Vertical integration is the combination in one company of two or more stages of production normally operated by separate companies.
After multiple trips to Russia where more vodka was involved than strategy…
Elon did the math and realized the raw cost of material components of a rocket could make rockets much more affordable if vertical integration was involved.
This means the raw materials for a rocket coming in one side…
And a fully finished rocket coming out the other.
Tesla taps into the power of vertical integration also…
In fact Tesla is the most vertically integrated auto maker on earth…
And with this vertical integration there are both cost savings and efficiency improvements.
There are also supply chain reliability reasons for integrating vertically.
Because the less you rely on others for your production line…
The more reliable the entire process will flow.
And the most efficient and reliable company often equates with the best…
Manufacturing is hard…so many entrepreneurs shy away from it.
But Elon certainly has not.
Part of the reason is because he feels manufacturing is an area of business that deserves more respect and is ripe for innovation:
“There’s more potential for innovation in manufacturing than there is in the design of a car – by a long shot…
We believe in manufacturing and we believe a company that values manufacturing as highly as we do is going to attract the best minds in manufacturing.” (Q1 2016 earnings call)
Certainly focusing on the alien dreadnought “machine that builds the machine” has enabled Tesla to crank out plenty of next level machines, with no sign of slowing down.
Tesla just announced they have produced 9 million vehicles worldwide. And SpaceX is almost at 600 successful missions to space. Congrats to Elon and his teams!
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