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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.

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.