Tesla Cut a Corner in Models for China and Germany
Tesla’s Chip Trick: How the Electric Carmaker Cut a Corner in Models for China and Germany
















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Elon Musk reached the peak of his success in the autumn of 2021. The Tesla CEO announced new records every week. As competitors like Volkswagen groaned under the burden of the global chip shortage, the California electric vehicle manufacturer recorded strong growth. The company’s stock market value rose to a dizzying $1.23 trillion (1.09 trillion euros), putting Tesla’s market capitalization higher than that of Toyota, VW, Daimler, General Motors, BMW and Ford combined. Musk, now the world’s richest man, put up to a vote on Twitter whether he should sell his shares at that peak.




But even as the U.S. billionaire celebrates, internal emails and chat transcripts that DER SPIEGEL has obtained show the mood within the company is less euphoric. In them, experts warn of the drastic effects of the acute chip shortage. They express doubts about whether they will be able to meet Musk’s ambitious production targets. They show that a measure has been implemented that contradicts Tesla’s image as a crisis-resistant player in the high-tech realm: It has omitted one of the two central electronic control units for steering the vehicle – the one intended for fully autonomous driving. That, at least, is what can be deduced from a chat discussion. Insiders also confirm that the unconventional measure has indeed been implemented. The U.S. business news channel CNBC first reported  on the development earlier this month.




Was top management involved in the decision? Tesla boss Elon Musk has set the tone for the company's culture in the past by making hasty moves, including the omission of components. The Tesla boss once alleviated production problems at his U.S. plant by unceremoniously erecting a tent next to the factory for an extra assembly line. The move left its mark. Musk’s employees supposedly try to align their actions with what they think the CEO would want, even when the boss isn’t personally involved because he doesn’t have time. The main thing is that everything has to work. And it has to work quickly.





The chip trick makes it easier for Tesla to continue to meet the exploding demand for electric cars. Tens of thousands of Model 3 and Model Y vehicles are said to be affected. Many of the vehicles are shipped to Germany in addition to China. This is suggested in an internal document obtained by DER SPIEGEL. Tesla didn’t comment on this when asked, and the company left a detailed list of questions unanswered.From the perspective of the engineers involved, the cost-cutting measure does not pose any safety risks. Ultimately, the omitted component isn’t even needed for autonomous driving in its current state. But it will be necessary to retrofit the vehicles once the technology is more advanced.




The only problem is that, according to chat transcripts, customers haven’t even been made aware of the omission. Nor have they been told they might have to take their vehicle back to the shop for an unexpected visit. They are forced to rely on Tesla’s promise of an optimally equipped product.












Awards ceremony for a Tesla chip in China: The company has fared better during the crisis than its competitors.

Foto: Ni Yanqiang / picture alliance / dpa



Still, Tesla’s audacious move raises doubts about the company’s carefully cultivated pioneering image. Are the Californians really the technology leaders in autonomous driving they like to present themselves to be? How much is marketing and how much of it is real? And how long can Musk keep going with his strategy of running the world's most valuable car company with the casual manner and appetite for risk of a startup founder?




Many people who buy a Tesla do so because they want to get as close as possible to the dream of autonomous driving. Currently, the carmaker only offers its customers driver assistance systems that can, for example, maintain the correct lane or distance on the highway. A human driver needs to constantly monitor the system. Experts confirm that for this capability, the car only actually requires a simple version of one of the control units.But more than any other carmaker, the electric pioneer embodies the dream of making the future of driving accessible to people now. For that to be true, you need the second control unit, which the company is simply omitting right now.














The article you are reading originally appeared in German in issue 8/2022 (February 18th, 2022) of DER SPIEGEL.


SPIEGEL International






As early as October 2016, Musk bragged that his models were equipped for autonomous driving. To be chauffeured across the U.S. in a driverless car, he said, a Tesla owner doesn’t even need to visit a garage. He or she, he claimed, just needs a few digital updates that Tesla can apply to its fleet "over-the-air," a process not so different from software updates for smartphones.The American company claims on its website to this day that standard Tesla models come equipped with hardware that makes "Full Self-Driving" possible and that the next technological level would require no more than a software update. That claim is central to Tesla’s sales pitch, but the California company is seemingly no longer able to keep that promise, or at least part of it. According to the documents, Tesla owners with the relevant vehicles who want to upgrade their driving assist in the future so they can watch a movie while driving on the highway ("Level 3") will first have to take their car to a repair shop. Customers, however, apparently won’t be notified until the next version of Full Self-Driving – which will allow drivers to let go of their steering wheels – is available.




