3 ms·

I'm truly at a loss (sorry) how any manufacturer would make a US$100K-per-unit loss on vehicles that are supposed to sell for $55K on average? Sure, batteries

I'm truly at a loss (sorry) how any manufacturer would make a US$100K-per-unit loss on vehicles that are supposed to sell for $55K on average? Sure, batteries are more expensive than gas tanks, but...

wepple 2y ago
That probably includes one-off development and manufacturing costs
mikeyouse 2y ago
You're highlighting the absurdity of claiming the $100k loss per vehicle - except for Tesla, the auto industry is one of the few that amortizes all of their R&D for a new model into the COGS. So if Ford spends $1 billion on R&D and $1 billion on advertising for a new model they expect to sell for 10 years, they'll claim $200M/year in expense - so if they only sell 1 car with an actual materials cost of $25k - in their financials, that car will "cost" $200,025,000.
- PreInternet01 2y ago
  Yeah, that's indeed absurd, and something that if I were to try that, I'd probably go to jail for...
  - ryan93 2y ago
    What on earth do you think the crime is?
    - PreInternet01 2y ago
      Improper amortization of R&D expenses? In most locales, including (from what I can gather) the US, there are (generous) initial tax subsidies, followed by a 5-to-15-years earn-back period. Simply including R&D costs, imagined or otherwise, in COGS seems... fraudulent?
      - mikeyouse 2y ago
        Nah, it's GAAP for the industry since they essentially can't sell cars without that R&D investment.
        ryan93 2y ago
        Yeah it’s more product development than r&d
  - voisin 2y ago
    If you were vital to the economy, you could do it too!
cmac2992 2y ago
New production line and tooling fixed costs are included in the per vehicle costs. Ford is missing their delivery estimates so the fixed costs get spread out across significantly less vehicles.
MattGaiser 2y ago
Probably includes R&D and plant setup. I am not an accountant, but under GAAP (most common set of accounting rules), I have heard that a lot of R&D is treated as an expense.
- saltcured 2y ago
  Cutting material orders and production plans because of slow sales may be wise, because you don't want logistics issues from overstock of supplies or finished units. But it's all about production and sales forecasting. But, it has essentially nothing to do with past R&D costs or how they are arbitrarily pinned onto units sold. This assignment of R&D to COGS makes for this bizarre reporting and maybe even poor decision making, if people stop remembering why the accounting looks this way. The sunk R&D cost is already there, and adjusting the amortization denominator (number of units sold) on the fly makes for imaginary trends. This accounting fiction makes for a COGS that gets worse as you reduce sales. So any rhetoric around "losses per unit" is tainted with this counter-intuition. Your losses are from each missed sale below your original marketing plan, where you predicted you would have enough sales to support the R&D expenditure. You don't recover them by reducing sales. At most, you can reduce further bleeding of operational costs like marketing and production if you truly believe that your sales targets are doomed.
beerandt 2y ago
Because among other reasons, CAFE standards force quotas via mandated averages, which leads to weird incentives and unexpected results (like EPA regs resulting in larger, not smaller, trucks). If you're a company that needs to hit an mpg average, and fed rules allow absurd conversion on calculated equivalent empg, then your end up with the market we see today: Inexpensive to make SUVs and Trucks being turned into luxury products to justify absurd price increases, just to offset the losses from hitting ev/high-mpg quotas. (Which are relatively expensive to manufacture and sell for less). This upside down market was predicted years ago, and has been moving in this direction for 20+ years. It was only a matter of time till profit-margin turned to loss-margin. If it keeps going they'll approach prices practically giving EVs away in order keep selling their other vehicles that actually make a profit. Tangent: from a sustainability engineering perspective, the lifetime energy costs/consumption of EVs is heavily front-loaded compared to iceVs. You pay more upfront (in both energy and $s) manufacturing the batteries and electric motors, whereas ice vehicles are cheaper to make but use/waste more energy in-use (per fillup). A lot of (economic) market and regulatory forces are being pushed/pulled beyond limits to get to a desired result. That's why it doesn't make sense, prima facia.

