Gone are the days of Henry Ford’s gargantuan assembly lines churning out Model Ts on one end while devouring sheets of steel at the other. Although the US is still home to many of the world’s largest and most successful companies, many opt to outsource production to nations where labour is cheaper, and regulations are more relaxed.
Elon Musk’s darlings, Tesla and SpaceX, have respectively combined the dated aerospace and automotive industries with Silicon Valley’s most notable traits: speed, learning on the fly, and hungry, young employees who are willing to work all hours under the sun and more to push the boundaries of what is possible. Both companies are also unique because they largely manufacture their products and components domestically.
Although conventional thinking would dictate that producing as much as possible in-house leads to higher costs in today’s globalised world, the effect has in fact been the opposite. For instance, SpaceX’s Falcon 9 rocket can be launched for around $60m as against the $380m charged by United Launch Alliance (ULA), a partnership between Boeing and Lockheed Martin, whose rockets are an amalgamation of foreign-made components.
In 2010, Musk coyly pointed out at a congressional hearing that ULA was relying on Russian-made parts when there was a significant chance that the US might place sanctions on Russia.
Part of why SpaceX’s costs are so low is because Musk initially funded the venture out of his own pocket. For years he signed off on anything costing over $10,000 and relentlessly demanded that engineers find cheaper ways of making various components, rather than resorting to foreign-made parts that charged a premium. For instance, Musk charged engineer Kevin Watson, a former NASA employee, with building the avionics system for SpaceX’s Dragon capsule for just $10,000—an unfathomably low figure, given that rocket computing systems generally cost around $10m apiece. Despite the seeming impossibility of the task, Watson delivered, and his complete system ended up costing only a touch above Musk’s initial target.
In the case of Tesla, the effect of building parts in-house has transcended mere cost savings and has enabled the company to extend its lead over rivals. While these rivals build cars that rely on numerous different computing systems, each made by various different companies, nearly all of Tesla’s hardware is made in-house.
Accordingly, because the hardware is all seamlessly integrated, it is extremely easy to upgrade. Tesla’s engineers can literally upload new software to each vehicle overnight. This effortless agility in the face of its lumbering rivals has undoubtedly contributed to the extraordinary share price run that Tesla has seen over the past five months; its stocks are currently priced just above $300 compared to around $180 in November 2016.
A Competitive Edge
By going against received wisdom and insisting on developing their products domestically as far as possible, both SpaceX and Tesla have furthered their competitive advantages. SpaceX ships cargo to the International Space Station at a fraction of the cost of its competitors while Tesla has streamlined its cars’ hardware so that they can be upgraded in the same way one would install a new operating system on a laptop or smartphone: via the internet.
Evidently, there are enormous benefits to rejecting outsourcing and building products in-house for those who are bold enough to attempt the feat. Tesla and SpaceX stand as an affirmation that America can indeed still make great products within its own borders.