Operational Strategies of Tesla and Nio

TESLA AND NIO
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Table of Contents Section 1. 3 Introduction. 3 Business Environment 3 Section 2: Tesla. 5 Supply Network Management 5 Capacity Management 5 Process Technology. 6 Product Service Innovation. 7 Quality Management & Improvement 8 Section 3: Nio. 8 Supply Network Management 8 Capacity Management 9 Process Technology. 9 Product Service Innovation. 10 Quality Management & Improvement 10 Section 4: Comparison of Nio & Tesla Operations Strategies. 11 Supply chain management 11 Capacity Management 12 Process technology. 12 Product service innovation. 12 Quality management and improvement 13 Conclusion. 13 References. 15   Section 1 Introduction Many companies have entered the electric car market in recent years owing to recent developments in new technologies. However, all these companies have approached this relatively new industry differently. They have created different philosophies and processes that they are betting will determine the future of the industry. Two of these companies are Tesla and Nio. Tesla is an American company headquartered in California and arguably the leader in this industry. Nio is a Chinese company headquartered in Shanghai, China. These two companies have developed very different process technologies and philosophies. This research has used secondary sources to find credible information about these two companies and compare their operational strategies and how they have affected their short and long-term goals. Business Environment  The electric car market is a relatively new market that has grown tremendously recently. One of the electric car makers, Tesla, has reached a trillion-mark valuation, and newer companies like Nio, which struggle to produce 5000 cars over the week, have a valuation bigger than that of Ford Motors and Honda, which are notable heavyweights in this industry.     Carmakers valuation vs. units produced:   Source: Marketwatch.com The industry has become very competitive largely because of the consumer awareness of the impact of climate change caused by humanity's reliance on fossil fuels (Foster, et al., 2021). Newer technologies have also helped these companies grow. Additionally, investors are pumping a lot of resources into these companies giving them the necessary resources for R&D and ramping up production. Market valuation running into trillions shows the faith investors have in the industry. Governments like in China have also supported these companies through subsidies and tax breaks, helping them weather the teething problems of startups (Li, et al., 2020). Generally, the market is ready for their products, and investors have shown confidence in the industry. There are few large players in the industry, but the barrier to entry is very low; hence more companies are springing up all over the world, seeking to claim some market share in the future. Section 2: Tesla Supply Network Management  Tesla has previously sought to vertically integrate its supply chain. Tesla was the pioneer of mass electric vehicles, and there was no well-developed supply chain infrastructure to support it. Therefore, Tesla has built an agile and resilient supply chain to meet its demands. For example, there was a crunch of semiconductors at the height of the pandemic, and Tesla sailed through because it was writing its own code for any chips it could procure (Seifert & Markoff, 2022). A brilliant move to increase the resilience of a supply chain. Other competitors, especially Internal Combustion Engine manufacturers, enjoy economies of scale and a worldwide efficient and reliable supply chain in the automotive industry. It enables even smaller companies to source parts from other companies and assembles their vehicles. In the case of Tesla, it has had to develop its own system from scratch. For example, it had to partner with other non-car-making companies in developing battery technology, i.e., Panasonic. In developing their motors, Tesla had to design, test, and develop the best motor to fit their needs in the car. Thus, most of the supply chain conveniences that Tesla would have leveraged were not available. This prompted the company to pursue and develop a vertically integrated supply chain network that saw them enter into various partnerships with other companies, i.e., Panasonic, to develop batteries and house them within their Gigafactory (Pressman, 2022). This led to better cooperation between Tesla and some of its suppliers and improved efficiency of production. Capacity Management  Tesla has unique capacity management that is largely different from the model developed by the automotive industry in the last century. The automotive industry mainly distributes its products through dealerships, and in most countries, they lobbied lawmakers to institute laws and structures protecting this model. Carmakers have to sell their products only through dealerships in some U.S. states (Alamalhodaei, 2021). This dictates that demand is from dealerships and fewer customization options for higher-end models. This approach was not favorable to electric vehicles because of the demand. However, Tesla developed a new approach to selling its vehicles directly to its customers. Tesla customers have to order their vehicles online to customize their vehicles. This puts them on a months-long list to await their order (sometimes over ten months) (Levin, 2021). While, at the moment, Tesla has been unable to meet its demand fully, it controls its capacity because a customer has ordered each product. They have millions to fulfill and bypass the dealerships, even in states that have banned the direct selling of vehicles (Alamalhodaei, 2021). Thus, their capacity is dictated by demand, enabling the company to adapt to market forces easily. If the demand is reduced, Tesla will adapt to the demand by scaling down its production rate. Process Technology Tesla has been the pioneer in the electric car market since 