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Cost of Aluminum & Gross Margin

Discussion in 'TSLA Investor Discussions' started by aronth5, Jun 11, 2013.

  1. aronth5

    aronth5 Long Time Follower

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    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/
     
  2. CapitalistOppressor

    CapitalistOppressor Active Member

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    Thank you, I've been wanting to look into this! :)
     
  3. DrDave

    DrDave Member

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    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.
     
  4. CapitalistOppressor

    CapitalistOppressor Active Member

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    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.

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

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

    kenliles Active Member

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    On the other side of that trade, it also shows minimal risk of GM erosion from AL price fluctuations
     
  6. 30seconds

    30seconds Active Member

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    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
     
  7. wayno

    wayno Member

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    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
     
  8. Beavis

    Beavis Signature 991

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    I would guess that they hedge their price risk on Aluminum and any other key commodity. Check the 10-K.
     
  9. JRod0802

    JRod0802 Member

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

    Aluminium - Wikipedia, the free encyclopedia

    I'm glad the price has come down since then :)
     
  10. 30seconds

    30seconds Active Member

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    #10 30seconds, Jun 12, 2013
    Last edited: Jun 12, 2013
    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

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    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
     
  11. ShortSlaver

    ShortSlaver Member

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    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.
     
  12. aronth5

    aronth5 Long Time Follower

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    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."
     
  13. Sunnyday

    Sunnyday Member

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  14. Chickenlittle

    Chickenlittle Active Member

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    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
     
  15. Robert.Boston

    Robert.Boston Model S VIN P01536

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    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.
     

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