One of the most widely agreed upon sources of cost advantages is a firm’s size, which can produce economies of scale that allow a company to take advantage of cost leadership strategies. Tesla is a much smaller auto company than traditional auto manufacturers such as Toyota and VW, making it difficult for Tesla to take advantage of economies of scale to the extent that these larger companies can. Besides being able to negotiate lower prices from suppliers through bulk orders and other efficiencies due to scale, having a large cumulative amount of volume has been codified as a strategic advantage in the form of the “learning curve.”

While Tesla may be one of the most advanced EV manufacturers, it is by far not the most experienced car manufacturer overall. Toyota and VW have significant advantages in terms of their cumulative years of experience manufacturing cars. Another aspect of cost savings is low-cost access to factors of input. One example might be access to engineering talent needed for a tech firm to innovate, in which case it makes sense that a company like Tesla would be located in Palo Alta, CA, a hub for innovation as well as venture capital.