Connect with us

Hi, what are you looking for?

CleanTechnica

Autonomous Vehicles

Tesla — Vertical Integration Is Value Integration

There is nothing vertical in vertical integration, and nothing horizontal in horizontal integration, and the integration is not really what vertical integration is about. In short, it’s a bad name for a complex matter. The last time I intended to write an article about it, something else flew out of the 6 fingers I usually write with and I don’t know really why but people liked it, so therefore I declare it was a good story despite my own opinion, which does not really count. If I learned one thing about writing, it is, trust your readers, follow your fingers, and don’t look back — and most important of all, don’t listen to your own judgement.

There is nothing vertical in vertical integration, and nothing horizontal in horizontal integration, and the integration is not really what vertical integration is about. In short, it’s a bad name for a complex matter. The last time I intended to write an article about it, something else flew out of the 6 fingers I usually write with and I don’t know really why but people liked it, so therefore I declare it was a good story despite my own opinion, which does not really count. If I learned one thing about writing, it is, trust your readers, follow your fingers, and don’t look back — and most important of all, don’t listen to your own judgement.

When something from my modest thoughts is published, and that is each time a true honor for me, I never read a single word of it again simply because I want to change it immediately but can’t, and that inability to change it drives me mad. It’s the same when I finish something that is in my opinion not really finished but that I know “improving” it from that stage with my skills would mean making it worse — so I stop working on it because I know I cannot make it better, but still it’s not as it should be. It’s a classic compromise — a decision. Anyhow, this is just my author pain, but please don’t tell the publisher or editor, because if they knew, they could change the entire storyline and I wouldn’t even notice.

Not to notice is exactly the opposite of experiencing a product from a company that is vertically integrated versus a company that is not. This is a moment where I normally would include a definition for that term, but I will not give you one since the best definition is not the explanation of the term but the experience of the product.

What is different with that experience is that you as a consumer won’t notice something to complain about. In fact, it’s kind of seamless. You notice something is different, but it is hard to explain. You won’t notice because the product you use is like a product you use should be. Nothing is missing or does not fit. Imagine you walk in an apparel or shoe store, not because you are searching for something but because you are just in the mood to walk in. You look around, pick something, and when you try it on, you realize how perfectly it fits your needs, you as a person as well as you as a body. That’s what vertical integration is all about. Everything is simply perfect — it fits you flawlessly and it works smoothly.

Do you care how it has been produced? Of course you don’t! It does not matter to you, but it is like it is because something happened when people thought about how to make it and what the customer should feel like, something you don’t know, and even if you did, it would not mean anything to you. That is not marketing but true care, and it is the result of vertical integration.

Every essential part and every service of the product as well as the parts and production steps that are required to build it belong to one company and are created like one puzzle piece that fits to others perfectly until you see the full picture. You do almost everything yourself and nothing is done from an external supplier, but that’s not the core of it. The core of vertical integration is not to do everything yourself, or even to integrate everything in order to profit from the margin you otherwise pay to your suppliers. The core of vertical integration is the pace of innovation. Vertical integration is innovation integration, and with it, it’s value integration.

Most believe you improve your margin by integrating everything under one roof, as you don’t have to pay the price for a product and service any more but just for the costs of it, hence the difference — the margin is yours now. But the reality is that the knowledge an external supplier has already built needs to be built within your organization first. That’s effort, and effort has a price associated with it. You only have two approaches to building that knowledge — either you go through the entire learning curve they did (and we may talk about decades of improving, and that usually consumes time you don’t have) or you buy that knowledge (for instance, you buy a company like Grohmann, an expert in automation, and bring it in house). By doing the latter, you are taking a risk. Perhaps it’s a puzzle piece that looked like it would fit but didn’t fully. That is happening every day in the automotive industry. Most of the attempts to integrate a company fail. Consultants talk about a failure rate of 90% on average.

