Will Tesla Motors build their own PLM system?

by Oleg on November 4, 2013 · 18 comments

Tesla-motors-PLM-system

History of CAD and PLM development knows examples of home grown systems. 20-25 years ago, the idea to build their own CAD and PDM system was considered as an absolutely normal option. Since that time, many things changed. In my view, the last decade clearly demonstrated PDM/PLM trend towards using more OOTB (out-of-the-box) and ready to use solutions. I’m not sure what was a success rate (if somebody owns statistics, please share), but I can confirm a clear intent of manufacturing companies towards usage of packaged software provided by CAD/PLM vendors.

However, the business dynamics and requirements are changing very fast these days. Therefore, I wasn’t very surprised when I learn about how Tesla Motors (probably one of the most hyping and progressive car company in the world these days) is building their custom IT solutions. Navigate to TechCrunch article – Being A CIO At Tesla Motors, A Startup That Builds Cars And Its Own IT. The short writeup is speaking about how Tesla Motors is focusing on building a unique set of IT systems. Specifically it was related to building their own, Tesla-tailored ERP solutions. According to the article Tesla is focusing how to build an environment compliant to Tesla’s speed, agility and e-commerce demand. Here is an interesting passage:

The speed and agility Tesla needed in an ERP environment could not be found in the market, Vijayan said. SAP’s ERP tech was clearly not working for other car manufacturers… In four months, Vijayan and his team of more than 250 built the ERP system, which serves as the foundation of the electric carmaker’s operations. Now every department is using the same system without the need for making custom connectors, so different systems can work together. The company also built a world-class e-commerce system that is designed to help people buy cars as seamlessly as possible.

Tesla needed to build its own IT and its own e-commerce system due to the fundamental difference in its business model. For decades, auto manufacturers have sold their cars through local dealers, a fixture of every town in America. But Tesla sells its cars directly to customers. All the materials, the processes and the features need an operation that is uniquely designed so Tesla can sell its cars online.

Such high level of difference with standard ERP behavior made me think about potential of Tesla to go and build a complete customized PLM system tailored to needs of Tesla designers and supply chain. TechCrunch article says nothing about PLM and other design systems. The public references related to Tesla and PLM confirmed what I knew back in 2010 Tesla made a strategic decision to move towards Dassault System Catia V5 and Enovia V6 solutions. The original Dassault System press release is here. The only video about PLM and Tesla online I found is highlighting Tesla use of Dassault System tools. Watch this short movie. You will clearly see CATIA and ENOVIA V6 Design Central and Engineering Central with BOM management options.

What is my conclusion? I have no clear answer on the question placed in the title of this post. The IT innovation in manufacturing companies is getting interesting these days. The dynamic of business, pace of changes and specific customer requirements will require IT managers to innovate beyond the level of OOTB tools. Thinking about PLM space, customer focused configuration options combined with complexity of supply chain can be very challenging these days. These days Tesla is practically building a single model car – Model S. However, with new car model (model X) is coming soon, I can see the level of complexity growing as well as the needs for specific unique PLM system. It would be very interesting to see the change in the future. Just my thoughts…

Best, Oleg

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  • http://JoeBarkai.com/ Joe Barkai

    Hi Oleg, thanks for sharing.

    I like the fact that Tesla is challenging the presumed hegemony of SAP and other ERP software vendors. But in my opinion, the notion of building your own IT system is not progressive but rather represents an old fashion way of deploying IT. It is based on the “we are different” attitude that helped propel Tesla thus far, but at some point, the company will have to operate in a different scale and cadence, and deal with an increasing global web of customers, suppliers, retail operations and repair facilities. Despite the tone of the write-up in TechCrunch, the dust has not settled on the battle between Tesla and NADA, so the “world-class e-commerce system” must still be in some level of flux.

    I guess Tesla could augment the pool of 250 IT staff and keep at it, but they may find out that IT becomes a bottle neck rather than supporting the business. Plus, with Model E, Tesla will have to watch costs and margins much more carefully, including IT cost.
    I sure hope they do not decide to build their own PLM system. Instead, Tesla can use its power and clout to push ERP and PLM vendors to perform better.

  • Scott Cleveland

    I am sure that I am preaching to the choir – Their core competency is designing and building high tech automobiles, it is not writing software applications as complicated as PLM. They should start with existing software and ‘configure’ it to do what they want it to do.

  • Bala Kondur

    Like Oleg points out, today’s commercial PLM systems originated from the so called home grown systems. It is perhaps time for the pendulum to swing back towards home grown or hybrid systems. Some of the factors at play are :
    -Availability of platforms to build large scale IT systems on (Java EE, .NET being the primary ones)
    -Large offshore application development shops that can bring to bear high quality IT talent at affordable costs
    -The somewhat ordinary product offerings from the mainstream PLM vendors the last few years
    -Enormous training costs involved with OOTB PLM implementations with the risk of user non-acceptance
    Will be interesting to see Tesla’s approach.

