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My theory: it all comes down to the maturation of the underlying technology. Tesla has been around for ten years. Why is their mainstream car only coming to m
by codex 13y ago
My theory: it all comes down to the maturation of the underlying technology. Tesla has been around for ten years. Why is their mainstream car only coming to market now, after all that time? Part of it is that creating a new car company takes a lot of time, but most of it is that the battery and other technologies have only recently matured enough to make EVs practical. Tesla has been waiting and waiting until this occurred and has a small jump on the other manufacturers. If this is true, I expect other manufacturers to ramp up pretty quickly. Both GM and Nissan both have electric cars that outsell the Model S (at least for now).
Another aspect of the Model S worth mentioning is that EVs are heavily subsidized with a $7.5K federal tax credit a huge pile of cash from California--so Tesla has extra money to apply to the fit and finish of the car vis a vis non-electric luxury cars. In fact, as of last quarter all of Tesla's profits came from selling ZEV credits to other auto manufacturers, not from the actual car itself. Take out the $70M from selling ZEV credits and Tesla's gross margin is only 6%--much less than other luxury manufacturers. In fact they'd be running at a $50M quarterly loss without them. So it's easier to make a great car if you don't have to make as much money at it. If Tesla manages to get their gross margin to 25% without these incentives, however, it will be a different story, and a remarkable feat.
- arethuza 13y agoBMW has a full range of electric cars that will start coming to market this year, in particular the small carbon fibre i3 looks particularly interesting: http://www.telegraph.co.uk/motoring/car-manufacturers/bmw/10015336/BMW-i3-electric-car-the-inside-story.html http://www.telegraph.co.uk/motoring/car-manufacturers/bmw/10...
- pyre 13y agoYou're only focusing on the "electric car" part. By all accounts, the rest of the car is an amazing package, even without the electric motor. I think the question is why was Tesla able to push the Model S so far ahead of the current industry in those other respects?
- codex 13y agoIt's because Tesla makes an extra $7.5K from each car via the federal tax credit and an extra $70M each quarter selling ZEV credits. Without these they would not be profitable. So they have more money to apply to the fit and finish of the car than luxury manufacturers which don't make an electric. It's because Tesla makes an extra $7.5K from each car via the federal tax credit and an extra $70M each quarter selling ZEV credits. Without these they would not be profitable. So they have more money to apply to the fit and finish of the car than luxury manufacturers which don't make an electric. They also benefit from an enormous, low interest DOE loan. To date Tesla has lost more than billion dollars which has not been recouped; that's roughly -$50K per car sold in 2013 ($1B / 20K). In contrast, BMW only makes a profit of +$5K on each of their 1.5M cars sold yearly.
- jfb 13y agoBut a luxury manufacturer like e.g. Audi gets to reuse engineering work from parent VW and sibling Lamborghini to improve their $100k car. Much of the comparative advantage of the Model S is due directly to the engineering differences of building an electric powertrain; they get to make different tradeoffs than BMW does in, say, an M5. The real nutcutting time will come when an established brand decides to build a high-end electric (the BMW i8, for instance), where they get to combine their much more significant economies of scale with the advantages of an electric drivetrain. EDIT: The i8 is a plug-in hybrid, actually, so it's really a worst of both worlds sort of deal. The point still stands as made, however.
- codex 13y agoI wonder how the marginal cost of an ICE compares with the marginal cost of one or two electric motors + regen + batteries + charger, and how those change over time. I suspect the electric drive train isn't cheaper now, but will be cheaper in a few years.
- sliverstorm 13y agoI suspect aside from the batteries, electric drive train is already cheaper. Modern ICE are ridiculously sophisticated and require advanced manufacturing capabilities.
- maxerickson 13y agoIt's generous to call the Model S a mainstream car. Low volume, high price, and so on. More accessible than the previous Tesla though.
- justin66 13y ago> Take out the $70M from selling ZEV credits and Tesla's gross margin is only 6%--much less than other luxury manufacturers. Meh. If they avoid the volatility of other luxury manufacturers that's an accomplishment in and of itself and something that makes them an interesting investment, even if their margins aren't phenomenal. Who owns Jaguar or Lotus right now? Or Aston Martin, or whoever? These aren't stable companies we're talking about.