new mass-market models such as Tesla’s Model 3 (launched in mid-2017) caused a spike in sales throughout the EV sector in 2018, which continued through 2019 to register a year-on-year increase of 40%.
Tesla’s global expansion requires greenfield investment
If Tesla maintains this momentum, 2021 is likely to significantly enlarge the company’s global footprint. Unlike other Big Tech companies, Tesla’s expansion model requires significant greenfield investment and is a major job creator. The company’s unique blueprint for its gigantic manufacturing facilities – aptly named a Gigafactory – is being refined and replicated as it rolls out globally. Tesla’s first Gigafactory in Nevada, for example, is a $4–5bn investment employing 6,500 people at peak production, with eventually as many as 10,000 employees. It will also indirectly support 20,000–30,000 additional construction jobs.
By retaining control of its manufacturing facility, Tesla avoids import tariffs so there is fiscal advantage to scaling up in China. Matt Arcaro, IDC
Tesla started life as a high-end electric carmaker with the flagship Model S sedan and falcon-winged door Model X sports utility vehicle, priced at about $80,000. Since launching its mass market Model 3 and Model Y at about half that price, the company has been ramping up production to meet the rising global demand for battery-powered cars, with a rise in output of 36% in 2020 from the previous year, according to Statista. However, staying ahead of demand will be Tesla’s biggest challenge in 2021.
Tesla expands into Germany and India
The company is expanding geographically to accommodate sales demand, and the competition among locations is fierce. Plans to build two new factories are currently under way: one in Grünheide, south-east of Berlin, and another in Austin, Texas. Tesla’s German Gigafactory broke ground in June 2020 and is expected to start production in July 2021, according to Tesla, scaling up to deliver half a million vehicles a year at full capacity.
The rationale behind locating the new facility in Germany instead of a lower-cost location in Asia perhaps demonstrates a move towards regional sourcing as automotive companies have traditionally located manufacturing facilities close to regional headquarters, according to IDC analyst Matt Arcaro.
“It may be trying to set up a more EU-based supply chain where possible, which could pay dividends as the company will be more diversified than some of the more globally sourced manufacturers,” he says. Indeed, the global pandemic has prompted many companies to rethink their global supply chain logistics.
After much speculation about Tesla venturing into the Indian market, the Indo-Asian News Service reported in mid-January that Tesla had registered a subsidiary in the tech hub of Bengaluru in the state of Karnataka. Indian news outlets reported that Karnataka Chief Minister B S Yediyurappa had posted a tweet (since-deleted) on 12 January confirming Tesla’s Indian expansion: “Tesla will soon start its operations in India with an R&D unit in Bengaluru.”
The Indian EV market is estimated to grow at an annual compound growth rate of 43.13% between 2019 and 2030, according to BIS research. Political will, tax benefits and subsidies will drive market growth towards the government’s goal of 30% EVs on the road by 2030.
Tesla’s Gigafactory is the future of vehicle manufacturing
While headquartered in Silicon Valley, Tesla says its principal facilities include properties in North America, Europe and Asia utilised for manufacturing and assembly, warehousing, engineering, retail and service locations, supercharger sites, and administrative and sales offices. A survey by Investment Monitor found Tesla’s global presence included 367 subsidiaries across 38 countries. Of those subsidiaries, 268 were in the US followed by 35 in China, seven in both Germany and the Netherlands, and five each in Mexico and Canada.
The company’s first working plant was an advanced manufacturing facility in Fremont, California, which opened in October 2010, followed by:
Gigafactory 1 – Sparks, Nevada, 2016
Gigafactory 2 – Buffalo, New York, 2017
Gigafactory 3 – Shanghai, China, 2019
Gigafactory 4 – Grünheide, Germany, 2021
Gigafactory 5 – Austin, Texas, end of 2021
Shanghai ramps up Tesla’s production
According to the IEA, China had a 47% share of the 7.2 million EVs on the road around the world in 2019. Although Tesla doesn’t share regional sales data, according to the China Passenger Car Association, the company sold 113,655 Model 3 sedans in China from January to November 2020, making it the highest-selling clean energy vehicle on the Chinese market, helped further by Tesla’s decision to cut its sales price for the Chinese market.
Expanding production capacity in China will be key to the company’s global strategy in 2021, according to Arcaro. Aside from China being the largest global car market, Tesla’s strategy makes sense due to tariff structures for the production and shipment of vehicles. “By retaining control of its manufacturing facility, Tesla avoids import tariffs so there is [a] big fiscal advantage to scaling up in China,” he says. Added to which the Chinese government offers significant subsidies for EV makers as part of its pollution control measures.
Tesla will scale up production capacity in its Shanghai Gigafactory to half a million Model 3 and Model Y vehicles a year at full capacity. Speculation around a second Asian production facility was stirred by Musk’s tweet on 5 July 2020 when ‘spaceguy_24’ asked whether Tesla will build other megafactories in Asia outside China. Musk confirmed: “Yeah, but we need to finish Gigi Berlin and a second US Giga to serve the eastern half of North America.”
Tesla had a head start over the competition, but other automotive companies are now committed to EVs. Pedro Pacheco, Gartner
Arcaro expects Tesla to focus on its Shanghai facility in the near term as it still has expansion capacity. “Refining its model of building these factories means learning every time it builds a new facility, so it is likely to use this to expand its footprint within its own base for now having learned from Berlin and depending on what the expectations are for Austin,” he says.
Tesla’s top challenges for 2021
Musk’s personal preoccupations have seen Tesla venture into space exploration, boring an underground tunnel across Los Angeles, develop expertise in solar energy systems with its acquisition of SolarCity and pursue the development of autonomous vehicles.
While its autonomous car programme is a growth area, it also represents a challenge for 2021. The company’s technology approach to delivering driverless cars runs counter to almost every other manufacturer, all of which use Lidar (light radar technology).
“Eventually Tesla will be pressed by investors and customers on its inability to deliver full self-driving to its vehicles, particularly as it is not following the general headwinds,” says Arcaro.
The year ahead for Tesla will also bring the technology challenges associated with rapid global expansion. Gartner senior research director Pedro Pacheco sees EV technology development as a race against time. “Tesla had a head start over the competition, but other automotive companies are now strongly committed to EVs,” he says. “For instance, several of them are working on solid state batteries, which promise to be the next major step in terms of battery technology – a critical aspect to EV success. The question is whether Tesla will manage to stay ahead of this technology race.”
Tesla’s aggressive sales growth plan also risks failing to combine fast growth with high quality. “This poses a risk of disgruntled customers moving to the competition as they start launching more competitive EVs,” says Pacheco. Tesla is expanding its product range to include the Cybertruck (which will be manufactured at the new Austin facility), the Semi, and, according to Pacheco, there are rumours of a smaller entry model for Europe. “This can pose further challenges with the risk that Tesla spreads itself too thin, which could again jeopardise either technology road map or quality,” he says.
Tesla is starting 2021 with the momentum of meeting its vehicle delivery challenge as well as an unprecedented company valuation. However, continuing success requires the expansion of its physical facilities across markets at warp speed to meet customer demand – and all this within the constraints of a global pandemic. Musk once said: “My mentality is that of a samurai. I would rather commit seppuku than fail.” Indeed, his unwavering personal vision to “accelerate the world’s transition to sustainable energy” has been widely credited for making the impossible happen. He just may prove his detractors wrong once again in 2021.
This article is part of a series profiling the prospects of Big Tech firms. Other companies featured include: