Cost of Aluminum & Gross Margin

[aronth5]

Over the last 6 months the per pound cost of aluminum has decreased by about 9%. In the past year it has been relatively flat. This should definitely help Tesla's goal of a gross margin target of 25% for the rest of the year assuming the cost of aluminum doesn't spike. Excluding the battery pack and labor costs one would presume the cost of aluminum is high on the list. Is there any information on how much aluminum is used in the Model S so we can better understand how this impacts gross margin?

http://www.infomine.com/investment/metal-prices/aluminum/6-month/

 

[CapitalistOppressor]

Over the last 6 months the per pound cost of aluminum has decreased by about 9%. In the past year it has been relatively flat. This should definitely help Tesla's goal of a gross margin target of 25% for the rest of the year assuming the cost of aluminum doesn't spike. Excluding the battery pack and labor costs one would presume the cost of aluminum is high on the list. Is there any information on how much aluminum is used in the Model S so we can better understand how this impacts gross margin?

http://www.infomine.com/investment/metal-prices/aluminum/6-month/

Thank you, I've been wanting to look into this!

 

[DrDave]

Will Alcoa give Tesla a price cut or are they locked into a pricing agreement? I would think for at least 2013 the price has been agreed to.

 

[CapitalistOppressor]

First pass at a guess for aluminum usage -

Car weight - ~4,700 lbs
Batteries - ~800lbs
Tires/wheels - ~150lbs
Rotors/Brakes/Suspension - ~300lbs
Interior Stuff - ~600lbs

Thats like 1,850lbs so far, so even if you give yourself 300-400lbs of wiggle room, 2500lbs of aluminum seems reasonable on a first pass.

- - - Updated - - -

Which would mean only $250 worth of savings for every 10 cent reduction in price? Ouch.

- - - Updated - - -

Like 0.3% swing in Gross Margin if the ASP is $90k? I'll take it.

 

[kenliles]

Which would mean only $250 worth of savings for every 10 cent reduction in price? Ouch.
Like 0.3% swing in Gross Margin if the ASP is $90k? I'll take it.

On the other side of that trade, it also shows minimal risk of GM erosion from AL price fluctuations

 

[30seconds]

Pretty sure that aluminum density is about 1/3 of steel. In other words I doubt that the model S uses anywhere near 2500lbs of aluminum given that most cars don't use extensive amounts of aluminum and don't weigh over 6000lbs

 

[wayno]

In order to get an equivalent strength and stiffness from the aluminum compared to steel, you would need to use more of it. What that means is that the Al sheet metal panels are probably thicker than steel panels in a conventional car, the crumple zone beams use more Al than conventional car would use steel, etc. So at the end of the day you can't accurately make the jump that if the S uses 2500lbs Al a conventional car must use 3 times that due to density differences. I think the 2500lb est is a pretty gods spitball number.

Wayne

Sent from my PG86100 using Tapatalk 2

 

[Beavis]

I would guess that they hedge their price risk on Aluminum and any other key commodity. Check the 10-K.

 

[JRod0802]

Since this thread is about the price of aluminum, I just thought I'd post this interesting factoid about aluminum pricing:

Before the Hall-Héroult process was developed in the late 1880s, aluminium was exceedingly difficult to extract from its various ores. This made pure aluminium more valuable than gold. Bars of aluminium were exhibited at the Exposition Universelle of 1855. Napoleon III of France is reputed to have given a banquet where the most honoured guests were given aluminium utensils, while the others made do with gold.

Aluminium - Wikipedia, the free encyclopedia

I'm glad the price has come down since then

 

[30seconds]

I think we would see a bigger margin impact in volume pricing from all the subcomponent suppliers. I think Elon was talking about not having volume pricing in effect during the Q4 call. At this point for FY 2013 they should be hitting multiple discount triggers. This probably is baked into Tesla's projects of 25% margins at end of the year w/o clean energy credits and seems to not be mentioned by any of the analysts or recent articles.

