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Discussion: UBS claims Tesla will lose money on the $35,000 Model 3

Discussion in 'TSLA Investor Discussions' started by strangecosmos, Aug 22, 2018.

  1. strangecosmos

    strangecosmos Non-Member

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    Does anyone know what cost assumptions this estimate by UBS is based on?

    In May 2017 (before Model 3 production started), UBS came out with a report that estimated the base Model would have an EBIT margin of -8% and would lose $2,830 on an EBIT basis.

    That report said the base Model 3 would have a 55 kWh battery that costs $165 per kWh. I believe Tesla has indicated the base version will have a 50 kWh battery at a cost of less than $124 per kWh.

    Using UBS’ model from 2017, if you simply adjust the battery size down from 55 kWh to 50 kWh and the battery cost down to $124 per kWh, you get a tiny (but positive) EBIT margin on the $35,000 Model 3 of around 0.01% — or $45 per car.

    Now UBS is saying the base version will lose $5,900 per car on an EBIT basis. I don’t have a sense for what cost factors caused their estimate to change.

    Noteably, an unnamed German teardown firm was reported to estimate $28,000 in parts and labour costs for the Model 3 at a 10,000/week production rate. (Important note: Tesla’s cost of automotive revenue as reported in its income statements includes more than parts and labor, so this estimate alone can’t be used to calculate gross margin, as Tesla calculates it.) Detroit-based teardown specialist Sandy Munro estimated that the base version would cost no more than $31,500 in parts and labour to produce, which by one anonymous writer’s math could translate into something like a 7% gross margin (paywalled article).

    So, estimates vary quite a bit!

    I am really curious to know what assumptions UBS is using. The Wall Street Journal reports that UBS is using an even higher estimate of battery costs following their teardown. Fred at Electrek says UBS is now estimating $178 per kWh. However, that only accounts for $715 of the $3,070 difference between UBS’ 2017 estimate and its 2018 estimate. I’m not sure what accounts for the rest of the difference.
     
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  2. Uncle Paul

    Uncle Paul Active Member

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    This claim is based on tearing down a current production vehicle. Elon has stated that they have invented a way to produce the standard battery packs at much less costs. They are also improving the production costs as they go.

    I believe that Tesla will be able to turn a nice profit on even the base cars, however it will be blended in with the totatality of all the production configurations to end up with profitable production all across the line.
     
  3. hellnoICE

    hellnoICE Member

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    I could send you a report but not sure how to do that here.
     
  4. SebastianR

    SebastianR Member

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    The German TFF Forum has the (English) UBS report here:

    UBS Vergleicht Batterie und Antriebstechnik M3 / Bolt und I3 • TFF Forum - Tesla Fahrer & Freunde - just click on the PDF download.

    I'm not impressed. It seems superficially okish, but then it gets really strange. For instance it seems to "double charge" Tesla for in-house made stuff by assuming a third party supplier (and their profit) as a cost to Tesla - which seems like a great way to make profits per car vanish into thin air (pro-tip: if you assume that a company is not doing anything itself, the whole car will be made by someone else and thus all profits will be somewhere else - that's a brilliant way to proof that Tesla won't make money). Other than that I disagree with UBS battery cost estimates. If Tesla would pay this amount, I think something would be seriously wrong.

    Lastly, I have no clue with what volumes UBS works. Tesla is on record saying that they need a run-rate of at least 5k / / week to be able to make the base-version profitable. Guess what, that means if you assume a run-rate below 5k/week that the base model is likely to be not profitable...
     
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  5. X Fan

    X Fan Supporting Member

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    Remove the U from UBS and you get what I think of their reporting.....
     
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  6. gluu

    gluu Member

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    They think Tesla is at 178/kWh. Naturally, this is a number they can't possibly know, as Tesla's pricing is not an open market price.

    If Tesla was at < 190/kWh and achieved a 35% reduction, then they would be roughly at 125/kWh. Then the delta between this teardown and Tesla's guided costs would be (178 - 125) * vehicle kWh. So for LR that would be a 4240 dollar difference, and 2650 difference for SR.
     
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  7. Uncle Paul

    Uncle Paul Active Member

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    Because of Tesla's policy of constant improvement, tearing down a current production vehicle does not give you accurate data to predict future vehicle costs.

    Elon was quoted saying that they are finding ways to make their cars more efficiently. One mention was that they have engineered out ove 300 welds that are not necessary. Elon also stated that they have redesigned the way they will be making the standard battery pack and that it will be improved and yet less expensive than the current battery pack.

    They showed Elon walking through the assembly plant and noting that the area they were in currently has one robot making a part, then putting it on a turntable for another robot to take off. Said they are reworking that area so the first robot will simply hand it over to the second robot, saving that entire expensive and trouble prone turntable. Quicker, less expensive, faster and take up less space. Lots of things like this are being enhanced every day in the production facility.
     
  8. EV forever

    EV forever Member

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    Someone posted this on another forum.
     
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  9. Esme Es Mejor

    Esme Es Mejor Member

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    Actually, the U stands for Ultra. They pride themselves on going above & beyond on the provision of BS.
     
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  10. GregRF

    GregRF Squirrel Power

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    So a Quick breakdown of the values used in the report.

    Battery $13,331
    Cells $148/kWh
    Battery Pack $2203 ($1162 Material and $1041 Labor/SG&A, which is than double counting SG&A)

    BMS and Charging $1,700

    Drive Unit $1,351
    Motor $754
    Gearbox/ Packaging $597

    Cooling/Wiring/Other $850

    EV Powertrain Total $17,232 (but the report adds this up as $17,800?)

    Breakdown of Black, Long Range RWD, PUP Car
    Price $49,000
    Factory Cost $34,720
    *Operations $10,650
    Operating Profit $3,630

    Breakdown of Black, Standard Range, RWD non-PUP car
    Price $35,000
    Factory Cost $30,250
    *Operations $10,650
    Operating Profit $-5,900

    *Operations consist of D&A, Warranty, Freight, R&D, SG&A
     
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  11. omgwtfbyobbq

    omgwtfbyobbq Active Member

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    Or Ultimate!

     
  12. Menifeer

    Menifeer Member

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    In my car, they saved by not putting nuts on all the bolts!
     

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