Munro Teardown Shows Tesla Model 3 Solidly Profitable [video]

by solarkraft • 8 years ago

162 138 8 years ago

karpodiem2• 8 years ago

...at what selling price? M3 Long Range starts at $49K, which can be configured with a $2500 deposit for delivery in a few months.

The M3 short range (starting at $35K) can't be configure for delivery at this time.

ProfessorLayton• 8 years ago

This needs an answer. One would hope it is profitable at 40% above it's base price. The real question is if they'll be able to eek out a profit when they start selling to the masses.

greglindahl6• 8 years ago

The short-range Model 3 is just the long-range one with a smaller battery and a less fancy interior package, so it's not rocket science to estimate its margin from the long-range car teardown.

_ea1k5• 8 years ago

It also lacks the glass roof. Maybe there are a few other small feature differences as well? But I agree, it isn't exactly impossible to estimate its cost from the cost of the LR PUP version.

compcoffee6• 8 years ago

Good, I hope Tesla can find their space and actually become a feasible company. My "commuter" vehicle is paid off in 2 years, so I hope in 3 or 4 EVs are widespread enough to buy one. I drive about 120km round trip, so an EV makes a lot of sense. Don't let my comment history fool you; I'm pro EV, and even pro Tesla. I simply believe TSLA is overvalued, because they aren't going to rule the world.

That said, there's a big gap between "theoretically" profitable, and GAAP profitable. Tesla's problem won't be the margin on their assembly and parts; it will be the ongoing maintenance and potentially demand for cars that, up to now, are far more expensive than advertised.

mberger4• 8 years ago

I'm in the same boat. I'm not rich enough to afford a Tesla so I'm hoping the Leaf or similar hit the 20k - 30k mark when I'm ready to buy. I have a 4km (!) commute so range is not an issue. What will be an issue is fitting my house with a charging station.

martythemaniak4• 8 years ago

First, batteries are the critical path for EVs. That is, cost, adoption, range, power, etc all a function of the quality of the battery.

Second but Tesla seems to have the best battery by far. Unfortunately we can't know this for sure, because businesses like Munro & Associates charge millions of dollars for this info, but what they and others do reveal points to that. There's no reason to believe that any other manufacturer can make a better EV. Nissan, for example, can charge you less, but also give you less battery.

Unfortunately for everyone involved, batteries as a whole are still expensive, so it'll take time for the industry to spin up and for used models to become available. My personal guess is that in ~5years, Tesla will be able sell you a $25k car with 400km range.

In the meantime, you could look into used Leafs, Volts or i3s, or just wait. For ~4km you also don't need a charging station for those, just a cable.

raisedbyninjas2• 8 years ago

You can get a low-mileage used Leaf under $10k today.

mikestew4• 8 years ago

I'm not rich enough to afford a Tesla so I'm hoping the Leaf or similar hit the 20k - 30k mark when I'm ready to buy.

You can't give a used < 2018 Leaf away. Go buy one of those, or if you must have new, see if you can find a leftover 2017 (the old version before the '18s came out). You could tolerate riding a wooden plank for 4Km, you're not going to notice the niceties of a Tesla anyway.

What will be an issue is fitting my house with a charging station.

With your commute, you could charge off house mains (110V/220V, depending on country). Especially Europe, where AFAIK a lot use 220V for house mains, meaning faster charge times than the glacial 110V we get in the U. S.

lelaurent• 8 years ago

Why on earth do you go by car for 4km?

elif• 8 years ago

i have a similar commute, i just bought a 2013 leaf for $7k cash. I plug in a regular extension cable to my wall once a week. It's easier to upkeep than a boosted board.

stellar6782• 8 years ago

At 4km, why not ride a bike?

marklyon• 8 years ago

A CPO i3 might be just what you’re looking for today, particularly if you live in a CARB state where you get the super-extended battery (and generator, if you get the “back up plan” range extender).

I picked up a 2015 CPO with the Tech Package for the very low end of your price range late last year.

deno• 8 years ago

I have a 4km (!) commute so range is not an issue.

You could just get a long extension cord ;)

hayd• 8 years ago

Which was the original video where he didn't like the fittings etc?

devin• 8 years ago

https://www.youtube.com/watch?v=QCIo8e12sBM

Nokinside• 8 years ago

TL;DW of the original video is

* Electronics, batteries etc. are far ahead of others

* Car drives very well.