Do you remember the feeling you had when knowing a puzzle piece for sure had to fit but didn’t? You try it different ways but it still does not fit, even though the color and shape seem to be a perfect fit. Some are tempted to take scissors to cut it right into the required shape, but we all know what that means for the end result of the puzzle, don’t we? Such a cut-to-fit puzzle is like most vehicles today. When you drive them, they feel like they just don’t fit. Parts and systems have been integrated that look good by themselves but don’t result in a greater good working together.

To give you an example, just imagine that globally only 4 suppliers produce seats for all cars on our roads today, and imagine the power these 4 suppliers have over their products in regards to price, design, comfort, and engineering perspective. Your personal butt knows its entire life only these 4 suppliers, which may make him or her feel good in the seat, but note that each driver cabin dimension is different as well as the movements and energies of vehicles. Since those 4 suppliers have to optimize their products in terms of production efficiency, material, costs, and production process, you can imagine that they will not build for you one very specific, tailored seat — a one of its kind — if they don’t know if you ever will sell more than 100,000 units.

While automakers may believe with conviction that they tell suppliers what to supply, that would be like the seat suppliers telling the automakers what cars to build around their seats. If suppliers did what the automakers asked them to do, they would quickly go out of business.

These are all good reasons for vertical integration, but there is a very good and valid reason why the auto industry in recent decades decided for the opposite of vertical integration, which is horizontal integration. The cost-cutting Guru Ignacio Lopez was one of many who defined the core business of automakers as actually not making autos. Instead, it was advised they should question carefully what their core competency was and what could be outsourced to suppliers to optimize costs and profits. The thought process was that auto companies, as hardware-producing companies, would work much better if only essential auto parts stayed in their hands. As a result, the management offered to support teams of workers financially and with orders if they started their own little companies outside of the OEMs and instead supplied them with parts. This simple but brilliant idea enabled cost cutting much better than from the inside. You can tell an outside company they either make it better and cheaper or the contract is over, but it’s hard with an internal team if you have no other suppliers to choose from. If you outsource parts and services, you have much better leverage on costs by having many suppliers for the same part competing against each other and bringing the costs of down much better than you could have ever done yourself.

Those poor little suppliers with their strong dependency on one customer have been starving at the end of the food chain. They had to do what Big Auto told them. The temptation to build their own companies and be free was at the end of the day a fool’s dream for many of them. That model has been very successful, however, and grew in use. The automakers did not really make the autos any more, but instead concentrated on design, marketing, and orchestrating the right parts together for a vehicle their marketing departments determined people would buy with their hard-earned money.

They transitioned over time from auto manufacturing into being design companies that are famous in supply chain management but for which all knowledge about the core of building a combustion engine vehicle went outside. It’s hard to believe, but they even gave their knowledge to their own suppliers for free, and after a decade lost the capability even to challenge them on specifications and technical improvements. By doing that, a cost-cutting strategy developed all of a sudden into a Trojan horse, but until today, they consider it a genius strategy because it helped them to satisfy short-term cost-cutting desires their shareholders wanted. Capital markets and the management grew their salaries and bonuses dramatically, and for a few decades everybody was happy. It’s been their conviction that they found a way to eat their cake and keep it, too.

Just to clarify, no one questions that automakers over time got less vertically integrated and more horizontally integrated. This is known. An expression of this is, for example, the Audi diesel motors that were supplied to Porsche and others, which included something that cost Porsche and others a lot of money as well as their reputations — emissions cheating devices. All of this happened because Porsche didn’t know how to build an internal combustion engine and the costs to build that knowledge in house would have been declared too high and would have taken too long. The logical solution was to buy them from the open market, and Audi was the choice as it’s a part of the Volkswagen Group and the bright future the German auto industry believed diesel engines would have as unique competitive differentiators. Perhaps they knew or perhaps they didn’t know what Audi supplied them with, but Audi, including CEO Stadler who is now in prison, certainly knew better.

The auto industry long ago abandoned vertical integration and was very successful at not turning back to it. Over the years, the most successful large automakers made sure they outsourced as many parts and services of their production to external companies as possible, up to the point where you can fairly ask if that vehicle should really be named after the shell that literally only does the design, marketing, and supply chain management, and sometimes not even the assembly anymore. It’s a philosophical question, because the success they had by doing what they did shows us they did something right. Success matters, and they have been very successful, so what is wrong with it?

