[vladvasiliu]

> Vertical integration matters. If BYD controls much of the chain from the mine to the ship, they’re not paying everyone else’s margin along the way. That can translate into more car for the money.

This is interesting. Wasn't the idea in Europe (and maybe elsewhere, too, no idea) that outsourcing components would lead to economies of scale? After all, a Mercedes or BMW or VW seat is still roughly a seat?

It's interesting to me that we seem to switch back and forth between the two models, each time saying the new approach is "better".

[hylaride]

Outsourcing to somebody that can drive higher volumes for components can be cheaper, as they can amortize the manufacturing equipment over more widgets. If a car seat is just a car seat, then outsourcing makes sense. However, if you need to customize it or add some other value (heated seats, electronic movement, etc) then unless everybody is doing the exact same thing, you need to bring at least some of the components in house and/or pay for it.

The same is true in many industries. TSMC has dominated fabing chips because they scale wafers over many more customers, whereas intel mostly only focused on its own chips. The results was more expensive all around. (Intel also had to deal with bad western accounting attitudes to CAPEX spending, which IMHO is a huge reason so much manufacturing left North America, though lower costs also played a role).

[hermanzegerman]

VW, Mercedes and BMW also squeeze their suppliers very hard, and they operate with razor thin margins. So I agree and wouldn't say that doing everything in house is always going to be the cheaper way

[avhception]

My family operated a business on exactly these razor thin margins. You always live on the razors edge. You're unable to invest into the future, unable to improve your processes, and god forbid there is even a minor disruption. I don't think it's sustainable. We've since faltered, as have our many of our competitors and suppliers.

[taffronaut]

Having an adversarial relationship with your suppliers is not necessarily the best arrangement. It means that suppliers will nickel-and-dime you for every change and ship minimum possible quality to you. The cost of loss of agility and quality will impact your bottom line.

[bluGill]

The value in being a supplier is you make the replacement parts when they start breaking in 5-10 years. The real money is in selling to every auto parts store in the country.

[alberto467]

It does also just depend at what scale you operate at.

If you're already at a huge scale there isn't really a significant scale advantage by outsourcing to somebody who doesn't just sell to you.