* Traditional car parts are total crap. Chassis very heavy without any safety or other reasons.

Munro says in a interview that had Tesla outsourced the manufacture and design of of the car minus the scateboard to a company like Magna they would have hit every target and even Toyota would be crapping their pants now. If the traditional mechanical parts of the car would have been even decent, Tesla would have mopped the floor with everybody.

Tesla has been throwing money away because they didn't outsource and they have been loosing time against competition that comes behind.

fhood• 8 years ago

Wow, and absolutely brutal amount of work must have been put into those reports. How do they estimate the cost of parts made inhouse?

jseutter• 8 years ago

Heh, I loved the answer when I read about it a while back:

https://jalopnik.com/the-fascinating-company-that-tears-cars...

In short, get a bunch of experts together and review each part, then add up the result.

mhb2• 8 years ago

And charging $150K for the report enables you to do that.

froindt3• 8 years ago

Looking at the shape of a part, estimated quantity required, etc. an experienced manufacturing engineer can give you a very good guess as for how it was made. One of my industrial engineering professors encouraged us to bring any parts we were uncertain of to him for analysis (and I did stump him one time with the plastic molding on the end of a DVI cable).

There are fixed costs and variable costs for production. Creating the dies and molds is a very large fixed cost which gets spread across all units created. Based on the size of the part, estimated tolerances required for successful operation, and other factors, an estimated die or mold cost could be created.

The material, electricity, and labor are variable costs of production, all of which can be quite easily estimated.

Now, on the rear view mirrors they had cost down to the penny. Unless they have some other datasources they're using, I'm guessing it's an estimated cost. Unless I learn more, I'd be skeptical of those prices. I'd be more comfortable if they posed an estimated cost per component and rolled it up into an estimated cost for the rear view mirror assembly.

danso• 8 years ago

How much off was your professor about the DVI cable?

adamjcook3• 8 years ago

I agree on the "per component" estimated costs. It is conceivable that Munro, having been in the business for a number of years, would have access to all sorts of data sources that the general public (or even higher quality data sources than even the big automotive companies).

I do think, many times, Musk's contributions to various fields have been overblown. However, I do think that Musk's companies' do challenge incumbents to really re-evaluate their internal processes, costs and organization. If I were General Motors, I would think it foolish to ignore this Munro report entirely.

In that way, the market is working as expected in my view.

shanghaiaway• 8 years ago

They sell the reports for $1M.

Faaak2• 8 years ago

No, 87k$: https://leandesign.com/pdf/Tesla-3-Analysis-Sales-Informatio...

martythemaniak4• 8 years ago

This isn't the first time this kind of teardown has been performed and they all show the same thing. The $35k base model made at scale later this year will be profitable.

I know this doesn't sit well with the whole "Musk is a fraudster/bullshit artist" wave that's hit HN and most online forums recently, but sometimes things are really simple. They'll make the car and sell it a profit.

compcoffee6• 8 years ago

The $35k base model made at scale later this year will be profitable."

We've been hearing about it forever. Let's see it. It's always "coming".

"Musk is a fraudster/bullshit artist" wave that's hit HN and most online forums recently"

Give me a break. You're "wave" is my, finally, balance. Tesla, or more specifically Musk, has got far more postive press than they deserve. I never see any Nissan, Porsche, Audi, or rarely, GM articles on this site. Meanwhile, every time the Tesla blog/Electrek make a post, it's upvoted here.

danhak2• 8 years ago

It will come as soon as the company exhausts demand for the higher-ASP variants. In what world does it make business sense for a production-constrained company to prioritize its least expensive products?

gburdell32• 8 years ago

I just saw a Nissan article on here a few days ago. It was about how they cheated their emissions tests.

thephyber• 8 years ago

Nissan, Porsche, Audi, GM are all behemoths. Tesla, by comparison, is an underdog (hence the widespread emotional appeal), has framed themselves as being principally for "changing how humans use energy" rather than "just a little better than the next car", and has a CEO+chairman who says outlandish things... and delivers on some of them.

I would argue Musk gets press for nearly the same reasons Trump does. And it works.

