Important Role of Economies of Scale on the Production of EVs

Question:-

Explain the important role of economies of scale on the production of EVs.

Answer:-

The term Economies of scale means increasing the output in compare to input. Where the per unit fixed cost tends to decrease and the output tends to increase. There are two types of economies of scale, internal and external. If firm has a patent right to its machine production, then the average cost of the firm decreases and production increases. If the benefit is available from the external source or government, it is an external economy of scale. Technological advancement is very important for economies of scale. If firm has cost advantage then overall production increase, which call economies of scale. As a result consumers continue to enjoy lower prices.

Tesla is earning 32% profit in per unit manufacture. Tesla firm has used the larger size for the battery cell for electronic vehicles. As a result the amount of energy received from each cell is higher and the amount of packing material is reduced. Tesla firm has economies of scale by improving its performance, learning by manufacturing together, low material cost per unit. Tesla has introduced many new changes in battery design that help link the anode and cathode cell. So the more cells are made, the lower the cost because of economies of scale. Tesla generated $24.6 billion in revenue in 2019 because of the economies of scale.

Tesla firm’s supercharge network has helped expand production further. Tesla has updated new software for electronic vehicles with new features and improved performance. Another important advantage of Tesla is the customer loyalty factor.