Automotive logistics sector cannot ignore the implications of Tesla

Tesla Motors is suffering from a crisis of confidence after one of its vehicles burst into flames on a road in California. Normally such problems with a piece of new technology would be of marginal importance, however it represents an interruption to a period of extraordinary exuberance for the company. Prior to the accident and the subsequent falls on the stock market, Tesla Motors was one of the largest automotive manufacturers by capitalisation. Bigger than Mazda or FIAT, at approximately US$20bn, it was worth around half the value of General Motors and almost as much as Renault.

This may be an example of unsustainable hyperbole characteristic of the IT sector from which Tesla’s owners come from, but Tesla is, for the moment, a serious company with a product which has been loudly praised in the press. It should not be dismissed too lightly.

For the logistics sector the emergence of such a company has real importance. It indicates that the automotive sector is experiencing major change in terms of its engineering. For a century the fundamentals of automotive technology have remained true to the ideas of Carl Benz in the late 1890s. The emergence of ‘supply chain management’ in the late 1980s was the result of a much more complex product in part through the integration of digital technology in areas such as engine management, but also down to incremental improvement in design.

This complexity and the need to manage a large increase in the numbers of suppliers led to the emergence of outsourced logistics for vehicle manufacturers and the automotive industry- along with retailing – drove forward the development of contract logistics. Yet, the nature of internal combustion engine changed hardly at all.

What the growth of the Tesla suggests is that this may be changing and the design of vehicles will become less dependent on mechanical engineering and more part of the electronics industry. And the electronics sector (both electronics and complementary electrical engineering) has a very different structure to its supply chain than automotive engineering.

Far more global and flexible it has a ‘modularity’ that enables different major components such as microprocessors or batteries to be used in a multiplicity of devices. In contrast, the automotive supply chain is dedicated to one individual product and production location. Electronics are already a major part of automotive engineering, however the replacement or even augmentation of the internal combustion engine with batteries and electric motors would be very likely to transform the geography and nature of the automotive supply chain and therefore its logistics requirements.

Tesla probably just represents the beginning of this process. Far more innovation is needed to produce mass-produced electric vehicles. However, as with the impact of e-commerce in retailing, the company is an augur of enormous change in the automotive sector which is likely to affect fundamental change in logistics provision.