Horizontal integration works in a market where a product has achieved a certain level of lifecycle maturity and almost all of what could have been invented has been already more or less invented. You don’t have huge advancements anymore, and we know that for at least a few years so called “innovation in fuel savings and emission reduction” has been a fraud. It’s been a century-old market where you put new innovations and patents in your secret safe and once you feel that consumer demand is going down and you can’t encourage it enough with a new design or marketing investment, then you take a patent out of the safe and sell it as the latest and greatest new feature.

This was standard in the 1950s and after. If all automakers are in the same situation, there is not a lot that can happen, and in a capital-intensive industry where you have to achieve a very high utilization of your capital investment in terms of machines, tools, and factories to make a small margin, but once you get to the threshold you make a large profit with scale, everything works. It works as long as you can bring costs further down and the consumers and competition play according to the rules. It’s been easy over the decades to play consumers. Competition was more or less the same group of companies with the same interests, so there have been compromises but absolutely no cut-throat competition unless someone didn’t play according to the rules — like, for instance, Preston Tucker. In a showcase, the combined auto and financial industry demonstrated their power and killed the emerging, innovative company, and then lived from their innovations for another few decades. There is a good reason why not a single auto company that started new survived in the last 50 years. A ton of money was waiting to be made and someone who did not play as the rules were defined by Big Auto was simply driven into chapter 11.

Now, what changed since then and what has all of this to do with vertical integration? As I explained, the industry has nicely arranged itself for decades and easily orchestrated power in a few hands as an oligopoly. It has managed to control for almost a century everything related to the industry, including politicians, unions, and of course consumers. But one day, a very tiny company that was on the brink of bankruptcy (more than once) did not want to die. Tesla survived, mainly because of an iconic founder who, like Henry Ford or Steve Jobs, planted a new seed in the hearts of people. That seed was the imagination of a new world, be it colonizing Mars, building a better world with a transition to renewable transportation, or landing rockets on ships in the sea. This founder, Elon Musk of course, achieved the impossible with this seed, some cash infusions, and a lot of sweat.

What Elon Musk really changed is not at all the concept of vertical integration, but that he has, for more than a decade, made people believe they have influence and can make a difference. That belief brought the brightest heads on earth together in one company, perhaps with a low expectation of success but willing to work their asses off and burn themselves like candles on both sides in service of the mission. Many of them may have burnt out and left, but they have done much of the work with joy, because it’s a value in itself to help humanity for the greater good and to stop feeding your own greed. It’s what they will tell their grandchildren about, having been a part of a revolution, and is what many of them are really proud of ever since. It gives their lives meaning, and that is priceless and can’t be ever compensated for. Those bright minds did not build a new vehicle, but a new imagination of what is possible. With it, they brought the impossible to the surface and gave it life. The largest accomplishment of Elon Musk is to have inspired the people who wanted to change the world and to have given them the opportunity to do it.

If you ask yourself what has all of that pathos to do with vertical integration, then my answer is, have you ever considered the people you need in your organization to achieve what you could not before, and if yes, what helped you to get them. If not, what hindered you from getting those people hired and integrated? Staff resources are key, and the best graduates from universities rate Tesla as one of the top companies they would like to work for, even if the salary is lower than at other companies. Some may call this altruism, and maybe it is, but it does not matter — all that matters is if you get the smartest people in house who want to make a difference.

Alexander von Humboldt, a famous German scientist from the 18th century, was one of those who wanted to make a difference and he connected the dots from different science fields into one holistic understanding of the world. Elon Musk is doing the same in the world of energy and transportation. Both characters invested their private fortunes for their beliefs and restlessly followed their missions against all odds, until they succeeded. Both have seen money just as a vehicle, and accumulating it excessively as worthless.

Vertical integration happened in science almost three centuries ago, and it’s happening now in engineering, where we thought we understood but we did not. There appears a unique opportunity for bringing it all together, merging the silos, and that time has come now for sustainable transportation.