  • beyondplm

    Bala,tanks for your comment! Agree completely, the development infrastructure is different these days. It is specifically related to the availability of open source development platforms used for web and many others. However, I’m not completely agree about training cost. The assumption you are taking that DIY PLM will not have training cost, which is probably not true/ Don’t you think so? Best, Oleg

  • beyondplm

    Scott, yes, they should… they same can be said about ERP – they should take SAP and configure it to the level they need. However, they decided not to do so… Good question, agree. Best, Oleg

  • beyondplm

    Joe, thanks for your insight! Yes, you are right- the implement their own PLM software can be easy and probably mistake for Tesla. However, sometimes, we need to make a mistake in order to come to the right decision. Even if it sounds a bit philosophical, it happened in many cases. The potential upside of Tesla starting to develop PLM system can be a potential to find an alternative to existing PLM implementation and development practices.

  • http://JoeBarkai.com/ Joe Barkai

    Yes, it’s the proverbial discussion about core competency and focus. On the one hand, the Detroit automakers managed to create over many years such a complex set of requirements and IT tools than they are probably justified in arguing that they cannot use off the shelf tools (e.g. requirements management.) On the other hand, Tesla’s very young roots are not in the auto industry, so maybe it’s OK to challenge the norms. They certainly proved they have the guts and deep pockets do so.

    I just don’t think that PLM is the right realm to do it.

  • http://JoeBarkai.com/ Joe Barkai

    Two recent data points to add to the overall business picture at Tesla and put this conversation in a broader, long-term context:

    1.Tesla reported third quarter loss of $38.5M. Tesla continues to incur high R&D costs and very high operating and admin expenses. This is the cost of being a technology innovator and a business disruptor. But is the additional complexity and cost of a huge IT organization that could become a business bottleneck justified?

    2.Tesla announced plans to build a Li-Ion battery factory to support the company’s aggressive global expansion plans. Is the company going too far into single sourcing and vertical integration? What’s the impact on Tesla’s PLM strategy?

  • http://www.eng-eng.com/ Ed Lopategui

    Scott, except that they can’t. I don’t think Tesla’s decision to go it alone was made overnight. And that decision may be based on frustration with enterprise IT at SpaceX. I can’t imagine Elon Musk walking into a room with Enterprise IT such as SAP and walking out impressed.

  • http://www.eng-eng.com/ Ed Lopategui

    I am not surprised, only wondering why it hasn’t happened sooner. The difference between most companies rolling their own IT solution and Tesla is they have some heavily invested resources for the job, thanks to the attraction of being the innovative upstart. You wouldn’t get the same result using the run-of-the-mill IT staff cruising at most companies. The people here are bent at upsetting the industry and really could care less about job security. That gives them an edge. A temporary edge but one nonetheless.

    Is it a huge cost that threatens profitability as Joe mentioned? Absolutely. Taking a page from Jason Fried’s “Rework”, they could very well sell their by-product. Suppose they are successful creating a new kind of ERP, well there’s plenty of people to sell THAT too regardless of how many cars they sell.

  • Henk Jan Pels

    Hello Oleg,
    I do know of a few companies that developed their own PDM system. The best known is HP, who decided to develop their own system in the early ’90ties, after a serious product take back problem. This system is now part the PTC offering. Another is one of the Philips divisionsk, who also developed their own system in the beginning of the PDM era and kept using it until only some 5 years ago. The problem having your own system always is that the number of users is not enough to carry the huige maintenance cost. However in the Dutch Brainport area there is a company Prodrive, producing electronic equipment, who developed ther own integrated ERP/PDM solution, are still using it happily and even consider to build a second generation. They can afford this because they have a software development department to produce the embedded software in their electronics.This department can also develop and maintain their business support software. Maintenance and support cost can be kept low, because the lines between developers and users are short.

    Regards,
    Henk Jan Pels

  • beyondplm

    Joe, thanks for brining up these interesting data points. I think, the intent of Tesla to be a top technological innovator in car manufacturing has implied decision to build PLM system to support product dev. processes. That was a fundamental assumption in my write up / question. The fact Tesla dumped SAP is trigger and confirmation. Just my thoughts… Best, Oleg

  • beyondplm

    Ed, It reminded me the story of first CAD systems that were developed by McDonnell-Douglas (CADD), Ford (PDGS), Lockheed (CADAM) and others.

  • beyondplm

    Henk Jan. thanks for sharing these examples. Yes, maintenance cost is a key thing. Proprietary software is a huge expense (also in $$$ and people). But, if your business structure allows you to do so, you can do very nice systems and development. Many companies were looked for generic PDM platforms (eg. MatrixOne, Windchill) that used to development their own HEAVY customizable solutions. Today, open source and other web dev stuff can provide an additional option to make it happen.

  • Piero Aimasso

    TESLA
    is using ENOVIA V6 as PLM platorm and will be a featured speaker at DS
    North America 3DEXPERIENCE Customer FORUM – November 12-13, 2013 – Las
    Vegas, NV

    “Exploration of 3DEXPERIENCE Platform for Program Management, Engineering and Supplier Design Collaboration at Tesla Motors ”

    (Jack Brown Senior Manager, Applications Support- PLM, Tesla Motors )

    http://www.3ds.com/events/3dexperience-customer-forums/north-america/agenda/tuesday-breakouts/#Transportation%20&%20Mobility

  • beyondplm

    Piero, thanks for comment and link.

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  • http://www.eng-eng.com/ Ed Lopategui

    Exactly.

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