9 ms·

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

64 points by hippich 8y ago

deleted 8y ago
[deleted]
holychiz 8y ago
It's not clear from the article if this cost figure includes software engineering cost which would be significant in Tesla's case.
- bryanlarsen 8y 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.
  - notenoughstuff 8y 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.
    - Proven 8y ago
      The fact that their R&D spend simply can’t be recouped by selling a handful of cars? A BMW can be had for $54/month. And I doubt they will fail to make as many as the market wants. https://www.detroitnews.com/story/business/autos/2018/05/17/carmakers-offer-big-incentives-electric-vehicles/34992385/ https://www.detroitnews.com/story/business/autos/2018/05/17/...
    - bryanlarsen 8y ago
      Toyota will spend roughly $0 in R&D on the 2017 Camry in 2018.
  - dingaling 8y 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.
    - drcharris 8y ago
      On a number of occasions, as a (software) program manager at several very large firms, I was tasked with taking every single piece of work that happened in the previous calendar year and seeing whether we could classify it as 'R&D' in order to qualify for one of the many tax breaks on offer in the various places that we did business. The criteria for qualification usually boiled down to 'was there an element of unknown quantity in the project?' - which left enormous room for interpretation, as basically anything that wasn't maintenance (RTB) could be justified. We would regularly, across the firm, get $50m tax benefits a year out of this effort. I'm not an accountant, but I'd be interested in just how rigorous the notion of 'R&D' is in a company's annual returns. It smells of PR to me.
- chapium 8y ago
  I think its pretty clear that this is an estimate of the material cost data point.
pasta 8y ago
The biggest cost of any car is R&D. So this article doesn't tell us much.
- dawnerd 8y ago
  That's why they say potential cost.
- toomuchtodo 8y 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 https://i.imgur.com/HjyKxTm.png [2] http://money.cnn.com/2018/03/21/investing/elon-musk-tesla-pay-package/index.html http://money.cnn.com/2018/03/21/investing/elon-musk-tesla-pa... [3] https://ca.reuters.com/article/businessNews/idCAKCN1IV14Y-OCABS https://ca.reuters.com/article/businessNews/idCAKCN1IV14Y-OC... Usual disclaimer: TSLA investor
  - notenoughstuff 8y 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.
deleted 8y ago
[deleted]
parvenu74 8y 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.
- jccooper 8y 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.
- cheald 8y ago
  The models currently being sold (high-capacity battery, premium upgrades) are closer to the the 50-55k range.
- zip1234 8y ago
  It depends on the product. Most automakers only make single digit percent profit.
- freehunter 8y 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 8y 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/toyota-per-car-profits-beat-ford-gm-chrysler/23852189/ https://www.detroitnews.com/story/business/autos/2015/02/22/... 1. https://www.autoblog.com/2017/03/21/porsche-17250-profit-per-car/ https://www.autoblog.com/2017/03/21/porsche-17250-profit-per...
Nokinside 8y 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 8y 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 8y ago
  They mention parts cost $18k in the article, not $28k.
Someone 8y 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-zerlegt-tesla-model-3-kann-gewinn-abwerfen/22625806.html https://www.wiwo.de/technologie/mobilitaet/elektroauto-zerle..., it talks of production rather than labor costs, so I think my suspicion is right.
- hoschicz 8y ago
  That labor could have been done by robots (this is just an estimate) or contractors farther in the supply chain.
- deleted 8y ago
  [deleted]
- forkLding 8y 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 8y 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.
    - 8y ago

64 points by hippich 8y ago

deleted 8y ago

[deleted]

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

bryanlarsen 8y 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.
- notenoughstuff 8y 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.
  - Proven 8y ago
    The fact that their R&D spend simply can’t be recouped by selling a handful of cars? A BMW can be had for $54/month. And I doubt they will fail to make as many as the market wants. https://www.detroitnews.com/story/business/autos/2018/05/17/carmakers-offer-big-incentives-electric-vehicles/34992385/ https://www.detroitnews.com/story/business/autos/2018/05/17/...
  - bryanlarsen 8y ago
    Toyota will spend roughly $0 in R&D on the 2017 Camry in 2018.
- dingaling 8y 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.
  - drcharris 8y ago
    On a number of occasions, as a (software) program manager at several very large firms, I was tasked with taking every single piece of work that happened in the previous calendar year and seeing whether we could classify it as 'R&D' in order to qualify for one of the many tax breaks on offer in the various places that we did business. The criteria for qualification usually boiled down to 'was there an element of unknown quantity in the project?' - which left enormous room for interpretation, as basically anything that wasn't maintenance (RTB) could be justified. We would regularly, across the firm, get $50m tax benefits a year out of this effort. I'm not an accountant, but I'd be interested in just how rigorous the notion of 'R&D' is in a company's annual returns. It smells of PR to me.
chapium 8y ago
I think its pretty clear that this is an estimate of the material cost data point.

pasta 8y ago

The biggest cost of any car is R&D. So this article doesn't tell us much.

dawnerd 8y ago
That's why they say potential cost.
toomuchtodo 8y 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 https://i.imgur.com/HjyKxTm.png [2] http://money.cnn.com/2018/03/21/investing/elon-musk-tesla-pay-package/index.html http://money.cnn.com/2018/03/21/investing/elon-musk-tesla-pa... [3] https://ca.reuters.com/article/businessNews/idCAKCN1IV14Y-OCABS https://ca.reuters.com/article/businessNews/idCAKCN1IV14Y-OC... Usual disclaimer: TSLA investor
- notenoughstuff 8y 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.

deleted 8y ago

[deleted]

parvenu74 8y 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.

jccooper 8y 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.
cheald 8y ago
The models currently being sold (high-capacity battery, premium upgrades) are closer to the the 50-55k range.
zip1234 8y ago
It depends on the product. Most automakers only make single digit percent profit.
freehunter 8y 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 8y 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/toyota-per-car-profits-beat-ford-gm-chrysler/23852189/ https://www.detroitnews.com/story/business/autos/2015/02/22/... 1. https://www.autoblog.com/2017/03/21/porsche-17250-profit-per-car/ https://www.autoblog.com/2017/03/21/porsche-17250-profit-per...

Nokinside 8y 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 8y 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 8y ago
They mention parts cost $18k in the article, not $28k.

Someone 8y 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-zerlegt-tesla-model-3-kann-gewinn-abwerfen/22625806.html https://www.wiwo.de/technologie/mobilitaet/elektroauto-zerle..., it talks of production rather than labor costs, so I think my suspicion is right.

hoschicz 8y ago
That labor could have been done by robots (this is just an estimate) or contractors farther in the supply chain.
deleted 8y ago
[deleted]
forkLding 8y 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 8y 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.
  - 8y ago