The automotive industry is one of the most commonly known industries to be built on the concept of vertical integration – one company owning both the manufacturing and as much of the supply chain that leads to the factory floor as possible. Tesla’s recent news of its “Gigafactory” is an excellent example of vertical integration. It plans to build batteries for its forthcoming electric vehicle lines in house. Tesla released information on its Gigafactory in June 2014. The company expects to begin cell production in 2017. By 2020, the Gigafactory is estimated to reach full capacity and produce more lithium ion batteries annually than were produced worldwide in 2013. In cooperation with Panasonic and other strategic partners, the Gigafactory will
produce batteries for significantly less cost through reduction of waste, economies of scale, innovative manufacturing, and the optimization of manufacturing under one roof. Tesla expects to decrease the per kilowatt hour (kWh) cost of its battery pack by more than 30 percent. With the objective of achieving net zero energy, the Gigafactory will be powered by renewable energy sources. The battery alone is not the electric car’s most expensive component. However, it is the most critical component in the bin. The future success of Tesla, and the electric car industry altogether, is dependent on future battery technology being more affordable and with enough range on a charge to be practical for more than those having modest commutes. As Jim Gorzelany stated, in his article Why Tesla's Vertical Manufacturing Move Could Prove Essential To Its Success, “Tesla isn’t just dipping its toes into the waters by making strategic investments in existing battery suppliers to hedge its bets, but is cannon-balling itself into the deep end of the pool to help maintain its position as the industry leader would certainly seem (at least from this typically wisecracking observer’s perspective) to be a profitable proposition”.
Today's automotive industry in very competitive. Ford has had to find ways to keep ahead of the following major companies: BANC ONE, Bank America, BMW, Budget Group, Chrysler, Daimler-Benz, Enterprise Rent-a-Car, General Motors, Honda, Hyundai, Isuzu, Mack Trucks, Mitsubishi, Nissan, Peugeot, Saab, Suzuki, Toyota, Volkswagen and many others. Ford has developed a number...
(i) ‘Backward or upstream vertical integration’ in which the primary motive is usually to move towards a dependable source of supply. Dependability can be determined not just in terms of supply availability, but also through quality maintenance and timely delivery considerations. Having timely access
After a period of continuing growth, the stagnant sales growth of the automotive industry in the late 1970s led all car makers to start to look for methods to fit the new climate. With the purpose of using money on research and development more effectively, spreading the risk of making main components in greater volume, and accessing to new market which were hard to enter, more and more automobile producers reached to the conclusion of collaborating with others. In addition, to remain independent, joint venture seemed to be the best answer. (Campbell, Stonehouse & Houston 2002)
In the horizontal integration, the company product range is from a wide clientele. That is they sell product either clothing or luxurious foods from different manufacturers. These give them the edge since the products they offer a variety for the customers to choose from, and hence they can shop less than one roof (Cole, 1997). In the vertical integration strategy, the firm will deal substantial with products from a single supplier and M&S gets the exclusive rights to deal with the product and its supply to the market. This is necessary when the company aim is to serve an identified target market which is exclusive and has the potential to sustain and grow the company substantively. These employ a tar...
Horizontal integration is the process of hospitals merge/buy to other hospitals to become a multihospital system. Vertical integration is the process of buying out or contracting suppliers of those particular healthcare organizations that are upstream or downstream from the original one. Through vertical integration, health systems attempt to clinically integrate to manage the entire care continuum and, potentially, the whole revenue stream. The main difference is that horizontal integration buys the competing entire hospitals while vertical integration aims at the raw material sources necessary to produce that product such as in health care a hospital buys or contract with laboratory, nursing home, pharmacy etc. Virtual integration means that
This has resulted in exposing many automobile users to unpredictable prices of fuel. These issues were, however, the reason for the inception of Tesla Motors so as to bring into existence another set of automotive which serves the similar purpose but uses another form of energy that is electricity to drive them instead of the disadvantageous gasoline-powered engine. This invention was influenced by a number of factors in terms of its planning and performance (Hunger, 2010). Factors affecting Tesla’s planning and performance. The success of any organization, just like the Tesla Motor, largely depends on the planning of the activities by the management team in the company.
Automobile is the primary mode of transportation in all the major economies of the world. The urge to accelerate the economy at faster pace has made the automobile industry is one of the most prominent economic sectors by revenue of the world. Automobile companies around the world are working day and out to formulate the strategy to bring their brand on top and be a world leader.
Many firms rely on one or two automakers to buy a majority of their products.
(4) Abel, Ivan, Maali Ashamalla, and Robert Camp. Competitiveness of the US Automotive Industry: Past, Present, and Future. Rep. 2nd ed. Vol. 10. Indiana: American Society for Competitiveness, 2010. Print.
Vertical integration can decrease transportation expenses and reduce turnaround time, thus help companies take costs advantage and improve efficiency. However, the key reason for a company to vertically integrate is the market default risk and unreliability.
Vertical integration as a term is referred to the companies that own their supply chain in a specific market as one corporation. This helps the organization obtain control over its suppliers and buyers. The organization as a whole gains control over its various stages of production, distribution as well as retail sales.
Tesla is a company that barely started growing and was barely founded. “Tesla was founded in 2003 by a group of engineers who wanted to prove that people didn’t need to compromise to drive electric – that electric vehicles can be better, quicker and more fun to drive than gasoline cars. Today, Tesla builds not only all-electric vehicles but also infinitely scalable clean energy generation and storage products. Tesla believes the faster the world stops relying
The Tesla Gigafactory started construction in Summer 2014 in fittingly, Sparks, Nevada. It is currently under construction to manufacture battery cells co-developed by Panasonic and Tesla. Tesla products and other energy products use these cells, called 2170 Cells. Constructed to supply demand of batteries for Tesla, Musk plans for the factory to produce as much as the battery production of the world. It will employ 6,500 directly and create more than 20,000 jobs in the surrounding area.
The ultimate Objective of the strategy is, Tesla should be successful in creating the market for it’s futuristic electric cars with full auto pilot capabilities, successfully project this new age technology as the sole alternative to the fossil fuel based traditional design, and establish itself as the leader in the transformed market. While this is the long-term objective, the short term tactical objectives are two folded. First, close the gaps in the design soon, with it’s auto pilot capabilities and with it’s super power battery. Second, establish the required production capabilities to meet the customer demand, for it’s new age car. Based on the product portfolio of Tesla, it is evident the targeted customers are mostly millennials from the middle income to upper middle-income population segment, who are enthusiastic to try the car based on innovative technology(Korosec,2015). While Tesla isn’t facing much competition at present, but the Competition is brewing up. Tesla’s existing competitors in the existing market are Chevy Bolt and Nissan Leaf (Trainer,2018) and the emerging competitors include lot of big players like GM, Volvo, Audi, Jaguar, Mercedes Benz Volkswagen etc., who are all investing heavily in the electric autopilot segment. Tesla’s core strategy comes with the value proposition built based on the truly futuristic technology used in designing the car, which give taste of exciting self-drive auto
Vertical integration is the process in which several steps in the production and/or distribution of a product or service are controlled by a single company or entity, in order to increase that company’s or entity’s power in the marketplace. Vertical integration differs across industries, firms within the same industry, and transactions within the firm. A company may expands its operations backward into industries that produces inputs to its products or forward into industries that utilize, distribute or sell it products.