In 1913, the Ford Model T, which introduced assembly line production, had an initial market price of $850. This was significantly cheaper than other brands of cars at the time, which ranged between $2,000 and $4,000, thus offering a strong competitive edge in the market. It quickly expanded its customer base from the affluent to the middle class. The broader market, in turn, fueled the economies of scale in assembly line production, further reducing production costs. By 1927, the price of the Model T had been driven down to $290.
Leveraging cost advantages for competitive strength in the market, Ford’s approach became a modern industrial legend recorded in history. However, in today’s Chinese new energy vehicle sector, the same cost advantage is paradoxically seen by some as indicative of “unsold goods" and “the more you sell, the more you fail."
Adam Smith’s seminal work, “The Wealth of Nations," lays the foundation for economics, clearly explaining that the scope of the market determines the extent of the division of labor (“The division of labor is limited by the extent of the market"). In turn, the degree of specialization determines cost advantages. More importantly, the cost advantages under specialized division further expand the market scope (“the division of labor gives rise to market institutions and expands the extent of the market").
China, with one of the world’s largest markets characterized by a unified language, race, and highly unified regulations, can naturally accommodate specialized divisions of labor that small markets cannot sustain, thereby gaining significant cost advantages to expand into the international market.
The aforementioned is fundamentally the economic phenomenon clearly explained by Adam Smith, the father of economics: applicable to Ford cars in the early 20th century and equally applicable to Chinese new energy vehicles in the early 21st century.
Yet, there are always some who lack even this basic economic sense. In their view, having competitive pricing is somehow equated with national doom.
元毓說 