German Authority Requests Answers from TeslaAccording to representatives of the German automotive industry, this approach isn’t illegal. Behind closed doors at Volkswagen, which views itself as Tesla’s No. 1 competitor, the chip trick is even described as "creative." The Dutch vehicle authority RDW, which is responsible for approval of Tesla vehicles in Europe, also holds the view that the American manufacturer hasn’t violated any regulations. The agency says the change doesn’t affect the safety of the vehicles in question.Germany’s KBA motor vehicle authority is more cautious in its assessment. The authority, based in the northern city of Flensburg, says it has asked the U.S. manufacturer for comment and is awaiting a response. As such, it can’t provide a "final assessment" yet.




At Tesla, the decision to eliminate the component began with an ominous-sounding email sent by a member of the procurement team to his colleagues in November. The email states that, because of the global chip shortage, the carmaker doesn’t have enough steering control units to meet Musk’s ambitious production targets. The mail notes that the Gigafactory in Shanghai, Tesla’s largest plant, has been especially hard hit. The plant supplies not only the important Chinese market, but also Europe – at least until Tesla is allowed to start production at its new plant in Grünheide, Germany, outside of Berlin. He wrote that there is a shortage of electronic control units that enable power steering and "Autopilot," Tesla’s driver assistance system.




This isn’t good news. Tesla has set ambitious goals and is already dreaming of robot taxis. Only recently, Musk stressed that he would be "shocked" if full self-driving doesn’t happen by the end of this year. But the employee from the procurement team doesn’t seem to be impressed by that statement. He has completely different worries. According to his email, numerous Model 3 and Model Y vehicles will be delivered without a second control unit in the steering rack.The internal chats show how the world’s most valuable automaker is rebuilding systems that are critical to safety within weeks to meet its sales targets. The documents state that around 13,000 cars without the second control unit had been delivered to Germany alone by mid-February.




In response to the procurement team’s email, Tesla employees in Silicon Valley and the Netherlands spent weeks discussing the implications of the missing second unit. They felt there was only a low risk of the power steering suddenly failing and the second control system needing to kick in. Tesla had already delivered cars with only one control unit in the steering system in the past. But the situation is different with autonomous driving.According to the chats, to operate a self-driving car safely, a second control unit in the steering system is essential starting at around "Level 3" of the five-level scale of autonomous driving. This mode allows the driver, in certain situations, to take his or her hands off the steering wheel. If the central control unit fails or gets overloaded at a critical moment, an emergency system must immediately be able to kick in. Otherwise, valuable seconds will be lost that can make the difference between life and death. It’s a real security risk.




Traditional Manufacturers Would Shy Away from Tesla MovesIn a chat group in mid-November, Tesla employees openly discussed the regions of the world where the second control unit was most likely to be dispensable. China, where interest in Tesla’s automated driving is limited, was at the top of the list. The share of Chinese customers who load Full Self-Driving onto their cars is at times less than 1 percent. Compared to North America and Taiwan, for example, where significantly more Tesla drivers are interested in these driving systems, far fewer workshop visits for Level 3 retrofits would later be necessary in China.




So, problem solved, right? Only halfway. Eliminating the unit in China, the world’s largest car sales market, apparently wouldn’t have been enough to eliminate the shortfall. They also chose to supply Europe with cars with fewer chips, the chat transcripts state.According to an internal list, between the end of December and mid-February, Tesla delivered more than 65,000 cars to Europe without the second chip, including 13,500 to Germany. According to the chat logs, customers were not to be informed about the hardware gap, even if they opt for the most recent version of the assistance software. Full Self-Driving is already sold in German in a slimmed-down version for 7,500 euros under the name "Full Potential for Autonomous Driving."




It’s just a souped-up assistance system that enables things like, for example, automated lane changes. But the name and the marketing suggest that the car will take on more self-driving features in the near future. The necessary hardware will have to be installed in these cars before they can enjoy all functions.Traditional manufacturers likely wouldn’t dare to pull a stunt like that. Not least because they are currently pursuing a different strategy. With the exception of Mercedes, most of Tesla’s German competitors, led by Volkswagen, don’t yet include hardware that would enable autonomous driving at Level 3. "We won’t offer Level 3 until it’s absolutely safe," BMW says.




