We often talk about how impressive Tesla's vertical integration is,
and the advantages these offer. Not just the fact that Tesla are able to reduce costs,
as there are fewer other companies involved taking a cut from each and every process,
but also the fact that the car is designed with a holistic approach,
extending back to first principles design and engineering. As a result this allows Tesla
to go above and beyond, and end up creating unique functionalities such as the Octovalve.
Which not only cuts down on cost due to it being built in-house,
but also ends up reducing actual parts that are necessary to achieve the same objective.
Every part of the car is talking to each other, there is no compartmentalization. Everything
is being designed to work in unison, rather than ordering parts from 3rd party suppliers
and just trying to make them all work. A lot of Tesla's parts are simply designed to work with
other Tesla parts, as most efficient as possible. Of course this will only continue to improve,
and such improvements are encouraged at Tesla, compared to the legacy autos.
As I like to point out, Tesla make 27 production changes a week per model, whereas legacy autos
make about 3 a year. I don't think that is nearly discussed enough, and is one of the
reasons why Tesla is getting so much further ahead in manufacturing than every other auto company.
And that is another reason why Tesla's vertical integration is just simply that amazing,
not only are Tesla saving money on the parts but they work more efficient and some are designed to
do more jobs than one. For example we see the structure battery packs, again removing more
unnecessary parts, and of course designed to connect to the front and rear die cast pieces.
And as we love to say, the best part is no part, the best process is no process.
So Tesla's vertical integration adds additional efficiencies, cuts costs and weight.
And that is generally what people think of when we mention vertical integration,
we think of the manufacturing process. But Tesla are not that small minded.
They are looking at an even bigger picture. Tesla's vehicle side of the business don't view
themselves as a company that makes and sells vehicles, that's actually not their industry,
Tesla looks at it as the industry that transports people, or possibly things,
from A to B. That is the business, the entire service of transportation.
First principles thinking, what is a vehicle?
A mode of transport that takes you places. So Tesla therefore want to control the whole
experience of taking people or things from one place to another. I say control, but I
mean improve the experience, and with vertical integration we also hit economies of scale.
Still in this day and age we do not have teleportation,
therefore we still resort to a vehicle to transport us. Tesla's business model
therefore revolves around all associated elements and costs of traveling in a vehicle. We have
already covered the cost of the manufacturing, and how Tesla are using vertical integration
to create great efficiencies and reduce costs, and eventually they will start with
the raw minerals from the ground to the finished product, as close as possible.
But what else? Well a Tesla doesn't require any gasoline. They run on electricity,
and a lot of people are using Tesla solar and battery to power their cars,
again Tesla products. Tesla is creating the energy to power your vehicle with the aid of the sun.
This is another element of vertical integration. Ok sure not every Tesla owner has solar and power
wall, but that will obviously become more popular. And it's not mandatory to run your
Tesla with solar. Tesla are just offering all the extra services and products associated with
getting yourself from one place to another. Tesla do of course offer a full charging network too,
for when or if you are not able to charge from the convenience of your home, or place of work.
This would not only be like if Ford owned their own gas stations,
but if Ford owned an oil company too that supplied the gas to the gas station. Oh and if Ford also
owned the oil mines that supplied the oil company. I don't believe even Henry Ford's
vision went as far as owning the oil mines. Although I believe Ford did have some of their
own gas stations. Henry Ford was also a massive visionary when it came to vertical integration.
And as you probably anticipated, what I am going to say next. Tesla insurance. Right, another
cost of transportation. Of course Tesla don't make cars, they make computers on wheels. These
computers collect an unfathomable amount of data. They can also tell whenever any Tesla is involved
in accident. Ok, so they have a collection of cars that have been involved in collisions,
and likely are able to determine whether the driver was at fault. Therefore this
collection becomes drivers that have created a collision. They can see if your driving habits
resemble any of these and as a result Tesla can offer reduced premiums for safer drivers,
and control more of the driving experience. Tesla insurance is simply more vertical integration.
Now this is really a subject in its own, but what other major, and I do mean major, cost or
element is there to driving? Something huge, that no other auto manufacturer could ever comprehend.
The roads. Tesla can even control the roads. Well perhaps not Tesla itself, but Elon Musk,
that's right the Boring Company. In fact I hope Tesla do end up buying Boring,
as I truly believe that company could be as big as Tesla. It is highly under-rated,
and it doesn't seem to be moving as fast as I would have hoped.
But hopefully they will be able to make these tunnels at the targeted speed they are aiming for.
But these tunnels are actually going to be designed around Tesla FSD too. I mean even today,
if we had invented FSD before roads, we could have designed roads around FSD, and it would have
been a lot easier than what is required today. But roads were invented first. However, Boring
tunnels will come post FSD. I think the main advantage being that Teslas will be able to drive
at a much faster rate than on a typical road, and of course a negligible chance of any accidents.
Anyway, like I said Tesla, and Elon, are vertically integrating every level
of transportation. What else have they done? Well FSD, that is further vertical integration.
What have that provided? A chauffeur. That's right, the actual driver as well,
Tesla controls that element too. This is actually the largest cost saving there is from
every single thing that Tesla offers. Removing a driver, or adding the value of a chauffeur.
In fact better than a chauffeur as you have the car to yourself.
Of course accompanied with all associated in car entertainment.
Now that entertainment system will have an app store too, which will be owned and
controlled by Tesla, one more level of vertical integration again. Along with Tesla's navigation.
Tesla are thinking of everything. Every step, every dollar that is
spent on transportation. Tesla want to own and control it.
And then there are other parts of the cost of owning a vehicle,
the actual payment, or financing. Yes, finance is a very profitable industry,
in fact the finance industry accounts for 30-40% of global profits, if you can believe that. But
if Tesla controlled the financing more, they could make it easier for customers to purchase
a Tesla. Which in turn would open up the market further. I will explain this is another video.
From there, what else is left, aside from owning all the apps in the apps store,
which I don't think would be smart, we want YouTube, Netflix and Spotify.
The only other major part I can think of is the tires. Could Tesla start making their own tires?
Could Tesla revolutionize tires, and literally re-invent the wheel?
Imagine if we no longer had to replace tires any more. Tires on a Tesla aren't the cheapest,
the wheels are big and us low profile tires. Tesla could possibly reduce cost there further again.
[https://electrek.co/2021/10/27/tesla-launches-remote-sentry-mode-live-view-premium-connectivity-feature/]
I mean sure Tesla can come up with other services to offer software too,
like they have introduced a Sentry mode live view feature, for $10 a month. But this is
just adding more features and services, rather than removing the cost of previous.
I suppose Tesla could buy Idra and own the company that makes some of the machines that comprise of
the machine that makes the machine. Tesla is pretty much a monopsony for Idra's Gigapresses
anyway. Although we are starting to hear some of the legacy autos interested in Gigapresses too.
Herbet Diess saying he wants to make the vehicle from one single cast. Well I think VW should learn
to walk before they run first. Single piece casts are not VW biggest issue right now.
And of course eventually Tesla's robots could replace a lot of the employees.
Robots that Tesla also make themselves. I mean really,
there has never been anything in the world close to what this company can accomplish.
Anyway, off the top of my head, I think that might be as far as Tesla's level of vertical integration
goes. But usually there is something some of you can think of that I missed, so let me know
what other levels of vertical integration Tesla could take, aside from general manufacturing.
Thanks