Those without that ability have suffered.

“We look at 2022, specifically, the cost of the battery skyrocketed,” William Li, CEO of Chinese premium EV maker Nio, said on its most recent results call in November. He cited a recent increase in the cost of lithium carbonate, a key ingredient: “This has significantly affected the battery cost, and for us this is actually out of our control, and it’s very difficult for us to predict.”

Li acknowledged that another Chinese car company was much less badly affected. “BYD is an exception, because they have the vertical integration of the batteries and other technologies,” he said.

BYD’s desire to control the whole EV value chain, including batteries, motors and electronic controls even extends to buying its own vehicle-carrying ships –  a smart move in a time when shipping is constrained and becoming costly as a result.

Like BYD, Tesla is another manufacturer that’s keen to become involved in areas traditionally left to suppliers. The cost of components from tier-one suppliers (those that supply direct to the car maker) are just 21% of the total Model 3’s bill of materials, compared with 71% for the Volkswagen ID 3, the bank UBS has calculated.

In 2020, Musk himself spoke dismissively of the “catalogue engineering” practised by his rivals, whereby most components are bought in. “It’s not very adventurous and products end up looking the same,” he said.

Tesla has reaped the advantages, for example in more efficient use of the battery, but the rest are catching up fast.

We’ve written before about the desire of car companies to forge partnerships with chipmakers like Qualcomm and Nvidia to help power their goal of launching “software-defined” cars with increasingly smart autonomous capabilities.

As with mining for battery materials, the goal with software is to leverage the knowhow of experts, sign them up as partners rather than suppliers and hopefully keep costs lower while at the same time benefiting in ways not possible in the old tier relationship.


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