When SpaceX provided knowledge for building electric cars, it happened because people worked together who never even thought about doing it before, because one was building rockets, the other cars. Just imagine GM, VW, or Toyota would have called NASA if it wanted to provide resources for their next ICE car development. It sounds almost ridiculous but it’s a realistic example when comparing within Elon Musk’s companies.

In the aftermath the vertical integration challenge within the Automotive industry will be seen as logic and overdue and what the Auto, oil and gas industry has done as foolish but understandable to optimize profits.

No one talks about autonomous driving as a feature of combustion engine vehicles, because it’s a strategic feature that works much better for electric vehicles and therefore is vertically integrated to it. No one talks about over-the-air updates for combustion engine vehicles because they do not have a centralized computer network that manages all of the components, but instead decentralized ones with different computer chips from different suppliers unable to communicated with each other (i.e., not vertically integrated). No one really understands vertical integration if they are today outsourcing the core parts of an electric vehicle — the electric battery, drivetrain, and charging network — to suppliers or the government. Putting costs as an answer in a discussion just shows us they do not understand what they are working for and what the challenge really is.

Because they do all of that, we understand that they don’t understand that the success of Tesla is not just about superior battery technology, but about the ability to integrate all fields of engineering in a way no one has ever done before. There is not a single magic formula in the battery cell chemistry that is doing it all, but rather constant small optimizations within the parts of the vertically integrated systems in order to achieve a new balance with better and optimized results. Every teardown to find the secret sauce of the Model 3 failed, and will fail unless you investigate the most important part of it, which is how all the parts work together as one unit and why.

It’s hard to look at a wheel and not to see a wheel but see a system that has different characteristics and safety features that no other wheel ever had before. That’s why most of the teardowns did disappoint the automakers and led to wrong conclusions. Looking at all the parts in that large body did not help them to understand the core of it, while one of the largest parts of all, the software, was completely missing — at least, it was invisible like a ghost, and each visible part on its own did not tell you anything.

Companies that for 100 years produced hardware will have a hard time understanding the invisible software and its contribution to the hardware, and they disregard software since it is seen as inferior. They will never accept that it may have a larger impact on cars than any piece that you can tool, touch, and drill. Ask yourself where today’s automaker stand with software integration just by comparing todays navigation system screens, their user interface, and their usability. Steve Jobs would have fired them all right away because they seem not to understand that the interface to the customer is the user interface of the navigation system. It is what the car seat is for your butt. How can anybody possibly miss that?

Only a handful of people on earth would have done what Elon Musk did, and most would have lost and never got any attention because our society loves success and hates failure. Our society is also quick to forget, even forgetting the most influential human beings who lived on earth, like Nikola Tesla, who was a bit insane but for the bigger portion of his life was an incredibly gifted inventor who wanted to help humans. Madness is something society can’t understand and wants to categorize somehow, but it’s in many cases a valid result of a good thought process.

Nikola Tesla lost all his money, gave his patents away for free, and died poor, alone, and forgotten in a shabby hotel room in New York. When he predicted to be able to transfer a voice around the globe without a physical wire, guess what people said about him? They called him mentally ill and insane. I am waiting for the day our society stops making quick determination what someone is or is not, and I may wait for it for the rest of my days. The same is true for vertical integration, because people call it a foolish idea (in particular, when Tesla started to build the gigafactory in Nevada to build its own batteries and battery packs). I don’t hear them laughing any more though.

I do predict that the misunderstanding of the auto industry regarding what vertical integration is really about and what is happening today will cause a major and negative transformation of their industry, and force many automakers out of business. Tesla is, despite all accomplishments, not that special. Once other companies understand the true value of this new approach, some will try to follow, but very few will succeed as Tesla does today. In fact, Tesla wants them to succeed, which is why the company encourages others to use its Supercharger system and patents (its Supercharger network is another unique example of vertical integration, of course).

