Ford Steps Into the Chips Business

Ford is (sort of) integrating backward (WSJ Nov. 2021).

1. Are specialized investments large?
2. Are contracting costs high?

Rivian Prices Shares at $78 in Highly Anticipated IPO

This report from the WSJ states that Rivian is "backed by Amazon.com Inc." and that "Rivian has said it will launch three models by the end of the year. Among those is an electric delivery truck designed and built for Amazon. The e-retailer has an order for 100,000 of the trucks". 

The article raises several questions.

1. Is Amazon integrating backwards? 
2. If so, does the move make sense? 
1. Do transactions between EV truck manufacturers and Amazon require specialized investments? 
2. Are contracting costs high? 
3. If not, what other cost efficiencies might accrue? 

Another report. "The upstart auto manufacturer is backed by some big names, including Amazon.com Inc. and Ford Motor Co."

Update: "Ford Motor Co. F -0.87% and Rivian Automotive Inc. RIVN 4.23% have decided to go their separate ways rather than collaborate on future electric vehicles, backing away from an earlier strategic pact that led to a multibillion-dollar windfall for Ford."

Ford remains an investor. Its $500KK investment + "subsequent infusions" is now valued at $12.8KKK.

Rivian's market value > Ford's. Rivian delivered 42 cars in the last 5 weeks or so and its revenue = $0 in the third quarter of this year.

Look ahead and reason back

Tractor manufacturers are trying to lock farmers into getting repairs from their dealers. (WSJ, March 2021) One question is, "Were the manufacturers hoping to use Barbie doll pricing?"

This article finds that right to repair legislation can result in a lose-lose-lose outcome.

1. Consumers may lose because manufacturers increase the price of the tractor when the link between tractor sales and revenues from repairs decreases. 
2. Producers may lose because the increase in the price of tractors fails to offset the lose of revenue from repairs. 
3. The environment may also lose.

Trends in which activities beauty firms perform internally

"Historically, big beauty companies have been in charge of their own manufacturing, formulations and distribution, while relying on advertising agencies to market their products and retailers to sell them. But a generation of beauty startups, including Kylie Cosmetics, is upending that formula, selling directly to consumers and relying on social media for marketing, while farming out production and distribution to third parties."

Kylie Cosmetics generates  "$200 million in annual revenue with fewer than a dozen employees and virtually no ad spending."

WSJ, Jan. 2021.

Is selling electricity to yourself below the market price part of a good business model?

Nikola's business model involves producing electricity cheaply and then selling the electricity to itself for less than it would pay to purchase electricity from other producers (WSJ, Sept. 2020). Critics might wonder if the firm has the ability to produce electricity cheaper than current producers. A more fundamental question is, "Does the firm maximize profit by selling electricity to itself at below-market prices. The market price is the optimal transfer price when a competitive market exists for the input. Nikola intends to violate this rule. Nikola could increase profit by selling electricity in the market at the market price rather than subsidizing costs of its trucks.

Reasons to hire management consultants

Here are reasons to outsource management consulting (Marginal Revolution, Aug. 2020).

Apple integrates vertically

Apple has decided to produce its own chips instead of buying them from Intel (WSJ, June 2020 and WSJ, June 2020). I wonder if specialized investments or contracting costs increased?

Olly has died

This obituary of Oliver Williamson describes the focus of his work and some of his main conclusions (WSJ, June 2020).

"All feasible forms of organization are flawed. We need to understand the trade-offs that are going on, the factors that are responsible for using one form of governance rather than another, the strengths and weaknesses that are associated with each of them.”

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?