mkg3
Well-Known Member
This is an interesting discussion with different answers depending on which perspective one takes.
The point of vertical integration is NOT to make as much as you can in-house. It is selective. A company, as a strategic issue, needs to control the critical elements of the products one is producing.
For EVs, that’s motors and batteries. You‘be seen that most legacy OEMs outsourced the batteries to the battery makers and found out that they are production limited due to the battery supply. Now they are investing in their own battery facilities in JV w/battery makers (and in North America, especially due to federal funding advantages). Tesla knew this from the beginning and invested in their own battery facilities.
The motor is another critical EV element. The legacy OEMs know this (from ICE) so they all developed their own motors, with small niche brand exceptions (e.g., Lotus who uses both Toyota and MB sourced engines). This is one of the things that held me back from buying Rivian originally as they sourced Bosch motors. The Enduro is critical for their survival. Without it, they will never be able to gain differentiating capabilities from others that source Bosch motors. Clearly, using Bosch motors were a time critical, getting to market priority over the time they needed (and the resources) to develop their own motor.
So in a different way of saying this, vertical integration is focused on strategic elements of the vehicle and not every subsystems. Otherwise, one cannot gain economies of scale costs. Tesla first outsourced their seats. The seats became a bottleneck and decided to bring in the house to increase throughput. Not strategic, but very tactical and was necessary at the time and now they’ve gotten the costs down so that its an advantage.
Outsourcing has its merit too. Apple model is the benchmark. Apple design everything, including the chips. They outsource to Taiwan Semi to mass produce the chip. Then the final assembly is done by Foxconn. The difference is that we are talking about hundreds of millions, not hundreds of thousands. Also, huge labour cost differences between China and US for assembling those hundreds of millions of devices.
In terms of EV, Fisker is the key example of trying to implement Apple’s model of outsourced manufacturing. Thus far, it has issues because from Magna‘s perspective, Fisker is a small low tier customer. Their priority of parts, supplies and labour is focused on the top and second tier customers - not Fisker.
So for Rivian to try to get established with Magna or Foxconn to produced the R2, it’s a very high risk for the most important product for the company. Also Rivian will lose any priority and cost advantage they’ve gained on R1 supplies due to R2 production quantities. It took Tesla the Model 3, to gain the similar costs and priority and advantage for the S and X.
When a company makes a buy-or-make decisions, there are various factors that goes into it, including costs, schedule and strategic importance.
The most important question in all of this is, is Rivian EV maker or just a EV brand?
The point of vertical integration is NOT to make as much as you can in-house. It is selective. A company, as a strategic issue, needs to control the critical elements of the products one is producing.
For EVs, that’s motors and batteries. You‘be seen that most legacy OEMs outsourced the batteries to the battery makers and found out that they are production limited due to the battery supply. Now they are investing in their own battery facilities in JV w/battery makers (and in North America, especially due to federal funding advantages). Tesla knew this from the beginning and invested in their own battery facilities.
The motor is another critical EV element. The legacy OEMs know this (from ICE) so they all developed their own motors, with small niche brand exceptions (e.g., Lotus who uses both Toyota and MB sourced engines). This is one of the things that held me back from buying Rivian originally as they sourced Bosch motors. The Enduro is critical for their survival. Without it, they will never be able to gain differentiating capabilities from others that source Bosch motors. Clearly, using Bosch motors were a time critical, getting to market priority over the time they needed (and the resources) to develop their own motor.
So in a different way of saying this, vertical integration is focused on strategic elements of the vehicle and not every subsystems. Otherwise, one cannot gain economies of scale costs. Tesla first outsourced their seats. The seats became a bottleneck and decided to bring in the house to increase throughput. Not strategic, but very tactical and was necessary at the time and now they’ve gotten the costs down so that its an advantage.
Outsourcing has its merit too. Apple model is the benchmark. Apple design everything, including the chips. They outsource to Taiwan Semi to mass produce the chip. Then the final assembly is done by Foxconn. The difference is that we are talking about hundreds of millions, not hundreds of thousands. Also, huge labour cost differences between China and US for assembling those hundreds of millions of devices.
In terms of EV, Fisker is the key example of trying to implement Apple’s model of outsourced manufacturing. Thus far, it has issues because from Magna‘s perspective, Fisker is a small low tier customer. Their priority of parts, supplies and labour is focused on the top and second tier customers - not Fisker.
So for Rivian to try to get established with Magna or Foxconn to produced the R2, it’s a very high risk for the most important product for the company. Also Rivian will lose any priority and cost advantage they’ve gained on R1 supplies due to R2 production quantities. It took Tesla the Model 3, to gain the similar costs and priority and advantage for the S and X.
When a company makes a buy-or-make decisions, there are various factors that goes into it, including costs, schedule and strategic importance.
The most important question in all of this is, is Rivian EV maker or just a EV brand?
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