Saturday, March 7, 2020

Auto manufactures are integrating vertically to produce electric cars

"In a slick investor presentation Wednesday, Ms. Barra made the case why investing in batteries made financial sense: More control over the supply chain would give GM leverage to push battery costs down to a level that would make electric vehicles both attractive to consumers and profitable.

"As Tesla’s market value has rocketed, the question of whether consumers are ready to buy electric cars has given way to whether manufacturers are ready to make them. More industry leaders are concluding that the only way is to embrace a form of vertical integration that has been out of fashion for decades" (WSJ, March 2020).

Several questions come to mind.

  1. Would investing in tires give GM leverage to push tire costs down? If so, should GM invest in tire production? In rubber plantations? 
  2. GM must think that the answers to Q1 are "No". GM does not produce tires and has not announced plans to do so. What makes batteries a good investment but not tires?  

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