New Economies of Scale in Electric Vehicles

"Are economies of scale the same in the automotive industry anymore? Is the game being remade with electric vehicles (EVs)?"

These questions are powerful and pertinent enough to shape the future of the industry. Because the classic rules embedded in the automotive industry's DNA are now being rewritten. Not only production but also the way value is created is evolving.

The golden key to the automotive world over the last century has been economies of scale. From Ford's production lines to Toyota's lean manufacturing revolution, competitive advantage has been based on the logic that "the bigger you produce, the lower the unit cost."

This approach not only reduced production costs but also turned scale into a strategic advantage in the supply chain, logistics, and after-sales service. However, this model severely limited the room for maneuver for smaller players due to high barriers to entry.

So, what has changed in this paradigm with the rise of electric vehicles?

This transformation represents not only a technical evolution but also a redistribution of industrial power. As hardware-centricity gives way to software-centric models, the "hardware + software + data" trilogy forms the foundation of next-generation competition.

The DNA of Traditional Economies of Scale

In the ICE (internal combustion engine) era:

Engine and transmission production: Required high technology and investment. Entry was nearly impossible for small players.

· Had a complex supply chain with over 10,000 parts.

Factory investments were in the billions of dollars.

The result: The big ones grew; the small ones were either squeezed into niche markets or disappeared.

This structure has made scale-or-death the industry's unwavering law. However, with the EV revolution, this law has begun to soften.

Are Electric Vehicles Changing the Paradigm?

EVs have destroyed some elements of economies of scale but replaced them with new advantages.

Simple Drive Systems

· EV engine and transmission system contains much fewer parts than ICE (5,000 < 10,000).

This situation opened the market door to start-ups such as Rivian and Lucid.

The success of startups in this field has demonstrated that competition can be achieved through system design and software optimization, rather than engineering. In this new era, vision, rather than capital, is becoming the determining factor.

Battery = New Engine

Massive investments in battery production continue to benefit major players. Companies like Tesla and CATL have established cost leadership through Gigafactories.

In other words, the scale is still valid on the battery side, but it has taken on a more technical, more integrated and more global character.

Software Scale

In autonomous driving and energy management systems, the code is written once and installed on millions of vehicles. This creates a distinct advantage of scale.

This signals a new economic model where hardware is marginalized and software becomes centralized in the value chain. Software emerges as both a scale driver and a driver of customer loyalty.

Network Effect

Infrastructures like the Tesla Supercharger network provide a self-reinforcing advantage as the number of users increases.

The network effect acts as a powerful lever that improves not only user experience but also service quality and brand loyalty.

3 Areas of New Economies of Scale

1. Battery Technology and Supply Chain

Control of critical minerals such as lithium and cobalt.

2. Modular Platforms

Scalable chassis systems such as VW's MEB platform.

3. Data and Software Ecosystem

Examples include NVIDIA's Drive platform and Google's Android Automotive system.

These three areas represent a new competitive landscape that centers on “smart platforms,” “strategic mining,” and “data-centric innovation” rather than the classic production line.

Strategic Message

"Electric vehicles haven't killed scale; they've taken it to another level. The winners of the future won't just be those who produce more; they'll be those who develop better software, innovate more powerful batteries, and build smarter networks."

So, the issue is no longer just production; it is about building smarter, more integrated and more agile systems.

My Final Word

The automotive industry is remaking its 100-year-old game. The advantage of scale still exists, but whoever writes the code, develops the battery, and builds the user ecosystem will be ahead.

In short, the new generation of economies of scale still feeds on size, but this size is no longer just physical; it is digital, intellectual, and systemic.