Whatever you think of the company’s bubble-like cars and moody, highly political CEO, there’s no doubt that Tesla has radically changed the way the auto industry builds and sells cars.
It may now be withdrawing from one of its greatest innovations. Reuters reports that Tesla has “deviated from an ambitious plan to innovate in gigacasting, its groundbreaking manufacturing process.” The news agency cited “two sources familiar with the matter.”
Tesla pioneered three industry-changing innovations
The auto industry looks radically different before and after Tesla. However, the changes are limited to three innovations.
One thing is obvious: Tesla has made electric cars mainstream. The company built the first reliable nationwide charging network and made electric vehicles (EVs) seem innovative and cool. Its success attracted every other car manufacturer into the market. Tesla is now seeing its market share shrink as more competitors emerge. According to Kelley Blue Book, parent company Cox Automotive, 51% of electric vehicles sold in America last quarter were Teslas, down from about three-quarters two years ago.
A second is less visible but could prove just as historic. When Tesla came on the market, automakers in most states were prohibited by law from selling cars without using a dealer as an intermediary. Through extensive lobbying, Tesla changed these laws in many – but not all – states.
This allows the company to set flat prices for cars, sell them directly and keep all the profits. Other startups have largely copied Tesla’s methods since then. Older automakers with established partnerships with large dealer networks have not done so. However, some have suggested this could be the case, leading to new negotiations with traders over how to proceed.
The third innovation is less obvious. Tesla builds cars from fewer and fewer parts every year.
What is Gigacasting?
The word itself is marketing nonsense. Giga is a prefix meaning billion, and Gigacasting isn’t about a billion of anything. CEO Elon Musk simply likes to add the prefix to words – his factories are also gigafactories.
However, gigacasting is the process in which a car’s self-supporting frame is stamped from very few, very large parts.
Most car frames are made up of hundreds of parts connected and glued together in thousands of places. Tesla also started building cars this way. But over time, the company has used huge “giga-press” machines to stamp much larger parts instead of assembling many smaller parts.
It speeds up manufacturing and results in a car with minimal vibration problems.
However, the process is not without its problems – especially because even minor damage can require the replacement of a full third of the vehicle’s structure. The unique structure of Teslas has led many insurers to write off cars as total losses after minor damage.
But it was so effective for Tesla that Toyota — a historic hero of efficient manufacturing whose processes have been studied around the world for decades — shocked the automotive world last year with plans to copy it.
Tesla isn’t stopping, but it’s not going to move forward either
Tesla will not go back to assembling cars the old way. Instead, as Reuters reports, the company is abandoning a long-held plan to further expand Gigacasting.
“When Tesla developed a new platform for small vehicles last year, it aimed to stamp out the underbody in one piece,” reports Reuters. Now Reuters says: “Tesla has since abandoned the effort, opting to stick with its more proven method of casting vehicle underbody in three parts.”
The abandonment of this is part of the abandonment of the Model 2.
Tesla is changing quickly
Tesla had a bad first quarter by its standards. A bad quarter for Tesla still means it sells more electric vehicles than anyone else.
But the company has lost ground as legacy automakers move into the electric vehicle market. It is under pressure internationally from a range of rapidly improving Chinese electric vehicles. China’s BYD briefly overtook Tesla for a quarter last year as the world’s largest electric vehicle maker. Chinese electric vehicles even threaten the Chinese domestic market. A recent survey found that many American electric vehicle buyers are intrigued by Chinese options that are not yet available for sale in the United States
Tesla is responding by withdrawing not only from gigacasting, but from selling private cars altogether.
Musk used a first-quarter earnings conference call with investors to recast the company as an automation company rather than an automaker. He backed out of plans to build a smaller, cheaper car called the Model 2.
Instead, he said, future profits would come from a planned fleet of robotaxis and cheaper cars based on the platform that underpins the Model Y and Model 3.
This fits with the Reuters report. The Model Y/Model 3 platform consists of three parts. The Model 2 was the only one planned.
The company also reportedly laid off the team that built its nationwide charging network, as well as the team developing future cars.
Still the leader in the process
The news could frustrate some long-time Tesla investors who tend to see constant innovation. But it could be the right business decision.
According to Reuters, not using single-piece castings would save Tesla expensive investments in new factory equipment. And if Toyota doesn’t catch up and overtake it in research into large castings, Tesla will remain the only automaker to build a vehicle’s structure from just three parts.