DmenshunlAnlsis5• 8 years ago

What $35k model?

https://arstechnica.com/cars/2018/07/tesla-drops-35000-price...

I’ll believe it’s a thing when it starts to ship, until then it’s PR for a car that’s much less affordable.

Edit: the mass downvoting of any comment critical of Tesla/Musk, and flagging of any negative article is getting really old. It’s especially galling when people float conspiracy theories about an anti-Musk bent as a justification for this.

martythemaniak4• 8 years ago

Have you considered the fact that you're getting downvoted because the negativity requires an increasingly conspirational mindset?

What I'm saying is, what you you're seeing could be explained thus: "It takes a few months to spin up production of new trim levels. Like other companies, this company's years-long plans sometimes get delayed by several weeks or months. The company has spent a lot of capital on fixed costs and are focusing on being cashflow positive by prioritizing high-margin sales first"

To make sense of Tesla's actions doesn't require your to believe anything out of the ordinary, nor even anything specific to Tesla. I might have just as easily described Intel shipping a chip.

OTOH, the negative case is always shifting, there are always rumours, the books are cooked, the production numbers are bunk, the QC issues are underreported, etc etc. Until a few weeks ago, the line was that they couldn't make them in large numbers. Now that that's gone and forgotten, the current line is about the base model. When that ships, the line will shift to the Model Y or FSD.

cjensen• 8 years ago

The parent comment explicitly says the "$35K model coming later this year". Your comment would be more helpful if you provided a critique of why it is not coming rather than just asserting it in an overly-combative way.

HeadsUpHigh2• 8 years ago

There's being cautious and there's being intentionally negative and hateful. It's all a matter of perspective.

karpodiem2• 8 years ago

I'll believe it when I see positive cash flow being generated through reading a 10-K statement filed with the SEC.

Historically, Tesla has never done this without selling ZEV credits (there were those two quarters it posted a profit but the amount of cash they've burned is many times greater than those two miniscule profits they posted). I say this because selling ZEV credits isn't an advantage, any automaker can do this if they sell vehicles, even if those vehicles are sold at a loss.

deelowe2• 8 years ago

The $35k base model made at scale later this year will be profitable

Here's the thing. SV Tech companies aren't too great at the whole "at scale" manufacturing thing. Maybe Tesla can figure it out, but they need to pay more attention to what the "boring dinosaurs" are doing this this regard.

If you're interested, this video is great: https://www.youtube.com/watch?v=CpCrkO1x-Qo

perl4ever3• 8 years ago

"Here's the thing. SV Tech companies aren't too great at the whole "at scale" manufacturing thing."

There was a time when Apple was notorious for problems with manufacturing shortages, but somewhere along the line of becoming a juggernaut they seem to have figured it out.

adrr2• 8 years ago

I don't understand how the rearview mirrors can be up to 5X difference in price and have the same features(eg: auto dimming). Also BMW and Chevy are likely sharing the rearview mirror with other models so the price difference even makes less sense to me.

lgbr• 8 years ago

Because the mirror is otherwise extremely simple. There are no buttons or other electronics like you might find in the Bolt which would have OnStar.

adrr2• 8 years ago

There isn't going to be a cellular system and cpu for on-star in the rearview mirror. It's going to be a board that probably plugs into the infotainment system board. Also model 3 rearview mirror has a camera so $24 is very suspect.

https://electrek.co/2017/08/01/tesla-model-3-driver-facing-c...

Obi_Juan_Kenobi• 8 years ago

It's right there on the page:

Tesla Model 3 has a frameless electrochromatic mirror with no powered functionality, whereas the BMW i3 has buttons and powered functionality build-in. The Chevy Bold has powered functionality including backup camera display.

So the Tesla just has a mirror with, presumably, one set of wires going to it to power the dimming. The others have buttons, electronics, a bundle of wires, and an LCD display in the case of the Bolt. The BoM difference probably isn't too terrible, but the cost of assembly, as well as testing/QC of those features, likely results in the cost difference.

Extrapolating from that, I'd imagine that settling on one powerful touchscreen has saved Tesla some cost in a variety of places. Not just lowering BoM on things like buttons and electronics, but also ease of assembly, modularity, etc.

mtgx• 8 years ago

I believe it was in the Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future (audio-)book that I heard that at least for SpaceX, but I think also for Tesla, building the components in-house came out much cheaper compared to what their competitors would have to pay for the same components.

