The number of stages in a product’s or service’s value chain in which a company engages refers to level of the firm’s vertical integration. In a shareholder letter (Q3 2020), Tesla mentioned an “in-sourcing” strategy to achieve rapid growth.CEO Elon Musk described this strategy on a call with investors stating, “Tesla is absurdly vertically integrated compared to other auto companies or basically almost any company. We have a massive amount of internal manufacturing technology that we built ourselves…. It’s like, okay, what are the things we want to make, design a machine that will make that thing, then we make the machine.”

He goes on to point out how this differs from “catalog engineering” in that companies can’t just order the supplies from a catalog and compete with them.

When applying the VRIO framework, we can think of this level of vertical integration as contributing significantly toward the rareness and imitability (or lack thereof) of Tesla products. They have been living on the cutting edge of the EV industry but as more traditional manufacturers who have more experience with larger scaled operations (i.e. Toyota, Volkswagen, GM in the US market) are beginning to produce EVs, it remains to be seen whether this strategy will be enough for Tesla to maintain an edge going forward.