wepple 2y ago

That probably includes one-off development and manufacturing costs

mikeyouse 2y ago

You're highlighting the absurdity of claiming the $100k loss per vehicle - except for Tesla, the auto industry is one of the few that amortizes all of their R&D for a new model into the COGS. So if Ford spends $1 billion on R&D and $1 billion on advertising for a new model they expect to sell for 10 years, they'll claim $200M/year in expense - so if they only sell 1 car with an actual materials cost of $25k - in their financials, that car will "cost" $200,025,000.

PreInternet01 2y ago
Yeah, that's indeed absurd, and something that if I were to try that, I'd probably go to jail for...
- ryan93 2y ago
  What on earth do you think the crime is?
  - PreInternet01 2y ago
    Improper amortization of R&D expenses? In most locales, including (from what I can gather) the US, there are (generous) initial tax subsidies, followed by a 5-to-15-years earn-back period. Simply including R&D costs, imagined or otherwise, in COGS seems... fraudulent?
    - mikeyouse 2y ago
      Nah, it's GAAP for the industry since they essentially can't sell cars without that R&D investment.
      - ryan93 2y ago
        Yeah it’s more product development than r&d
- voisin 2y ago
  If you were vital to the economy, you could do it too!

cmac2992 2y ago

New production line and tooling fixed costs are included in the per vehicle costs. Ford is missing their delivery estimates so the fixed costs get spread out across significantly less vehicles.

MattGaiser 2y ago

Probably includes R&D and plant setup. I am not an accountant, but under GAAP (most common set of accounting rules), I have heard that a lot of R&D is treated as an expense.

saltcured 2y ago
Cutting material orders and production plans because of slow sales may be wise, because you don't want logistics issues from overstock of supplies or finished units. But it's all about production and sales forecasting. But, it has essentially nothing to do with past R&D costs or how they are arbitrarily pinned onto units sold. This assignment of R&D to COGS makes for this bizarre reporting and maybe even poor decision making, if people stop remembering why the accounting looks this way. The sunk R&D cost is already there, and adjusting the amortization denominator (number of units sold) on the fly makes for imaginary trends. This accounting fiction makes for a COGS that gets worse as you reduce sales. So any rhetoric around "losses per unit" is tainted with this counter-intuition. Your losses are from each missed sale below your original marketing plan, where you predicted you would have enough sales to support the R&D expenditure. You don't recover them by reducing sales. At most, you can reduce further bleeding of operational costs like marketing and production if you truly believe that your sales targets are doomed.

beerandt 2y ago

Because among other reasons, CAFE standards force quotas via mandated averages, which leads to weird incentives and unexpected results (like EPA regs resulting in larger, not smaller, trucks). If you're a company that needs to hit an mpg average, and fed rules allow absurd conversion on calculated equivalent empg, then your end up with the market we see today: Inexpensive to make SUVs and Trucks being turned into luxury products to justify absurd price increases, just to offset the losses from hitting ev/high-mpg quotas. (Which are relatively expensive to manufacture and sell for less). This upside down market was predicted years ago, and has been moving in this direction for 20+ years. It was only a matter of time till profit-margin turned to loss-margin. If it keeps going they'll approach prices practically giving EVs away in order keep selling their other vehicles that actually make a profit. Tangent: from a sustainability engineering perspective, the lifetime energy costs/consumption of EVs is heavily front-loaded compared to iceVs. You pay more upfront (in both energy and $s) manufacturing the batteries and electric motors, whereas ice vehicles are cheaper to make but use/waste more energy in-use (per fillup). A lot of (economic) market and regulatory forces are being pushed/pulled beyond limits to get to a desired result. That's why it doesn't make sense, prima facia.