Mergers and Acquisitions, and What They Mean for Supplier Risk – The case of Tesla’s acquisition of Grohmann
by Ali Jawin
When Tesla’s acquisition of Grohmann Engineering was announced back in November 2016, the automotive industry took note, but with little fanfare. By acquiring Grohmann, a German firm that specializes in automated manufacturing, Tesla gains the manufacturing expertise it needs as it races to expand vehicle production from less than 100,000 units built last year to a 500,000-unit production pace by 2018, and furthers Tesla CEO Elon Musk’s vision of advanced vehicle production of a “machine that builds the machine.” The acquisition made sense for Grohmann as well; Tesla and Grohmann had successfully been working together for more than a year, and the acquisition was the result of a mutual desire to work together even more closely. Tesla acquired the expertise they needed, and by planning to create an additional 1,000 engineering and technician jobs in Germany, Grohmann could continue to work with external customers, including those in the automotive industry.
It appears, however, that the Grohmann (now called the Tesla Advanced Automation Germany) acquisition has not gone entirely according to plan. In early April, local media outlets reported that Tesla is in the process of ending all relationships between Grohmann and its outside clients, with Tesla confirming the cancellation of existing orders. The reason given for the turnabout is to focus production on the Model 3, but the reason is somewhat beside the point for clients (some of whom are Tesla competitors) that have had existing orders cancelled.
What M&A deals mean for your supply chains
The real story of the Grohmann acquisition has little to do with Tesla and Grohmann themselves, and more to do with the unintended and unforeseen consequences of any supplier merger and acquisition. M&A deals are vastly complicated and opaque, making it impossible to know whether a supplier’s acquisition will allow the supplier to fulfill contracts with existing customers. OEMs themselves are uniquely vulnerable to losing Tier 1 suppliers through competitors acquiring them, jeopardizing their steady stream of supply and greatly increasing the chances of a supply disruption.
While a company can’t prevent a key supplier from being acquired by a competitor, it can take steps to mitigate or minimize the consequences. By constantly monitoring its entire supply network and listening for signals that indicate the early stages of a merger or acquisition (such as changes in ownership structure or key employee stability), an organization has time to determine its best course of action, e.g. finding alternative suppliers, stocking up on the threatened supply, renegotiating with the supplier, etc. There is no one right way to mitigate supply disruption from a supplier’s acquisition, but there is no way to mitigate it if you aren’t aware that it is coming.
Tesla’s acquisition of Grohmann – Key takeaway
The key takeaway from Grohmann’s acquisition: Constantly monitor and listen for the signals that indicate a potential merger or acquisition to get ahead of supply chain disruptions, before they occur.