Imagine that another automaker built a car comparable, say, to the Model S or Model 3 but had no comparable superfast charging network. Who do you believe would attract more consumers? While I write this sentence, I am sitting in the middle of the Pyrenean Mountains between France and Spain, a very much abandoned and random area, and I had not a single any issue charging my car despite traveling long distances of 300 to 400 km (185–250 miles) and not charging at any other plug or house. To repeat myself, the Supercharger network is another example of vertical integration, and the simple fact that not a single automaker accepted Tesla’s offer to participate and build cars that can charge on the network proves how far away they are from reality and from an understanding why integrating that service is essential.

Most car companies have over the decades lost their ability to vertically integrate, and if you follow their strategic decisions, you see that they do quite the opposite. No one is investing in battery production because they consider it a commodity that should be outsourced. If that is true, why is Tesla so successful with integrated it and even starting to consider mining some of the materials, like lithium itself? The same is true for the chip Tesla is producing to enable autonomous driving, which is a masterpiece and unique by itself. Something is severely wrong in the state of Denmark if the company that is outselling EVs and gasmobiles globally with an unprecedented margin is not followed by the large companies in that industry that they compete against.

Looking at vertical integration from an engineering and physicist point of view, it’s a completely new approach. It’s design that has not only been done by car engineers, but thanks to the diverse and profound experience of Elon Musk and his engineering teams in rocket engineering and production technology inventions, they came up with an unconventional approach — because it made sense. To be able to accomplish that, you need people who think out of the box and integrate what nobody integrated before. This is the vertical integration of knowledge from other experts who don’t consider themselves people who are good at designing a vehicle. You take a risk by doing that, but Tesla proved it can be successful.

To give you one example: The wheels of the Model 3 have 6 levels of freedom of movement versus the usual 4 all other vehicles have on our roads today, and with those 2 incremental levels of freedom, you can transform energy into 2 new directions you couldn’t before. It’s a small detail, but its implications are quite massive. If you are able to employ with broader energy transfer/use, you are more efficient, you save more, and you can reduce costs. The wheels have been developed together with suppliers and have some astounding specifications you don’t see anywhere else in the industry. They are optimized for the needs of a heavy electric vehicle with instant torque and different vector momentum from any gasmobile — or even from any other electric vehicle on the market.

Tesla does not talk about all these masterpieces at all for a good reason, and the Silicon Valley company did not protect its IP for the innovative components. As an outsider of the industry, you may say to yourself, “Well, tear it down and rebuild it,” but that’s not how inventions in a vertically integrated company work. I could talk in the same way about the amazing electric motors Tesla developed, the heat & cold bottle, the battery management system, and other elements. Experts don’t even know how Tesla manufactured some of them, nor what function they have.

Engineering is a science that traditionally isolates a technical challenge and disregards all other, eliminates all surrounding systems and starts optimizing in a silo-like structure. That has the advantage that the screw that you optimize is the best in the world for that purpose, but it does not take into account other influences from elements that change and innovate as well. We are with electric vehicles in a dynamic development process, and in that environment where you just don’t optimize one part or system but optimize many in parallel with a new technology where limited experience exists. In that world, a silo approach is devastating for your end product.

Don’t even try to develop or improve an electric vehicle like you successfully designed other automobiles in the past 100 years. We have seen the results with numerous less competitive, lower-volume EVs. Without any doubt, you will be able to produce a decent car that can drive, charge and make an owner happy, but that’s just true until the first time the owner sits in a Tesla and drives it, as he or she will instantly feel the difference without really being able to describe why and how it is so much better.

More can be demonstrated via the matter of safety. The best safety features are those that you will never use. The large field of incorporated inventions in Tesla vehicles — in particular, the Model 3 — would require a full new article to explain even superficially, but it should be pointed out that the result of all of those is that Tesla has an astoundingly low injury rate, regardless of how heavy the accident is, and this is not a coincidence but carefully and smoothly built into the systems, built into the vehicles, with blood, sweat, and tears — of course, in good part through thorough vertical integration. Don’t believe for one second that what Tesla has done with regard to Model 3 safety just happened via some isolated brilliant ideas or included features. If you optimize one element of a system, you sometimes make another worse. Therefore, it’s all about balance and fine tuning to get to the perfect point of performance considering the entire unit, the entire car.