UPDATE:

I was still curious about use of aluminium in autos so I looked up a few papers. Here is a recent one looking at multiple cars including the Audi A8. Seems to me that we are talking about 600-800lbs, not thousands of pounds, although the paper really only talks about body in white and not suspension and other areas where tsla is using aluminium

https://www.jim.or.jp/journal/e/pdf3/52/05/818.pdf

more
Green Car Congress: Industry survey finds aluminum use in autos at all-time high; average per vehicle use expected to more than double from 2012 by 2025

- - - Updated - - -

OK, I kept going. Looks like the 2012 A8 and XJ uses about 1200 pounds of aluminum. See slide 8. lots of other neat info here

http://www.alueurope.eu/wp-content/uploads/2012/04/EAA-Aluminium-Penetration-in-cars_Final-Report-Public-version.pdf

 

[ShortSlaver]

UPDATE:

I was still curious about use of aluminium in autos so I looked up a few papers. Here is a recent one looking at multiple cars including the Audi A8. Seems to me that we are talking about 600-800lbs, not thousands of pounds, although the paper really only talks about body in white and not suspension and other areas where tsla is using aluminium

https://www.jim.or.jp/journal/e/pdf3/52/05/818.pdf

more
Green Car Congress: Industry survey finds aluminum use in autos at all-time high; average per vehicle use expected to more than double from 2012 by 2025

- - - Updated - - -

OK, I kept going. Looks like the 2012 A8 and XJ uses about 1200 pounds of aluminum. See slide 8. lots of other neat info here

http://www.alueurope.eu/wp-content/uploads/2012/04/EAA-Aluminium-Penetration-in-cars_Final-Report-Public-version.pdf

Keep in mind a substantial amount of that aluminum is in the engine block and heads. Tesla, obviously, doesn't have an engine block or heads.

 

[aronth5]

Continuing good news for Tesla as the price of Aluminum continues its lower cost.. I wonder how much Tesla has impacted Alcoa's decision to expand their Tennessee plant. Anyone know?

http://abcnews.go.com/Business/wireStory/alcoa-posts-slim-3q-profit-lower-costs-20509477

"Alcoa credited higher productivity and strong results in its engineered-products and rolled-aluminum units, which now account for more than half its revenue. The company sells rolled aluminum sheets to car makers, a business that it expects will grow rapidly as manufacturers boost fuel mileage by producing lighter vehicles. Alcoa is expanding a rolling mill in Tennessee that serves the auto market."

 

[Sunnyday]

More news on the Aluminum front. This story from Bloomberg a few days ago, talking about how a reform of warehousing practices will lead to lower prices as new inventory floods an already glutted market Aluminum Costs Seen Dropping as LME Unclogs Depots: Commodities - Bloomberg

 

[Chickenlittle]

Continuing good news for Tesla as the price of Aluminum continues its lower cost.. I wonder how much Tesla has impacted Alcoa's decision to expand their Tennessee plant. Anyone know?

http://abcnews.go.com/Business/wireStory/alcoa-posts-slim-3q-profit-lower-costs-20509477

"Alcoa credited higher productivity and strong results in its engineered-products and rolled-aluminum units, which now account for more than half its revenue. The company sells rolled aluminum sheets to car makers, a business that it expects will grow rapidly as manufacturers boost fuel mileage by producing lighter vehicles. Alcoa is expanding a rolling mill in Tennessee that serves the auto market."

I had invested in aa a month ago figuring other automakers would copy tesla. The cc transcript on line. It mentions auto production in 3 spots and they are relying on increased auto use. They do not specifically mention tesla and I would not expect them to alienate other companies. They have also announced 2 or 3 weeks ago a new bonding technology to bind aluminum parts together in cars. I do remember a tweet sometime ago from Alcoa congratulating tesla on a particular milestone but do not remember what it was

 

[Robert.Boston]

My working assumption would be that Tesla had a firm-price contract with its aluminum supplier(s), with quarterly or annual price adjustment clauses. No rational, large buyer of a commodity product pays spot prices. Consequently, while the aluminum price declines bode well for future gross margins at Tesla, it probably has little to no effect in 2013.