Whereas the Germans spend years testing their systems for market maturity, the Californians, in an approach typical of Silicon Valley, pursue a strategy of trial and error. Products are sold even if they still have room for improvement. That's why Musk has been accused of treating his customers like guinea pigs, by, for example, testing out beta versions of Tesla’s assistance systems with volunteers on public roads.Another incident at the Shanghai plant shows just how casual Tesla has been in its approach to handling the chip crisis. According to information obtained by DER SPIEGEL, the U.S. carmaker didn’t just run out of control units last fall – it also lacked taillights. Tesla buys its taillights from Hella, a German supplier based in the western German city Lippstadt that also operates plants in China. With strong growth in demand for the 3 and Y models, Tesla increased its orders from Hella. Instead of the 5,000 vehicles, the German company was to provide components for 15,000 a week through the autumn. But it ran into a problem: The chips used in the taillights had also become scarce, and Hella was unable to supply enough goods. When contacted, Hella declined to comment on the matter.By the end of October, more than 8,500 Teslas destined for Europe without taillights had apparently been assembled in Shanghai. In a chat, a Tesla employee warns that the November delivery schedule with Hella is not confirmed and that the number of cars missing taillights is likely to continue to rise. To avoid having to cut production, Musk’s engineers developed "Project Pingpong." Car parts were lobbed back and forth as in a game of table tennis.Rather than waiting for supplies from Hella, the internal documents show that Tesla shipped more than 6,000 Model 3s to the Belgian port of Zeebrugge. Before shipping the vehicles around the world, the assembly line workers in Shanghai placed plastic dummies in the holes to prevent water from getting into the body. They attached the loose cables to the paint and pulled a white protective film over them. They placed a warning sticker on the windshield to drive the half-finished cars onto the premises very slowly and with a large safety distance, according to internal documents.The vehicles were to be straightforwardly parked that way until enough lights were available again. Another supplier, Flex-N-Gate was to send the latter from the U.S. to Belgium, where Tesla’s service technicians would then install them during an impromptu on-site visit once the parts arrived. The whole thing is quite unusual for an industry trimmed to precision and quality, and that usually meticulously prescribes every step in the production process to its employees.But at Tesla, speed and flexibility appear to trump all else. If need be, Musk relocates individual steps in the production process to other countries. It has almost become a standard practice for the American carmaker. "Tesla treats its service technicians as an extension of its factories," says one person who has known the company for years. But another argues that this has also played a role in the California-based company’s success.In fact, Tesla has so far managed to fare much better than its competitors during the chip crisis. The California company saw sales growth of almost 90 percent in 2021, compared to a decline of 2 percent at Daimler and 3 percent at the VW Group in Germany compared to their already weak previous year.



VW CEO Herbert Diess has repeatedly praised the Californians for their expertise in chips. Thanks to new software, Tesla was able to use other, less scarce chips without much further ado. In a market analysis, the U.S. bank Morgan Stanley also attests to the electric car manufacturer’s forward-looking behavior – including, for example, its in-house development of chips. Yet, even at Tesla, the supplies sometimes fail to materialize.German carmakers also took some unusual steps during the crisis. Porsche, for example, admitted in the summer of 2021 that it had installed dummy chips as placeholders in thousands of its sports cars, which were not delivered to customers. Meanwhile, Audi announced it would cease production of its less profitable A1 compact car, and Mercedes stopped making its B class. These companies preferred to equip their expensive top models with the scarce chips, thus ensuring record-breaking profits for most, despite the slump in sales.That, ultimately, could help them catch up to Tesla faster. A competence ranking by the Center of Automatic Management shows that, technologically, manufacturers like VW and Hyundai are already on par with Tesla in terms of autonomous driving. General Motors is even said to be ahead of Tesla.



In contrast to Tesla, the traditional carmakers are relying on strong technology partners. VW, for example, is working with Israeli software specialist Mobileye. In one promotional video, Herbert Diess rides an ID.4 electric model together with Mobileye CEO Amnon Shashua. The two talk about how beautifully the car keeps to the lane and how it will soon be able to recognize traffic lights on its own. This isn’t exactly a revolution, given that Tesla’s system has been able to recognize traffic lights for a while now. But Tesla’s Autopilot system has also been known to mistake the moon for a yellow traffic light.That’s not supposed to happen with the system used by Volkswagen. The driver assistance system used in the new electric models from VW, Škoda and Seat rely on high-resolution maps from Mobileye. The company, a subsidiary of semiconductor giant Intel, has been riding along quietly with VW, BMW and Nissan for years, letting the cars’ cameras map hundreds of thousands of kilometers of road around the world right down to the millimeter. Sam Abuelsamid, an automotive analyst at Guidehouse Insights, believes Volkswagen’s Travel Assist could soon outpace Tesla’s Autopilot. "The system knowns how sharp the next turn is or how steep it is downhill after the next hill, and can brake early," he says.Musk fell out with Mobileye CEO Shashua long ago. Musk’s appetite for risk became too alarming for the Israelis. A partnership between the two companies ended in 2016 following a fatal accident involving a Tesla driver. Tesla now only uses maps that were created based on data collected by the company itself. Consequently, Autopilot is constantly having to understand its surroundings anew and at times drives as jerkily as a person first learning to drive.Although Tesla still seems to be a long way off from fully autonomous driving, Mobileye wants to have robot taxis roving through Munich as early as this year – with all the chips that the task requires.