They were often more advanced, too, because the component could use whatever was most modern technology and was highly-optimized for SpaceX/Tesla's use case. In contrast, the components for other carmakers have to be much more uniform and satisfy everyone, as you said.

When it's a new type of product, it usually pays to become a system integrator in order to squeeze the maximum performance out of every component in the system and benefit from the synergy. The other carmakers haven't done that yet with EVs, and they were in an even worse shape a few years ago when they were still only repackaging their ICE cars into EVs.

Whenever they would do that, not only were they able to use only small battery packs inside those cars, because they weren't designed to be EVs from the ground-up, but they would also be significantly less efficient per kWh of battery pack.

By the way, that book is fantastic. I highly recommend it.

ggm• 8 years ago

There was a story about people inside Tesla identifying weld simpification. I'm interested if the teardown was before or after that change, because my working assumption is construction time impacts cost. But not bill-of-materials inputs, so the impact on the cost side, might be low, it just goes to flow-rate of amounts of cars made.

Love to know: does changing manufacture of fixed-size parts like this alter cost?

larrydag• 8 years ago

The old saying "time is money" definitely important in manufacturing

olivermarks• 8 years ago

Having a hard time believing this - as they say in the video 30% profit margins are v rare in the auto industry. I trust Munro though...

agumonkey• 8 years ago

Surely stock owner will review this thoroughly

barbegal• 8 years ago

I'd say there isn't enough detail in this video to say. Munro said 30% net profit but I think he meant to say gross profit. Costings may have been based on like for like labor costs but in reality labor costs are highly variable with the California factory being one of the most expensive (one of the reasons why Toyota decided to stop manufacturing there). In addition it wasn't clear which exact model, sold in which country the 30% was based on and at what scale of manufacture. Taxes, grants, customer options and volumes change the pricing very significantly.

My take away is that at the right price point, cheap enough labor and sufficient volumes the Tesla model 3 could have gross margins of 30%. Whether it is saleable at that price point and volume is unknown but more likely than the i3 and Bolt.

danhak2• 8 years ago

All-electric drivetrains, $5000 software-enabled options, over-the-air service, vertical integration and direct sales are v rare in the auto industry too. Reasoning-by-analogy does not always hold up when comparing tech newcomers to incumbent players.

newnewpdro• 8 years ago

EVs should have far better margins than ICE vehicles, at least in the interim transition period where prices still reflect the cost of comparable ICE vehicles.

They're far simpler to manufacture once all the electronics have matured enough to be integrated. If you look at the Model 3, the power system is largely bundled with the battery. So the gigafactory is pumping out that module where much of the cost and complexity resides, and the rest of the car is largely devoid of precision machining processes.

ICE vehicles have complicated transmissions and engines, lots of machining and delicate assembly processes.

I expect there to be a period where the margins on EVs are quite fat thanks to inertia in the market's price expectations established by high-cost ICE vehicles. It'll wane once the competition matures and the undercutting commences. These cars should be much cheaper to manufacture (as well as operate/own/maintain).

elihu• 8 years ago

I think electrics will eventually be cheaper than gas (and I'm looking forward to that day), but right now production is bottle-necked on battery supply. So, manufacturers can sell cars for any price they like because electric cars are relatively rare. It won't last forever, but it's a nice position to be in for the companies that have a steady, reliable source for battery cells.

Animats2• 8 years ago

That's bill of materials cost. What's killing Tesla is labor cost in assembly. Tesla has about 10,000 employees in Fremont, to produce about 3500 cars a week., per Bloomberg.[1] (No, not 5000 cars; they got up to 4500 once, though.)

Modern auto assembly plants typically run about 15-30 labor hours per car.[2] Tesla's Fremont plant is somewhere over 110, even in good weeks. In bad weeks, the ratio is much worse.

The point of the teardown is that the design isn't inherently expensive. If Tesla ever gets their assembly plant working properly, they could make money.

