Tesla Model 3 teardown points to $28k in potential material and production cost

https://electrek.co/2018/05/31/tesla-model-3-teardow-material-production-cost/

by hippich • 8 years ago

64 45 8 years ago

holychiz• 8 years ago

It's not clear from the article if this cost figure includes software engineering cost which would be significant in Tesla's case.

bryanlarsen2• 8 years ago

No, gross margin doesn't include R&D. That money's spent and gone, so is pretty much irrelevant towards future costs & profitability. Relevant from an academic perspective, but not from a business perspective.

Or at least that's the traditional view; purchasers of Model 3's now expect OTA updates so there is a little bit of R&D cost in the future but it's very minor compared to what's already been spent.

That also doesn't include self-driving R&D, but that's not included in the $35K base model so is also irrelevant.

notenoughstuff4• 8 years ago

purchasers of Model 3's now expect OTA updates so there is a little bit of R&D cost in the future but it's very minor compared to what's already been spent.

Toyota spent almost $10 billion on R&D last year. Ford $8 billion. VW spent $15 billion.

Tesla spent $1.5 billion. What is it that makes people think that Tesla's R&D spend is so significant, and that it will diminish drastically in the future? This is an R&D intensive industry.

dingaling• 8 years ago

Having worked in some Fortune 100s we never counted software development as R&D unless it was true blue-sky work unassociated with a project.

All the routine work was included in Run The Business budgeting just like tangible material purchases.

chapium• 8 years ago

I think its pretty clear that this is an estimate of the material cost data point.

pasta• 8 years ago

The biggest cost of any car is R&D.

So this article doesn't tell us much.

dawnerd• 8 years ago

That's why they say potential cost.

toomuchtodo5• 8 years ago

It tells you what Tesla's margins are going to be, as R&D cost per unit decreases/is amortized over more units as production scales up. Check out their free cash flow [1]. You'll see that it's always in the red before production scales up (Model S first, then the X, and now the 3).

TL;DR If production continues to scale up, the Model 3 will be wildly (relatively speaking for the auto industry) profitable (and the battery cost is possibly under $100/kw, which would be big if true).

Sidenote: Elon's enormous pay package [2] that was approved requires one final condition be satisfied; four consecutive quarters with 30-percent gross margins. If I had to bet real money, I'd say 2018Q3 is when those margins begin to be realized, his compensation delivered 2019Q4/2020Q1, and his plan to go to Mars accelerate (possibly as a direct SpaceX customer).

Sidenote #2: The Model 3's battery pack has the lowest amount of Cobalt in the industry (2.8%, known state of the art is ~8%). Panasonic (Tesla's battery production partner) is currently working to remove the need for any Cobalt whatsoever [3]. Good for margins, good for production throughput, mixed bag for conflict areas Cobalt is sourced from. Can't win 'em all.

[1] https://i.imgur.com/HjyKxTm.png

[2] http://money.cnn.com/2018/03/21/investing/elon-musk-tesla-pa...

[3] https://ca.reuters.com/article/businessNews/idCAKCN1IV14Y-OC...

Usual disclaimer: TSLA investor

notenoughstuff4• 8 years ago

Check out their free cash flow [1]. You'll see that it's always in the red before production scales up (Model S first, then the X, and now the 3).

That's a charitable interpretation. From your link it's nearly always significantly in the red, outside of a couple anomalous quarters 5 years ago, and the one quarter they sold a bunch of ZEV credits.

It certainly doesn't look like "it's positive, except when they're scaling up!" to me. I guess one sees what they want to see.

gamblor9562• 8 years ago

The Ford F150 makes a gross profit margin of $10,000 to $13,000/vehicle. It sells 800,000 F150s each year, for a profit of $8 billion or more on just the F150s. By the way, F150s sell for about the same as the Model 3.

Porsche has gross margins of $18,000 to $23,000 on its vehicles, which are comparably priced to Tesla's other models.

Really, if you drill down into the actual numbers, you'll see that Tesla isn't significantly more profitable than other car makers on a per-vehicle basis, and they're certainly not wildly more profitable.

With the Model 3, Tesla needs to scale up just be in the black. It would need to sell somewhere on the order of several hundred thousand Model 3s each year to approach the per-vehicle gross margins of the Camry, and more than a million Model 3s each year to achieve the gross margins of the F150. Unless they drastically improve quality control, that's simply not happening.

Maybestring• 8 years ago

Per unit cost is an extremely important metric to an auto company.