What the Model 3 means for the industry and for us consumers is not completely understood, not yet in all of its facets. Most reviews and comparisons today just focus on the design, range, instant torque, and acceleration. Certainly, all of those are impressive specifications of the car, but too narrow a focus misses the underlying geniality of how it has been designed for safety as well, for a seamless user experience, for longevity, for autonomy, for entertainment, for more.

Other automakers have built safety just as a “good enough” feature to be compliant with safety regulations and tests, while Tesla started out with an aim to build the safest cars ever, regardless of the test criteria and measures, and it soundly achieved its goal and presented us with the safest cars on earth. Tesla measures its vehicles against goals that didn’t previously exist, and as a result, the safety test authorities have had to adjust how they evaluate and assess safety.

Another aspect of this car’s superiority is in energy transformation. Energy not captured and transformed well is wasted in the short or long run term, as it expresses itself for instance in heat or not-wished-for movements of parts. Well transformed energy means you use the energy as purposefully and thoroughly as possible. There is no car on the road today — be it with a combustion engine or any other drivetrain — that uses energy wheel-to-wheel more efficiently than a Model 3.

Tesla vehicles master the art of transforming energy in a large variety of different conditions. Small and usually overlooked design masterpieces make the car a vehicle in which energy can flow like it does through a professional ballet dancer. It does so with the lowest losses and much more seamlessly than any other vehicle ever built. That is, in large part, because Tesla has vertically integrated so much of the design and production of the car, working obsessively to make each part of the overall system work ideally with other parts.

The irony of all the vertical integration examples given above, which give Tesla such an advantage in the industry, is that the true reason why Tesla is more vertically integrated than anybody is not because it wanted to make more profit, be more innovative, or simply be different, but because Tesla has been forced to do this. Many of the required parts, systems, and services Tesla needed, especially based on the company’s first principles approach to design and engineering, didn’t exist. So, the options would have been to train a supplier and fight against many odds to help them build what Tesla was looking for, or to do it internally. Both approaches have disadvantages and challenges, but given that a supplier would have needed to start from scratch and Tesla could not commit huge units of production, needed the parts fast, and needed flexibility from rapid testing and improvement, you can imagine why going the supplier route just didn’t make sense in many cases.

Also, as Tesla would have needed to define in detail what it needed, it would have essentially built intellectual property and then left it outside of the organization. Leaving it outside of the organization, however, would have led to dependencies that could be exploited through financially more powerful gasoline/diesel automakers. In the end, making many parts in house was likely less expensive, much faster, and safer. You build the knowledge in house and as a side effect you add margin to your product and, most importantly, you add value to your products and services.

Of course, it is a huge risk, costly, and consumes energy and capital, and you don’t know if it will work out well in the end. Some of the inventions take longer than expected and go way out of budget. However, the speed of innovation is what matters in the end, and if you do well enough with the vertical integration, you innovate considerably faster than the competition. If you have a deeply vertically integrated company, you can better synchronize and orchestrate the different elements that work together, because you limit interfaces and friction and build a unique DNA no one has.

The decision to vertically integrate was, therefore, not necessarily made out of a long-planned, conscious decision process, but out of time urgency and requirements that existing suppliers couldn’t satisfy within the time and budget necessary. The decision to integrate more and more has come from the conclusion that there is simply no other option. Forget the thought that it was a masterful chess move — it was all that Tesla could really do at that time. Tesla was forced to do it if the company didn’t want to give up, and giving up is not a part of Elon Musk’s DNA.

Tesla is now going even a step further for the same strategic reasons, and is in serious discussions and negotiations when it comes to starting a mining operation for lithium. It’s almost as if Tesla decided to produce its own steel out of iron ore, which some analysts and armchair critics see as crazy. However, consider: if steel was a core component that Tesla could not get on the market for its outlined specifications, be assured Elon Musk would start making his own steel. Not because he wanted to, but because he was forced to. In that same sense, it was a no-brainer for Tesla to build its own computer chip for autonomous driving, take the lead on design and development of its batteries, move seat production in house, innovate and produce its own electric motors, and potentially mine some of its own core resources.

