3 Manufacturing Takeaways From Tesla V. Ford

William Krueger / April 7, 2017

Beyond the fact that they’re both in the automotive business, it’s hard to find many parallels between Tesla Inc. and Ford Motor Company. One has been an established and revered American company for over 100 years; the other is an upstart that for over a decade has flirted with bankruptcy more than once (see here and here). One’s founder took such a revolutionary approach to manufacturing that he changed the course of manufacturing in the 20th century. The other’s founder is trying to do the same for the 21st. One company’s founder was a notorious anti-Semite. The other? Well, he wants to save the human race.

automotive assembly lines

It’s no wonder then that when Tesla overtook Ford this past week in market value, most people interpreted it as more than just an investor preference for one company over another. Instead, it’s being considered a decisive strike in the ongoing and iconoclastic clash of the New World versus the Old. The question: Has the once-world-dominating Detroit auto industry — and everything it represents about the America and world that once was — finally been toppled by our new love affair with tech-driven reality?

While the answer is undoubtedly a complex, “Yes” and “No,” there are still plenty of opportunities and warnings U.S. manufacturers would be wise to notice and heed. From the CNC machine shop moving business operations to the cloud to the aerospace executive in pursuit of a more flexible supply chain, here are three takeaways now that Elon Musk’s vision of the future looks every bit as prescient as Henry Ford’s.

1. Bang = Buck

The most obvious takeaway in Tesla’s upward valuation trend is that investors love technology. From Twitter and LinkedIn to Google and Facebook, investors can’t get enough of anything built by lines and lines of code. While Ford has clearly showed a very serious commitment to technology in terms of both financial investment — $1 billion is a lot of scratch — and positioning — they’re willing to take a hit now to figure out how to survive and thrive later — it’s still not viewed as a technology company.

Tesla, on the other hand, is viewed as a tech wunderkind. Even its past financial woes and missteps are interpreted as proof of concept and vision. As Musk has said, “If things are not failing, you are not innovating enough.” So failure has been part of Tesla’s identity since day one. Of course, innovation has been part of its identity, too.

Not content to just make the world’s most-sought-after electric vehicles, the company has also managed to make the world’s fastest mass produced vehicle (which is also electric). As if that weren’t enough, the company has also branched far beyond transportation into batteries, solar power, energy storage and, if you count its sibling, SpaceX, rockets, space delivery and the colonization of Mars. In other words, one of the reason investors can’t quit gobbling up Tesla stock is because automobiles appear to be just the tip of the iceberg for the company.

space x capsule

So what’s a manufacturer to do? Well, increasing stock value or raising capital comes easiest to those companies perceived as tech powerhouses. If your brand and product offerings are already established in something other than tech, you’ll need to start telling investors and customers a different story about your organization. While it’s true that every company is a tech company now, shifting your own storyline so that it’s believable enough to attract investment will require savvy leadership that’s truly pursuing technological integration and innovation, as well as savvy marketing and PR that can shift how you’re perceived.

2. Fossil Fuels Are Sooooo Last Year

The Trump administration may be doubling down on its efforts to revive coal and Big Oil here in the U.S.A., but if consumer sentiment and investor money mean anything — and we all know they do — fossil fuels’ days are numbered.

While the lessening of EPA regulations may give Ford and other Detroit automakers the wiggle room on fuel efficiency they’ve all long desired, turning back the clock isn’t an option. Detroit has been investing in more sustainable fuel technology and practices for a while. Although the industry still has one foot firmly planted in the past where climate change wasn’t something even science fiction writers tussled over, Big Auto hasn’t been around for a century due to luck. When they see the writing on the wall, they respond to it. That’s why they’ve been selling EVs and hybrids for years.

Yes, you could argue that Ford, GM and Chrysler’s rationale for bringing vehicles that use cleaner fuels to market is nothing more than a response to consumer demand, while Tesla’s rationale is moral, but such an argument misses the point. The government can undo every piece of environmental legislation passed over the last 40 years, but the constraints of a climate in the throes of dangerous change will continue to influence the real people buying real things. The Big Three won’t remain competitive by dictating to consumers what they want. If consumers want clean energy vehicles — and more and more keep proving they do — that’s what automakers are going to bring to market for them.

