Vertical Integration & Tesla

Tesla manufactures batteries, motors, inverters, cars. Most automakers outsource everything, negotiating with suppliers and hoping margins stay stable. Tesla integrated backwards because existing suppliers moved too slowly. Battery suppliers optimized for profit margins across multiple customers. Tesla wanted cost reduction serving only Tesla. Vertical integration means taking on all risk and reward. You lose supply and negotiating power but gain engineering control. Manufacturing risk is real. Battery factory failure stops car production but Tesla discovered integration let them improve faster than competitors. Reducing battery cost 30% meant engineering solutions, not supply and negotiation.