Inside the Tesla supply chain: Hale Foote and Scandic

We first interviewed Hale Foote in 2017, and Dan Sanchez’s profile of Foote’s spring and stamping company, Scandic, has stuck with me ever since. Scandic is a Tesla supplier, and Foote’s description of how the upstart automaker was bringing a Silicon Valley ethos to the manufacturing ecosystem in the Bay Area was fascinating.

I caught up with Foote again last week. He first asked about CompanyWeek, and agreed with my thought that things continue to line up for U.S. manufacturing. “Before COVID hit us, I was seeing more work come in from China in January,” he said. “There’s growing sentiment that we need to reshore some work.”

Here’s my Q&A with Hale Foote, owner of Scandic, a CompanyWeek Best of California manufacturer.

CompanyWeek: How’s life in the Tesla supply chain these days?

Hale Foote: Unchanged, but we’re kind of a unique animal here, we’re locked in to Model S and Model X, the first two big ones. The Model 3 and Model Y, we have not been heavily involved in. Tesla emerged as a more mature company and they were able to get Detroit suppliers to play ball, Chinese suppliers to play ball. But we’re locked in where we are, and we’re in a good spot.

CW: You’re in a unique position — you’ve been with Tesla through uncertain and volatile times, only to see it evolve into an industry phenomenon and Wall Street darling. What changed?

HF: Two things changed, one with Tesla internally, and two, with the world market.

First, Tesla began to get volume, and the traditional Detroit auto parts suppliers who had written them off as a California flake, started to see numbers that made sense, and that was largely due to Model 3, when they started selling hundreds of thousands of cars a year instead of 20,000 or 30,000, or even 50,000. So Tesla finally got it right, and not just with Model S and X, which were expensive, but Model 3 got people’s attention. That was the one.

Then externally, various governments around the world started seeing that EV is the way to go and decided, “Yes, we’re going to incentivize people to do it.” Everyone from GM to Ford started coming out with EVs that gave Tesla a whole lot more credibility.

And frankly, no one can touch them on infrastructure. The supercharger network and their batteries are their secret weapon, not the cars. So it was a combination of their own smarts, engineering and instinct for survival, and externally, governments around the world saying, “We need to go electric.”

CW: During their real volatile period, I recall there also being a lot of discussion around people and the loss of key production executives. Was Tesla focused on workforce all along?

HF: Yeah, I think a lot of that talk was driven by the auto establishment, saying, “Look, they’re just a Silicon Valley startup churning through people,” and there was some of that, but that’s Silicon Valley. They did start getting people coming in from the midwest, auto industry veterans who knew what they were doing. But it’s fascinating, since we’re here in the area, I see people now circling from Google to Apple to Tesla constantly. And what do Google and Apple have in common with Tesla? Smart engineers. There’s a huge cross-pollination of talent here.

CW: You made a comment in our interview three years ago that stuck with me, that “Bay Area companies like Tesla and Apple want to fail faster to succeed sooner.” So they’re doing more than that. They’re creating their own ecosystem of shared talent?

HF: So California has very strong protection for employees — non-competes are very disfavored here. California has always had strong worker protection, to say that “Hey Apple, you can’t shut this engineer down from going elsewhere.” And we’re seeing the upside of that here.

CW: So tell me about your company. Three years is a long time in your business. What’s new at Scandic?

HF: Yeah, so we just passed the 50-year mark last year, now in our second half-century, so we’re happy about that. On the people front, our big news is that our oldest daughter has just come back from Ohio to join the company and she’ll be taking over for me. Third-generation ownership, and we’re very excited about that.

CW: Was that in the works for a long time?

HF: No! She was like me, a liberal arts major, a different career, but saw the writing on the wall that this family business thing has worked pretty well. And it seems most of your readership is in the same position, a lot family businesses.

CW: Definitely one of the great attributes of manufacturing. So how’s the California business scene? The national narrative isn’t always the most positive.

HF: Yeah, the trade associations I belong to tend to be populated by more conservative business owners, and they always give me grief about, you could divest in California, why don’t you leave, taxes and regulations, et cetera, et cetera. You know, there’s a reason why people own companies here. There are thousands of businesses doing well here.

CW: I hear it all the time: “We love doing business here, we’d never leave, but man, it’s hard sometimes.”

HF: Yeah, we love doing business here, we’d never leave, and it’s not that hard!

CW: Do you think economic developers in California are supportive of manufacturing?

HF: Very much so. For example, the city where we’re located has always been a manufacturing city. They very much value companies like us — really job-dense, 50-person, high value-added employers. They’re not crazy about big-box warehouses. They want companies like us, that pay people well, people can buy houses and live that kind of life.

Is there environmental regulation? Of course there is. Is our water and air getting cleaner? Yes it is. So there are definite benefits to it. Yes, sometimes you’re going to be a little more expensive than someone in Nevada, but you know, they’re in Nevada and I’m in California.

CW: Where do you see opportunity going forward for Scandic? Where does Tesla fit?

HF: Tesla’s an important part of our business, but by no means the major part. They’re important, they’re solid, they’re steady, and at this point we’re a legacy supplier. It’s predictable, and it’s a good fit. But we’re not really an automotive supplier — they’re our only automotive customer, as opposed to my friends in Cleveland who have three customers. They work for the Big Three. That’s it. They live and die by how many F-150s sell that quarter.

We’re medical, we’re aerospace, we’re transportation, we’re safety systems.

CW: Will new technology open even more verticals for you? How about 3D printing?

HF: We make money on high-volume stuff, and additive manufacturing, in my experience, is not quite there. Making a product that takes 12 minutes to print is really not our market.

What is changing, and what’s going to change in my lifetime, is when we can print tooling, instead of building tooling over a period of months. When we can print the die, that will be a game changer for us.

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