Tag: electric cars

OM in the News: Is Tesla’s Supply Chain Overhaul Running Out of Juice?

Teslas awaiting transport after arriving at the port in Norway,

“Tesla’s first-quarter deliveries plummet as the electric car maker faces challenges shipping Model 3 overseas for the first time,” writes The Wall Street Journal (April 4, 2019). Tesla said new-vehicle deliveries in the first quarter fell 31% from the previous three months as it struggled to ship its Model 3 compact car to customers in Europe and China for the first time. The auto maker delivered about 63,000 vehicles in the latest period, worse than analysts’ already-lowered expectations of 73,500 units.

Concerns of a slow start to deliveries in 2019 have raised questions about the company’s ability to meet ambitious sales targets after it struggled for 2 years to increase production of the Model 3, its lowest-price vehicle. Tesla had slashed the Model 3’s starting price three times during the quarter, finally reaching its long-promised base of $35,000. (The phaseout of U.S. tax credits went into effect recently, dropping to $3,750 from $7,500. Credits end at the beginning of 2020). Tesla delivered 50,900 Model 3 cars in the first quarter. Sales of the more-expensive Model S car and Model X SUV fell to 12,100 from 27,602 during the fourth quarter.

Getting the Model 3 to customers has bedeviled the company ever since it cranked up production. As Tesla’s U.S. sales approach those of BMW and Mercedes, the company has encountered a host of logistical issues, from delivery and servicing of a growing fleet to balancing supply and demand. The delivery challenge was especially pronounced when Tesla began delivering the Model 3 overseas. Tesla has one assembly factory, located in Calif. It traditionally dedicates the early parts of each quarter to shipping vehicles overseas to account for travel time.

The company has begun construction on a factory in China to build the Model 3 and future Model Y compact-SUV for that market, and intends to open an assembly plant in Europe. The challenge for Tesla is balancing the costs of ambitious growth plans with maintaining profitability. Shortages of Europe-specific parts and a printing error were making it harder to get vehicles to customers.

Classroom discussion questions:

  1. What are the major OM problems Tesla faces?
  2. Why are sales falling?

OM in the News: The Future of the Auto Industry

The future of the auto industry is going to look like the history of the cell phone, writes IndustryWeek (Dec. 18, 2018). The two even share technology: the lithium-ion battery. As the world’s automakers gradually switch from combustion to charging, some of today’s dominant car companies will share the fate of a few former titans of the smartphone. Remember BlackBerry, Nokia and Palm?

This transition will play out as electric options flood showrooms. In the next 2 years, 85 more battery-powered models will be marketed, bringing the global fleet to 357. VW is near the front of the pack, promising 20 new electric models by 2020 and another 80 by 2025. VW just announced the internal combustion vehicles being designed now will be its last!

Being first, however, is no guarantee of success. Honda’s Insight promised 70 mpg as the first U.S. hybrid in 1999. Yet the Toyota Prius, which reached the market later, became the icon of greener wheels. A crowd of copycat hybrids arrived but none came close to matching the Prius.

For the next decade, old-school car executives will try to pull off a tricky financial stunt: driving returns with gasoline engines until their electric models have enough momentum to start keeping pace. They are essentially using an old technology to fund the transition to the next. Jump to the electric too soon and the whole works will grind to a halt; jump too late and lose the EV race. Startups such as Tesla don’t have to make this awkward jump. They don’t have to worry about feeding a legacy business as it slowly winds down.

Electric drivetrains and smart manufacturing systems have the potential to open up car manufacturing–and remove the stranglehold car companies have had on the business because of the high cost of capital.  And as we note as one of our 10 strategic decisions of OM, Product Design (Ch.5) is critical. Products must be designed to a dynamic market meeting sometimes harsh capital and labor requirements and time constraints. VW, like other auto manufactures is “biting the bullet.”

Classroom discussion questions:

  1. Is VW making a wise decision? (SWOT analysis)?
  2. Where would you place EV and gasoline cars on the product life cycle curve now and in 10 years? (See Figure 2.5 in the text)

 

 

OM in the News: The Challenge of Forecasting Electric Car Demand

If only we had a nice time series of data to use in forecasting demand for the relatively new product like electric cars!  We could take several of the quantitative  models in Chapter 4, Forecasting, and present a report complete with error measures such as MAD.

But when the product is heavily promoted battery-powered vehicles about to appear on roads around the world, such math models do not apply. We talk about 4 qualitative methods in the chapter, and these become our toolbox. Most forecasting firms, as we see in The Wall Street Journal (Oct.28,2010), turn to consumer market surveys to predict sales through 2020.

J.D.Power, for example, thinks sales will remain low and be only a small slice of the global market even a decade down the road. That firm puts the combined forecast of hybrids (such as the Toyota Prius) and all-electric models (like the Nissan Leaf) at 5.2 million cars in 2020. This is just 7.3% of all 70.9 million passenger vehicles to be sold by then.

Boston Consulting Group, in its separate study, forecasts hybrid and electric autos making up 26% of the 2020 global market. PRTM, yet another forecasting group, estimates the total at 30% of the market. PRTM thinks battery prices will fall enough to make prices the same as standard models.

Why the huge spread? “Based on our research of consumer market attitudes towards these technologies, we don’t anticipate a mass migration to green vehicles in the coming decade”‘ says one J.D. Powers VP. “Everybody feels that everybody else should be driving environmentally friendly vehicles”, says another Powers VP. But the  CEO  of a different firm states, “I think we might be underestimating the enthusiasm of the customers”.

Discussion questions:

1. Discuss the dangers of using consumer market surveys to forecast.

2. How have firms forecast the demand for other new products, like color TVs or HDTVs?

3. What could have a major impact on buyers’  behavior?