The automation and labor is probably expensive.

IIRC, JLC has a bit of a first-mover advantage, in that they designed their facilities and systems around the idea that the whole process should be vertically integrated and use as much automation as possible. For the steps that do require manual labor, that labor is very inexpensive compared to other tech hubs.

My understanding is also that they are owned and possibly in the same facility as LCSC. So that likely helps a ton.

That's the vertical integration aspect - if they own each step in the process, they can avoid supply shocks and have a more efficient business. It is also a consolidation of power which can create risks for consumers, though. As explained by 30 Rock:

Jack: “Imagine that your favorite corn chip manufacturer also owned the number one diarrhea medication.”

Liz: “That’d be great, because then they could put a little sample of the medicine in each bag.”

Jack: “Keep thinking.”

Liz: “Except then, they might be tempted to make the corn chips give you –”

Jack: “Vertical integration.”

In this case, JLC could decide to steer their customers towards copycat parts which they have a commercial interest in, knowing that the marginal cost of doing your own assembly or switching providers would be fairly high.

Is that really viable?

I figure there's tyo opportunities to steer design decisions:

* When the schematic is being developed

* When the order picking is being prepped.

The second choice is an easy win for them, but probably limited to near-commodity parts-- I don't care which brand of 330 ohm resistor I use, as long as it fits the footprint. I'm not sure if there's that much margin though-- unless you're swapping out some absurd diamond-plated milspec parts, how much kickback can you fit?

The first choice seems the more lucrative one, but it may be off-limits for a lot of hobbyist and short-run products though. You'd have to tap into the design life cycle very early, and I suspect that's not as widely available as you'd think. A lot of projects still come out of things like datasheet reference implementations, canned designs, or transcribing a prototype breadboard, and these customers would need a lot more than a marginally lower price to resolve the risk factor of swapping parts out.