Manufacturers of all stripes would do well to learn this lesson and apply it. Consumers have never had more choices than they do now, and as environmental concerns remain at the forefront of many consumers’ concerns, no amount of deregulation is going to re-usher in the past. Every manufacturer would be wise to invest in offering products that steer clear of fossil fuel use. Additionally, manufacturers should invest in sustainable supply chains, domestic CNC machining production, solar power and other means of reducing the emissions, pollution and greenhouse gases that far too often accompany our nation’s manufacturing processes. Not only will these actions assist in slowing down the rate of harm being done to the planet, but by publicly and practically shouldering responsibility to improve outcomes for Planet Earth, manufacturers will benefit from positive and well-deserved brand attention.

3. Inventory is Too Costly

Perhaps the most practical and fascinating takeaway from Tesla’s recent besting of Ford is that traditional notions of inventory seem to be losing merit — and money — by the minute. While Big Auto has a glut of unsold cars, trucks and SUVs, and in the face of a bearish auto market will likely see a whole lot more, Tesla sells every single car they make. In fact, one of the primary criticisms Tesla struggles to get out from under is that the company can’t make cars fast enough to meet demand.

Inventory has long been something of a double-edged sword for manufacturers, retailers and even CNC machine shops. Considered essential in getting products to market when and where consumers could buy them, time has slowly but surely eroded the notion that inventory equals revenue as consumers’ flagging and fickle attention gets redirected toward each new shiny object passing by.

car inventory graveyar

With more and more shiny objects available, inventory has become a dinosaur. At best it represents the opportunity to sell a product; at worst, it represents bad forecasting and the piling up of “expensive dust” on products that not only cost real money to produce, but also real money to warehouse. Increasingly, capital tied up in inventory is unlikely to make the transformation back into cash, and in today’s fast-paced, fractured and attention-addled marketplace, that reality makes it hard to justify acre after acre of unsold and unsellable vehicles. Anymore, the odds of moving inventory — especially at a margin that can positively impact revenue — wane with each passing day.

Some detractors rightly note that Tesla moves a pittance of the volume of vehicles Ford does. Still, the company’s ability to generate supply that  — on a good day — is equal to demand, and — on a bad day — falls short of it means its capital doesn’t get tied up in has-been inventory and consumers are likely to keep desiring its products. In a global marketplace that turns on a dime, any company that can run lean and fast and unencumbered is more likely to be able to strike when customers open their wallets, but winning the war of supply and demand is just the start of why Tesla’s total lack of inventory is laudable.

Right now, bringing a new vehicle to market takes Big Auto roughly two years. Two years ago, Justice Antonin Scalia was in good health, adult coloring books were all the rage, and the Apple Watch was going to totally change everything. Two years before that, Bitcoin went from $1 a share to $1200 a share, Lance Armstrong admitted he doped to win, and the iPhone 5s brought fingerprinting sensor technology to the masses. Two years before that, Google Brain got off the ground so somebody could finally teach AI the difference between a cat and a dog and a sofa. Oh, and Steve Jobs was still alive.

The rate of technological change currently underway is accelerating, and societal change seems to be accelerating with it. Two years from now, we may have all signed up to be cyborgs with roller blades instead of feet living in posh underground bunkers to escape the Nuclear Winter wreaking havoc up above, or things may be just as they are now, except we’ll all be riding to work in autonomous vehicles.

Thanks to the exponential quality of technological change and growth, two years’ time is about to feel more like an eternity. Companies that understand this reality will flourish, and yes, Tesla appears to be one such company, although that doesn’t mean Ford isn’t also showing a healthy imagination. It is. By staying inventory-free, a company affords itself the luxury and opportunity to respond to the market as soon as the market changes — not just because the customer might not want these cars anymore, but because the customer might not want any cars anymore.

Whether you make medical equipment, robots or aftermarket CNC machined parts, inventory is an unwise place to put your cash. Tech is changing too fast to ensure your forecasting today will be accurate tomorrow. The only caveat is this: By shortening your production timeline dramatically via disruptive procurement methods, you’ll enable your company to meet consumer demand while it’s still hot. From moving your entire supply chain closer to your customer base to transferring procurement duties to an online outsourcing partner, it is possible to meet demand as fast as it’s happening. But you have to change the way you go about your business.

There’s no telling what future bouts of Tesla vs. Big Auto will yield, but one thing is certain. For manufacturers interested in maneuvering a tech-driven, fast-paced and complicated future, embracing tech, eschewing inventory and embarking on the path of sustainability is highly unlikely to steer you in the wrong direction.

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