If you make compromises, you get a compromise as a product. Elon Musk has never been good with compromises, a similar character quirk we’ve seen in Steve Jobs, Jeff Bezos, Howard Hughes, and Nikola Tesla. Compromises are the death of true innovation, and with it disruption. If any of those listed above would have relied on suppliers that delivered compromised parts, systems, services, or software, they would have disappeared into the deepest footnotes of history, but instead they are for good reasons seen as historic figures with lasting legacies.

The cost you invest into R&D for vertical integration is quickly offset once you succeed, but if you don’t, you just have wasted capital left. Elon Musk, being a visionary CEO, hasn’t had much of an issue attracting money for missions he could not promise would ever succeed, and actually expected to fail. Indeed, in the early days, he said many times the likelihood of survival was lower than the likelihood of success, but the upside was worth the attempt.

Tesla did “lose” money for years, not because it could not build profitable vehicles, but because it followed a mission and had a vision to build what was technically possible but which required tremendous vertical integration and development. For that, Tesla needed to invest more than it earned year upon year. By doing that, though, it built better and better products and a company with integrated value that is unmatched in the auto industry today. That was not so evidently going to be the end result each step of the way, but over time it become more and more visible throughout the product development and production ramp. Asking Tesla to make large profits even today is like asking your kid to leave school and earn a small amount of money immediately instead of continuing to invest in the future to make big money later. Nobody would ask their kids to do that!

Now, since Tesla is at a production run rate of about half a million vehicles per year, while having developed in house so much of what it needed to get here, every passing day in which more cars roll from the assembly lines adds a little bit more margin and value, and with it profits, than the day before. Vertical integration is very risky and costly at the start, but once it’s accomplished, it’s the best of all worlds for a manufacturer.

It’s an unprecedented irony that the conventional auto industry, with its 100 year old superior history and often tested methods to kill emerging automakers, has been instrumental in build its own perfect enemy.

Disruption does not take prisoners, and vertical integration neither, but this didn’t happen simply because Tesla wanted it to. It happened because the auto industry wanted so much to avoid disruption, and has tried to kill its seeds year after year.

Each day that passes by is a day in which Tesla integrates further, and a day all other automakers fall further behind. If vertical integration is value integration, and all other automakers are focused on reducing it while Tesla is focused on growing it, what happens to the value of those other automakers? What happens to the value of Tesla?

 
Check out our brand new E-Bike Guide. If you're curious about electric bikes, this is the best place to start your e-mobility journey!
 
 
Appreciate CleanTechnica’s originality and cleantech news coverage? Consider becoming a CleanTechnica Member, Supporter, Technician, or Ambassador — or a patron on Patreon.
 
Have a tip for CleanTechnica, want to advertise, or want to suggest a guest for our CleanTech Talk podcast? Contact us here.

Advertisement
 
Written By

Alex Voigt has been a supporter of the mission to transform the world to sustainable carbon free energy for 40 years. As an engineer, he is fascinated with the ability of humankind to develop a better future via the use of technology. With 30 years of experience in the stock market, he is invested in Tesla [TSLA], as well as some other tech companies, for the long term.

Comments

You May Also Like

Cars

Tesla appears to have begun making the Model Y Long Range in Texas along with a new Standard Range with 4680 battery cells.

Clean Transport

The Tesla CEO's allure transcends his millions of fans and includes other CEOs, who have been drawn to his innovative compensation package.

Cars

Tesla’s Autopilot team recently visited New Orleans for the Conference on Computer Vision and Pattern Recognition (CVPR). Ashok Elluswamy, Tesla’s Director of Autopilot Software,...

Cars

BYD is an interesting company. It’s like a very distant, very neglected cousin of Tesla. Tesla and BYD have grown their plugin vehicle production...

Copyright © 2021 CleanTechnica. The content produced by this site is for entertainment purposes only. Opinions and comments published on this site may not be sanctioned by and do not necessarily represent the views of CleanTechnica, its owners, sponsors, affiliates, or subsidiaries.