Musk commented "go to Ford, it looks like a morgue", after apparently visiting the Ford Rouge plant. Ford's PR person replied "No doubt the vibe is funky in that 'makeshift tent,' but it's not bad either across the street at the #FordRouge plant where a high quality, high-tech F-150 rolls off the line every 53 seconds like clockwork." That's what's supposed to happen. Cars coming off the line at a steady rate, union workers not being worked to death.

[1] https://www.bloomberg.com/graphics/2018-tesla-tracker/ [2] https://www.motortrend.com/news/toyota-chrysler-have-north-a...

Shank• 8 years ago

It's always worth noting the disclaimer that Bloomberg has on their tracker:

Given the exponential trajectory of a production ramp up, there may be sudden increases in output that this model is slow to catch.

When you're looking at Tesla's numbers, the tracker becomes more reflective of progress several weeks after a production peak. Given that the 5,000 peak was hit relatively recently, this means that we should expect the tracker to reflect this substantially later.

stefan_• 8 years ago

It's triple the labor hours, so you can happily assume a higher production ceteris paribus and it still looks bad.

mikeash4• 8 years ago

Is your figure of 10,000 employees just for the Model 3 lines, or is it for the entire factory? Because they’re making about 2,000 Model S and X per week, so your numbers need to account for that if it’s the entire factory.

greglindahl6• 8 years ago

Animats has been repeatedly told that mixing the labor numbers for low-volume high-end aluminum-bodied cars with some parts insourced with a new high-volume line with kinks to be worked out is meaningless. But don't worry, he will probably be making the same comment next month, and the month after, in rotation with his other usual negative Tesla comments he makes in every Tesla thread.

_ea1k5• 8 years ago

Tesla produced 53,339 vehicles in the most recent quarter. That works out to ~4,444 vehicles per week. Also, the vehicles per week figure is increasing.

To be fair, they would only produce ~231k/year at this run rate, which would be disappointing for a factory that is capable of ~430k/year. Hopefully their production rate will improve considerably by the end of the year.

adventured• 8 years ago

The core flaw to most negative comments on HN since the Model S was first announced or produced is: the skeptics pretend there will be zero volume improvement and Tesla is going bankrupt soon. If you remove those two absurdities, their arguments always implode.

With the Model S it was routinely claimed that because Tesla got off to a slow production start, that they'd therefore never manufacture the car in any volume. The same ridiculous argument was then wheeled out again for the Model 3. It will be wheeled out for the next model that has a slow production start or production problems. Which points to the obvious conclusion: it's about attacking Tesla, it's not about logic, reason, facts.

The Model 3 starts slow on manufacturing. The skeptic says: see, they've failed, it's over, they'll never produce it in volume. The Model 3 weekly production moves up to 500 or 1,000 units. The skeptic says: see, they have no idea what they're doing, they can't produce it any real volume, and besides they're going bankrupt in 1Q19 or sooner anyway. The Model 3 weekly production moves up to 2,500 or 3,000. The skeptic says: yeah but the car sucks, they're building them in tents, and besides they'll never manufacture 5,000 per week, and they're going bankrupt anyway. The Model 3 production moves up to 5,000+ units per week. The skeptic says: yeah, but they'll never make 10,000 per week, and they're still going bankrupt, they can't make money on the car.

That's how the Tesla attack, goal post moving has worked thus far. And it'll perpetually continue to work that way, they'll just move on to the next thing to focus on as an attack.

hendzen• 8 years ago

53,339 vehicles, but only 28,578 Model 3 sedans or ~2.3k per week. The 5k per-week goal is for the Model 3, not all vehicles combined.

Giorgi2• 8 years ago

Not true, Munro does labor of cost assessments as well, not just BoM. If Munro is saying car is profitable then I am pretty sure he factored that in.

raisedbyninjas2• 8 years ago

Does it factor in the warranty maintenance? Tesla seems to have a high rate of warranty work from noisy drive units to retrofitting titanium armor to all the battery packs.

stephengillie• 8 years ago

Other reviews have predicted that the Model 3, itself, is profitable. These say Tesla's bigger financial issue is the Supercharger network. Ideally, they would pay for Supercharger through perpetuities - or perpetual annuities - from interest on part of the profit from the car; but the invested profits are sequestered from operations' use.

perl4ever3• 8 years ago

If Tesla makes more components in-house than other automakers, that could shift costs from parts to labor without affecting overall costs. So I don't think having more employees or hours per car is evidence they're dysfunctional on the face of it.

lancewiggs• 8 years ago

‘Hi-tech’ F150? A cheap truck that doesn’t have to comply with the same safety or emissions standards as cars? It’s a very different beast to a BMW, let alone a Tesla..

megaman22• 8 years ago

Cheap? You clearly haven't looked at a dealership lately. F150s start around $30k for the most basic two-wheel drive v6s. Models people actually buy are closer to 40k, 45k new.

