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While I agree fixed costs shouldn't be ignored, isn't it true that they are called fixed costs for a reason? As in, as Tesla scales up production and is selling
by DarkTree 11y ago
While I agree fixed costs shouldn't be ignored, isn't it true that they are called fixed costs for a reason? As in, as Tesla scales up production and is selling way more cars, their fixed cost per unit sold will go down with economies of scale. I think gross margin is much more meaningful here, but definitely correct me if I'm wrong.
- masida 11y agoFixed costs aren't totally fixed, it's just that they won't change for every unit produced. But it may be the case that they will change when you produce say an additional 100 units (or 1,000 or 10,000 units). So if you ramp up production and you need for example an additional factory, that means your fixed costs will go up.
- forgetsusername 11y ago>While I agree fixed costs shouldn't be ignored, isn't it true that they are called fixed costs for a reason Building cars is a capital and R&D intensive business. I'm not sure where the idea that those costs will basically go away comes form.
- ZeroGravitas 11y agoThey don't "go away", they get divided amongst a greater number of cars as production ramps up. It's not even just Tesla cars, as other electric cars come to market, the prices for components they need in common (battery being the big one) will fall with scale too. The battery is about half the cost of an electric car and battery prices have been dropping steadily, between 2007 and 2014 it halved (if you look a the whole market) or reduced by 2/3rds (if you look at leading manufacturers like Tesla) and are projected to continue to decline by 8-10% per year.