Wright's Law

Wright’s Law is a rule of thumb about how manufacturing costs fall over time. It states: whoever has produced twice as much of a product as before can produce each individual unit more cheaply by a fixed percentage. This percentage differs for every product, but remains remarkably stable over long periods. For electric vehicle batteries, it lies roughly between 18 and 20 percent per doubling. What matters here is not how many years have passed, but how many units have been built in total. A product that hardly anyone buys will therefore not get cheaper even after decades.

Why investors watch unit numbers

The rule turns a common way of thinking on its head. Normally one asks: will a product become cheap enough for many people to buy it? Wright’s Law says: it only becomes cheap if many people have already bought it before. Demand and price decline thus reinforce each other.

This explains why some technologies suddenly take off. Solar cells were an expensive niche for decades. Because countries like Germany and later China built massive installations anyway, the total quantity produced grew sharply. As a result, the price per watt of solar power has fallen by more than 99 percent since 1976. Without these initial, economically unreasonable purchases, this would not have happened.

For investors, the rule is a forecasting tool. Anyone who can estimate how many electric vehicles will be built in the coming years can derive an approximate battery price from it. Funds like ARK Invest have calculated their most famous predictions exactly this way. However, one should keep in mind: such forecasts are extrapolations, not laws of nature.

What lies behind the fixed percentage

The effect has no single cause, but many small ones. Workers become faster because they have repeated the same task thousands of times. Engineers recognize which components can be removed or simplified. At large volumes, it also becomes worthwhile to buy machines that automate a work step. And anyone who buys in bulk gets raw materials more cheaply.

The way the calculation works matters. The price decline is percentage-based, not in fixed dollar amounts. The first doubling from a thousand to two thousand units brings just as much percentage savings as the later jump from one million to two million. Because doublings take longer and longer at large numbers, the price decline becomes visible more slowly over time.

Wright’s Law is often confused with Moore’s Law. Moore’s Law describes how the number of components on a computer chip doubles roughly every two years — it thus depends on time. Wright’s Law depends on quantity. Studies by researchers from Oxford University and MIT compared more than sixty technologies. In doing so, the quantity-based version usually predicted actual prices more accurately than the time-based version.

From aircraft fuselages to data centers

The rule’s namesake is the engineer Theodore Wright. In 1936, he found that building an aircraft fuselage required about 15 percent less labor time with every doubling of production. The same relationship was later found in wind turbines, LED lamps, DNA sequencing, and televisions.

In current news, the rule mainly comes up in relation to electric vehicles and storage batteries. When a company announces it will build a giant factory, it is rarely just about revenue. It is about doubling one’s own total production faster than the competition and thereby becoming permanently cheaper.

This argument is also made in the AI industry. The cost of having a language model answer a question has fallen dramatically within just a few years. A common mistake, however, is to treat the rule as guaranteed. It only describes what happens as long as factories keep growing and engineers keep finding improvements. Scarce raw materials, physical limits, or a collapse in demand can halt the trend at any time.