There's a reason Ford quit making sedans.

notananthem• 8 years ago

It isn't solidly profitable, in fact, its solidly unprofitable. They haven't been profitable yet.

melling2• 8 years ago

The company has been unprofitable. The video claims the profit margin on the car is 30%. I've heard from a couple of analysts that Tesla needs to produce between 50,000-60,000 Model 3's a quarter to be profitable.

Musk has stated that Tesla will be profitable in Q3 and Q4.

quickben• 8 years ago

Assuming it survives until then (bond's maturing, etc).

vonnik• 8 years ago

This reminds of the teardown German engineers did back in May to reach the same conclusion:

https://medium.com/@chrisvnicholson/analysis-teslas-model-3-...

jillesvangurp2• 8 years ago

Also check this analysis of the same report by German Handelsblatt (in English): https://global.handelsblatt.com/companies/german-fears-cover...

For reference, that's a quality German news publication making the point that German car manufacturers are getting worried, which is probably an understatement.

Basically last year, Tesla outsold the German manufacturers in their home market for electrical vehicles. This year is not looking much better. The total amount sold in Germany per month last year was about half what tesla is claiming to do per week last recently. Meanwhile the model S is outselling essentially all similarly priced traditional cars in Europe as well.

Unsurprisingly, VW, Audi, Mercedes, etc. have all announced electric vehicles starting to ship "from next year" (numbers unknown, presumably nowhere near 5k a week any time soon). Most manufacturers are being hand wavy about early 2020s type time frames for volume production. If they do have cost issues like this analysis suggests, they'll be struggling to compete on price and volume for quite some time.

So, Tesla undercutting them on price and volume is a big deal. Tesla doing battery production and other components in house is a big deal as well. Tesla opening up more giga factories in places with cheaper labor (e.g. China) or in Europe (Germany is being rumored) is a big deal as well.

I've been reading all these comments about the imminent implosion of Tesla here on hacker news and I just don't see it. Basically people pulling numbers out of their ass and predicting they won't even last until end of the year. Last time I read comments like this about a company was when I was reading internal comments on the iphone launch while working at Nokia. Needless to say, Apple did rather well regardless of those comments. Basically high placed Nokia seniors were arguing passionately the iphone was shit, the cost was way to high, and no way Apple could match their logistics, and btw. the latest Nokia phones had feature X, Y, and Z so obviously Apple was fucked. Spectacularly wrong on all fronts and Nokia was history five years later because it never managed to recover from being so spectacularly wrong in time to come up with decent, competitive products.

I learned a lot about seemingly smart people being completely wrong and suffering from confirmation bias in that phase of my career. I'm seeing exactly the same patterns in the car industry today.

I'm seeing a company doing more or less what Apple did to traditional phone manufacturers about a decade ago doing more or less the same for cars. The same kind of arguments and the same disbelief as Tesla ticks off milestone after milestone. Also the same kind of excited user base. Teslas are selling in a way that is very similar to how the iphone market has been rock solid for a decade now. I wouldn't be surprised to learn that most Tesla owners were also early iphone adopters. Sure Tesla is behind schedule. But what schedule is that other than their own ambition? What clock is ticking exactly? What other manufacturer is shipping 5K electric vehicles per week; or even planning to, or realistically close to our producing and undercutting Tesla on price and quality?

erk__• 8 years ago

I think you underestimate how fast the car companies can set up a production, at the same time Northvolt is making europes biggest battery factory to open in 2020. I think that every european carmaker is going to have up to multiple electric cars before IAA next year. Also you need to remember that apple never really solved the production problem they outsourced it to Foxconn, and are first now taking some of the production back.

Munro Teardown Shows Tesla Model 3 Solidly Profitable [video]

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