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Economies of scale in the car and housing industries

Over the weekend I watched this interview discussion between Elon Musk and Marques Brownlee. If it doesn’t show up below, you can find the video here.

Elon figures that if Tesla works really hard they could probably come out with a USD 25,000 car in about three years. The key to that affordability is twofold: (1) design & technology improvements and (2) scale. 

So part of the answer is just time. As design and engineering iterations continue to take place, the components will become better and cheaper, just as they have for things like cell phones. Elon estimates that we’re in the 30th iteration of the cell phone today.

But the second factor is simply volume. And that got me thinking about housing production and the similar importance of scale and density. We do a lot to limit volume, despite saying we want more affordable housing.

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