Nokinside2• 8 years ago

Typically the biggest cost per new car is the factory and tooling, not the R&D.

parvenu74• 8 years ago

And it's only selling for $35k? I thought the rule-of-thumb was that you charge 3x the "bag of parts" for a product you make, sell, and service. Apple certainly got this memo... Elon is leaving a lot of money on the table.

cheald• 8 years ago

The models currently being sold (high-capacity battery, premium upgrades) are closer to the the 50-55k range.

zip1234• 8 years ago

It depends on the product. Most automakers only make single digit percent profit.

freehunter• 8 years ago

The selling point of the Model 3 is a $35k electric luxury car. It's not leaving money on the table if no one is willing to pay $100k for the car. Even if they sold it at 2x the cost, the selling point isn't "small electric luxury car" it's "inexpensive electric luxury car".

And trying to meet that target before technology allows them to is what is driving Tesla's current financial problems.

rgbrenner• 8 years ago

Thats for smaller ticket items. Boeing isn't 3x'ing the cost of a plane, and neither are car manufacturers. Toyota makes an average of $2800/car, and GM makes only $654/car [0].

Porche makes $17k/car... but that's on an average price of $100k.. so only 17%[1].

0. https://www.detroitnews.com/story/business/autos/2015/02/22/...

1. https://www.autoblog.com/2017/03/21/porsche-17250-profit-per...

briankelly• 8 years ago

But the parent said "bag of parts" which implies only the cost of materials, not the full per-car cost of production, and I can't tell if that also includes things like R&D, marketing, insurance, etc.

jccooper• 8 years ago

The as-configured vehicle they examined was sold for at least $49,000 (but probably more likely $54,000 with Autopilot), as they're only selling large-battery and high-trim interior now. The headline lumps material and labor together, but materials was reported as $18k, which is a surprisingly exact 1/3 of $54k.

The base model would have to have $12k of materials for the same ratio. I don't think that's likely (since much of it's invariant and especially since the $54k figure includes the Autopilot upgrade, which is only software) but it will have 1/3 less battery, which is a decent part of the cost of the car. So the base model will probably not be as profitable, but I think that's true for most cars.

mchahn• 8 years ago

The 3X rule assumes a middle-man distributor. When selling direct, as Tesla is, 2X is more common.

orev• 8 years ago

The cost of production has absolutely ZERO bearing on the sale price. Price is based on what a consumer is willing to pay for the product, that’s it. The cost of production only comes into play after that is determined, to ensure the company doesn’t sell at a loss (in which case they would probably cancel their plans), or whatever profit margin they are willing to accept.

Nokinside2• 8 years ago

The cost of the car for manufacturer might be: 60% goes into into the factory and tooling, 20% into the parts and 20% is the rest.

If parts alone cost $28k and the car is sold for $35k, there is no profit in the Model 3 even if the car is successful.

What I really want to know is how much Tesla pays for product recall insurance per car.

mikeash• 8 years ago

The one they tore down has a price of at least $49,000. They haven’t started producing the $35,000 version yet.

sylvinus• 8 years ago

They mention parts cost $18k in the article, not $28k.

Someone• 8 years ago

”They claim that their cost analysis resulted in materials and logistics costs of $18,000 and labor costs of $10,000 for a total cost potential cost of $28,000.”

If a factory worker costs $10,000 a month, that would be a person-month of labor per car, or 4 persons to produce a single car in a week, or 20,000 to produce the 5,000 each week that Tesla aims for.

Because of that, I doubt that $10,000 labor costs number is correct.

Reading the referenced https://www.wiwo.de/technologie/mobilitaet/elektroauto-zerle..., it talks of production rather than labor costs, so I think my suspicion is right.

hoschicz• 8 years ago

That labor could have been done by robots (this is just an estimate) or contractors farther in the supply chain.

forkLding2• 8 years ago

I have visited the Toyota factory in Ontario, Canada. What stood out to me was how little people was involved, literally everything was automated and the only labour people were doing was testing the cars by driving it (or even just checking the colour) when it came out or standby mechanics to maintain the machines.

I see Tesla as incorporating more labour than regular cars but not extensively as modern car plants have pretty much eliminated the need for humans.

dogma1138• 8 years ago

Labor does not mean only people but the cost of assembly. Robots aren’t free they need to be maintained by highly skilled and in the current market also highly paid workers and theya aren’t free to run either. They have expensive consumeables and they need to undergo constant maintenance for even basic things as maintaining their zero.

justin66• 8 years ago

That is rather interesting, since Tesla is famous for wanting to turn the whole assembly line into a giant robot, but Toyota is still in a cycle of being very open to using more people. There's plenty about this in the automotive and business press, the following isn't a great example.

https://qz.com/196200/toyota-is-becoming-more-efficient-by-r...

Tesla Model 3 teardown points to $28k in potential material and production cost

Related Stories