I took an Uber ride in a Tesla this week while running around Silicon Valley. For me, it was a window on the future of supply chain distilled to its essence. The lessons for strategists, regardless of industry or location, are there to see – and many of them are the reverse of principles that have held sway for decades.
KOM_FORBES_1Made in America
First is the fact that Tesla, contrary to conventional wisdom about low-cost labor manufacturing locations, currently produces its cars in California. This flies in the face of what we see Ford planning, which is a new $1.6 billion factory in Mexico. In fact, Tesla’s plant is less than 18 miles away from company headquarters in Palo Alto, home of not only some of the best technical talent in the world, but also the most expensive real estate anywhere.
Tesla pulls this off with an extraordinary amount of investment in advanced robotics, most of which is designed for flexibility and interaction with several thousand workers on the shop floor. Extremely high sticker prices have historically helped also, but this week’s explosion of pre-orders for close to 300,000 Model 3s for $35,000 apiece hinges on the premise that affordable cars can be made in the U.S., so long as the end-to-end value chain is architected for growth.
Vertically Integrated
Outsourced manufacturing was a natural result of core competence-oriented business strategies in vogue during the 1990s. NAFTA and the rise of Chinese manufacturing played a huge part, but the basic idea was to become asset light by undoing much of the vertical integration left over from Henry Ford’s days in Detroit. Tesla is rapidly going the other way.
Not only is the Fremont facility a full-service auto plant, but its near-term plans include a supplier park built in the immediate vicinity with a focus on large, heavy parts with extensive variations. Taking integrated manufacturing still further, Tesla is also building an absolutely giant battery factory in nearby Nevada. This plant will take in elemental raw materials like copper and aluminium and produce finished battery packs to feed the car plant.
Leaving nothing to chance, Tesla is also continuing to invest in a network of supercharger stations around the country. This should ensure that customers have a viable alternative to the ubiquitous gas stations we take for granted when driving ordinary internal combustion engine vehicles. 
Tesla Digital Supply Chains
Maybe most important, Tesla is pioneering the practice of shipping product digitally rather than physically. My Uber driver wore a Tesla baseball cap (denoting his fanaticism) and had owned the car for two years. He gushed about how the instrument panel, gigantic navigation screen and even engine control algorithms update over the cloud automatically whenever the company “ships” a new product.
Having designed the vehicle from the ground up as a hybrid of mechanical technology and digital technology, Tesla is positioned to perpetually sell new capabilities to existing customers. These include not only information features like gauges, GPS enhancements or entertainment systems but also physical add-ons like speed, braking and who knows what else. 
In some ways, Tesla is really just selling a giant iPhone.
Back to the Stack
Part of my time in the Bay Area included a visit to Oracle ORCL -1.91%, which has an infrastructure strategy that rests on a stack of technology from silicon to screen that enables a cloud-based future for business. The mega-cloud providers like Amazon Web Services or Microsoft MSFT -1.15%

     Azure, not to mention Google GOOGL -0.97%, Facebook FB -0.05% and others, are busily plumbing a digital world that most of us will work in or buy from for decades to come.
    I can’t profess to understand the technical elements of this stack, but I do see the strategic parallels between winning in the cloud and leveraging it for supply chains that are faster, cleaner, cheaper and closer to the customer.
    Tesla’s strategic architecture looks a bit like Apple AAPL -2.17%’s virtually integrated supply chain stack from semiconductors to retail. It also looks a lot like the 1920s Ford Motor Company taking iron ore, glass and rubber in at one end of the factory and rolling out Model Ts from the other.

    Tesla is rewriting the rules of supply chain for the digital age.