Almost anyone can make a cheap Android smartphone these days. I'm not kidding. Go to one of the many OEMs (Original Equipment Manufacturer) out there, such as Foxconn, with an idea of what you want your bill or materials to be, and after making a few spec-related choices, you'll be ready to go with your very own smartphone design.
But here's the catch -- it won't be anything special. Sure, you can put it into a snazzy case, and emblazon it with your logo, but on the inside it'll be made up of generic, off-the-shelf "jelly bean" electronics parts that roll off production lines by the tens of millions and are used to build countless different devices.
A camera from one manufacturer, a screen from another, a speaker from another, and a battery from another.
This is the great thing about electronics, and what allows gadgets to be so cheap they are near disposable.
But making one that stands out from the crowd is a costly and time-consuming process because the way to make something stand out is to have a feature that other manufacturers don't have access to.
Top Android smartphones (October 2016)
A processor perhaps, or a display, or a camera.
But once you start wanting custom components, that's when things start getting expensive, and your R&D bills really start to swell.
Take something as simple as the sapphire lens covering the Touch ID sensor on the iPhone. That single thing required R&D, getting a supply chain figured out for the materials, cutting the lens, quality control, assembly and testing.
And this is just for a single, inanimate, simple part.
Now, as an example specific to the Pixel, consider that new camera. There's a component that took some research and development, because you don't buy an off-the-shelf camera module that has those sort of specifications. Google spent a lot of money on that module.
This is why the iPhone is expensive (well, the components and the Apple's healthy profit margin), and it's why Pixel starts at $649 and the Pixel XL tops out at $869.
Just like the base iPhone 7, if you take the average lifespan of the device to be two years, then the cost of ownership works out at $0.90 a day.
My point here isn't to suggest that you need a high-end smartphone, but to point out that if you choose a high-end device, then expect to pay a high-end price.
Now I know someone is going to bring up the fact that I too in the past have criticized the iPhone for being too expensive (here, I'll even give you a link), but bear in mind two things:
I was talking about the iPhone ecosystem, and where the only way for someone to get a "cheaper iPhone" was to buy last year's version
Most of the issues I raised have been addressed by the iPhone SE
Move over Raspberry Pi, here are a dozen, better alternatives