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You can buy Arduino Nano v3 clones from Alibaba at the cost of roughly $2-$3.

I have calculated the cost for fabricating and all the parts in the BOM for Arduino Nano V3, and it ended up costing around $10 to $12 (depending on where you fabricate the board, buy the components and purchasing volume - assuming less than 100 units).

However, how are Chinese clone manufacturers able to slash the price so much it's only ~1/10 of the BOM cost.

Could it purely be due to economy of scale, lower fixed costs (cheap labor), low quality parts (How do you define low quality parts)? Or are there other factors at play as well?

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All the factors mentioned in the question apply to make the cost so low. However, with an exception or two as noted in the next paragraph, “low quality parts” is not much of a factor, as explained in two paragraphs after that.

Possible low quality parts include the USB mini-B socket, crystals or resonators, and the reset switch. The socket and switch contain metal shapes that can be well made or badly (and more cheaply) made. Those badly made will function but may have shorter lives and higher failure rates. For example, the USB cable fit may be loose, or the switch may fall apart. Crystal or resonator accuracy and stability can be poor while still allowing a Nano clone to appear to function ok.

However, SMT (surface mount technology) or SMD (surface mount device) parts on the board cannot be made significantly more cheaply than can good parts. SMD LEDs, resistors, diodes, voltage regulators, and capacitors come off of automated assembly lines with little or no manual intervention. See, eg, ceramic capacitor manufacturing at wikipedia. Parts are automatically packaged into sealed reels of parts suitable for use on an automatic pick-and-place machine that populates PCBs. In short, the dozen 0603-size SMD LEDs, resistors, and caps, and the nine other passive or small-scale-integration SMD parts on the board will cost about the same coming off a bad manufacturing line as from a good line, so there is little profit to be made producing bad parts. The 20-odd passive parts probably cost a couple of cents, at manufacturing scale.

Active SMD parts like voltage regulators, the ATmega328P, and the 32U4 or CH340, likewise come off automated manufacturing lines. As these parts are more expensive, there is more economic incentive for cheating, and from time to time fake parts get sold and used. In the past (and perhaps still) there have been manufactories that specialize in removing labeling on the tops of cheap or non-functional chips, and putting accurately detailed fake labels for expensive chips on instead. (For example, NCP5318 buck regulators relabeled as ATmega328s.) In short, most of the active SMD parts on a Nano either are genuine and work or obvious fakes that don't work and earn their sellers bad reputations or jail.

The CH340g USB-to-serial chip vs. ATmega32U4 USB issue is more complicated. Ie, some may think of the CH340 as a lower quality part than a 32U4. The CH340 may need a different USB driver than the 32U4 and may not support 57600 BPS serial in some cases. 1, 2. The ATmega32U4 seems to be available on Alibaba for $0.10 to $.20 in moderate quantities. I think the CH340g is made only in China and is somewhat cheaper than the ATmega32U4, so its contribution to the BOM total cost may be a few cents.

The PCB probably costs 5 to 10 cents, and assembly is free except for amortized costs of pick and place machines and an IR reflow system with a conveyor. Boards probably are processed (components placed and soldered automatically) in panels of several dozen units, tested automatically, and then separated for packaging.

Summary: Inexpensive parts and automated processing hold down the per-board costs, moreso than cutting corners on component quality. Corners may get cut on assembly quality and on quality assurance inspections.

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  • There are quite a few places where fabs can cut corners. Safety of the workers is one of them. Using a cheaper chip may mean just that. Also support for customers of such ICs is often shoddy. – Fizz Nov 17 '15 at 21:29
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    And PCB factory uses a fair bit of water; look at this part of the process. So water pollution is another way to cut costs. – Fizz Nov 17 '15 at 21:44
  • @RespawnedFluff, those comments are true, and might be part of the reason for PCBs costing under 6 cents per square inch in China, so a Nano PCB is under a dime. – James Waldby - jwpat7 Nov 17 '15 at 23:02
  • @RespawnedFluff, as for support to customers, I don't know how much support you would expect from a more expensive chip. The chip manufacturer didn't sell (directly) to you, and you only bought one. I don't think Atmel would be particularly interested if you or I have a question about them. – AMADANON Inc. Nov 18 '15 at 3:30
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    @AMADANONInc.: That is true that as individual consumer you cannot expect much in the way of personalized attention from a big corp, however documentation and drivers are part of what I consider support. And if you visit EE.SE you'll questions about more or less obscure chips that people bought but can't figure out how to use... because the documentation is either completely lacking or perfunctory/incomprehensible. – Fizz Nov 18 '15 at 3:36

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