Elaborate the factors that promote the vertically integrated strategy in the auto industry.
Read the case study below and answer the following questions:
Tesla's Vertical Integration Is Something Automakers Are Eager To Copy
Automotive manufacturing has largely relied on suppliers in the past several
decades, though the emergence of software-based electric vehicles has many
global auto brands questioning the age-old model.
Tesla, a pioneering force in the shift, offers a vertically integrated product that is
mostly manufactured in-house — reducing supply chain needs or dependence on
hardware and software from other companies.
As the auto industry shifts toward more in-house manufacturing in a verticallyintegrated system like Tesla’s, major automakers are facing the need for radical
change in how they’re doing things, as detailed by News18 in a recent report.
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Tesla uses mostly proprietary technology that the automaker engineers, designs
and manufactures itself. This model is far different from automakers such as Ford
that simply bought components off the shelves of their suppliers in years past, in
a model that Tesla CEO Elon Musk once called “catalog engineering.”
During a 2020 earnings call, Musk said, “We’re designing and building so much
more of the car than other OEMs who will largely go to the traditional supply base
and [execute] like I call it, catalog engineering."
The news comes just weeks after Ford officially separated its EV business from its
internal combustion engine business despite dealership concerns about the move
reported by CNBC. Ford made the move in hopes to generate Tesla-style stock
capitalization, and to further streamline the supply and production of EVs.
Ford CEO Jim Farley emphasized the company’s need to move away from the
“catalog engineering” model at a conference last month, saying “The most
important thing is we vertically integrate.” Farley also added that Ford is now
looking to have control over its supply chains “all the way back to the mines” where
minerals for EV batteries are mined.
Similar shifts and strategies can be seen in companies like Volkswagen, General
Motors and Mercedes-Benz, while most of them are still stuck purchasing electric
motors from suppliers and, in some cases, struggling with software development.
Newer EV automaker Lucid Motors also features a more vertically integrated
model, which company CEO Peter Rawlinson notes aids companies like Lucid and
Tesla in the modern auto technology race.
In an interview, Rawlinson said, “Major players have realized electric vehicles are
the future, but they have yet to widely recognize that they have to up their game in
terms of motors, transmissions, battery technologies, inverters and electric
powertrains." Rawlinson added, “The electric powertrain cannot be bought off the
shelf at a world-class standard, it is not a commodity. This is a technology race
and the market doesn’t see it yet."
Rawlinson, a previous vice president of vehicle engineering at Tesla, has managed
Lucid’s manufacturing primarily in-house, in much the same way as Tesla did. The
days of automakers outsourcing components and software manufacturing to save
money on large-scale production could soon be outdated.
b)Elaborate the factors that promote the vertically integrated strategy in the
auto industry.
please provide detailed answer.minimum words count 700
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