2003. As the pioneer, the company has had to develop custom technological solutions to develop its products and gain a competitive advantage in the automotive industry. The benchmark of the existing automotive was hard to clear and compelling new entrants into the market to rethink strategies to meet or exceed them. One of these benchmarks was the number of units produced per year. Car manufacturers like Toyota produce almost 10 million vehicles per year (Marketwatch, 2022). Tesla struggled to produce 5000 units a week for a long time, but recently, they have matched that capacity. They have also started constructing other gigafactories in Germany, Texas, and China to increase their output (Hawkins, 2022). Tesla has also leveraged using robots. While the initial plan for automating many of the production line jobs fell through, it has achieved a significant level of automation in some areas. The company has also improved its process technology in other areas like large-scale die casting. The giga press 'machine that makes other machines' is seeking to improve the production process by reducing the number of parts used in the car. For example, it can cast front & rear vehicle underbodies in a single piece, each down from 70+ parts for some previous sections. This eliminates the need for over 300+ robots and the painstaking work of welding and joining over 70 parts plus applying sealant (Lambert, 2021). Tesla bets that this new technology is at the heart of improving the manufacturing of electric vehicles and will go a long way toward improving the quality of the product, reducing the time and overheads of manufacturing. Product Service Innovation  Tesla has been setting the pace in the innovation space of electric cars. The company had the impossible objective of creating an equally reliable, practical, and price-competitive car. This called for innovation in many areas. This is evidenced by the numerous patents the company has filed in various countries because of building a new industry. Thus, most of the Tesla technology in its vehicles is proprietary, from the battery packs to how they dissipate heat, are charged, and their energy density (Asay, 2016). Tesla has also made very reliable motors to drive the car, which is patented as they use regenerative braking. Since its inception, the company has been pushing the envelope in terms of software. It has continually developed new technologies such as Tesla summon that enables the car to navigate parking spaces on its own and park itself or come from the parking to the owner. The company has also rolled out different levels of autonomous driving, which they call 'autopilot,' and it has generally been received well by their users. It is continually being developed and improved to pave the way for fully autonomous vehicles. Other technologies developed by Tesla include lane assist and innovative infotainment systems. Tesla also develops new products. It created a new unorthodox truck (Cybertruck) with an exoskeleton and other features that wowed its fans. The company has recently acquired a battery company to help develop battery technologies for the future. Thus, Tesla continues to develop and improve its products for the customers. Quality Management & Improvement Tesla's quality management has been questionable to a certain degree. The company has had several recalls and software upgrades and fixes in the last few years, which point to quality issues of its products. The company CEO, billionaire Elon Musk admitted that some of its cars had defects due to ramping up production (Dowling, 2021). Industry experts have noted that the workmanship of Tesla products is questionable, and many customers have complained about them. Secondly, the company has been very coy about the right to repair. It makes it very difficult and warns its customers that they should not attempt to repair their products (Lambert, 2020). Its repair network is not very extensive, and many customers struggle to fix their cars, especially after accidents. In the product improvement sphere, the company has done some great work in continuously improving the performance of its vehicles. It offers OTA updates that fix bugs and add new features. It also provides new technologies which customers can purchase to improve the functionality of their vehicles, i.e., autopilot. Section 3: Nio Supply Network Management Nio has been struggling to meet its production goals since it was incepted. While the company has gone through many financial challenges that could easily have ended in bankruptcy, it is also undeniable that the supply chain has been a major thorn in the company's ramping up of production capacity. Nio uses older platforms for production that are not very adaptable and require legacy parts to manufacture its products. Additionally, Nio depends largely on foreign suppliers of some parts, unlike its competitors like Xpeng and Li Auto (Zhang, 2021). These weaknesses were brought forth by the COVID-19 pandemic, which highlighted the Achilles heel of Nio supply chain management. During the pandemic, Nio could not get its air suspension from Germany due to COVID-19 restrictions. At the same time, China had relatively managed the spread of the pandemic, and most of its competitors continued to churn out more products during the pandemic. Nio gets a substantially large amount of its parts from other manufacturers spread across the globe; air suspension from Germany, A/B pillar from Nanjing Nantiao Quanxing, and chips from Malaysia. While it is not a problem to source parts internationally, the company has not streamlined this process, and it has been vulnerable to many issues that have plagued it. Capacity Management Nio has been struggling to ramp up production. In 2019, the company aimed at 600,000 units produced as of the end of 2022 (Zhang, 2021). The company is still far from this goal. In April 2022, the company was aiming to produce only 240,000 units. This is largely attributed to the production c...