How will Tesla get from $66k to $35k?

[M3toSpain]

Hi, I'm new on this forum, but as a M3 reservation holder, I'd love to understand how Tesla will get from a $66k price on an entry level Model S to just $35k on a Model 3 profitably.

Even if the base M3 will get a small battery than 60kWh , it won't be that much smaller. Obviously, the Model S is a larger car with aluminium, more features and so on, but just how are they going to cut the cost almost in half? What is the make up of the $31k difference?

Thanks for your thoughts!

 

[S3XY]

Mainly just this one word: volume.

 

[EV4EVer]

My guess is more or less like this:

66k
-2.3k (SC access)
-2.3k (autopilot)
-9k (smaller battery, maybe 56 kWh not upgradable after selling)
-1k (smaller tyres)
-3k (less aluminum)
-5k (less margin per unit)
-2k (less gadgets: no LED lights, no retractable door handles,...)
-4k (lesser cost of kWh en 2018, I mean

 

[M0DEL³]

S3XY is right - scale is a significant contributing factor. Additionally it's important to realize the engineering costs are derivative, the cost of learning how to build electric vehicle has already been absorbed, so much of the costs of designing and engineering the Model 3 is therefore less expensive. (It's easier/cheaper after you've done it twice before.) Also, Teslas are not normal "cars" per say, but might be envisioned as fast technology-capsules on wheels - and as such benefits more from the ongoing reduction in costs associated with electronics and computer apparatus. Perhaps the most notable example of this is one of the most expensive components - the battery package. Tesla has, over time, invested a lot in reducing the costs of the battery arrays. Finally, JB Strauble has been quoted as saying that much of the engineering that has gone into the Model 3 design has been about making the car easier to manufacturer. This should also be interpreted as less costly to manufacturer.

Mix this all together as we get a much more affordable Tesla!

 

[ZAKEEUS]

The Model 3 will have a smaller battery, but more importantly, the M3's battery will be made in house.

 

[Boourns]

Gigafactory

 

[cantdecide]

Take a base model S.
$66k
Shrink the length 15%, shrink the height 5% shrink the width 5%... total 25% reduction.
Now it is $50k
cheaper matierials (steal instead of aluminium) save $5k
batteries generally get cheaper over time (including Gigafactory), save $3k
Less profit margin per car, make it up in volume, save $2k
No supercharging by default, save $2k
Cheaper features (trunk structure, front screens, door handles), save $3k
Now it is $35k

 

[22522]

Take a base model S.
$66k
Shrink the length 15%, shrink the height 5% shrink the width 5%... total 25% reduction.

Let's see how volume effects work on this one.
Model S 196" X 77" X 57" = 860,244 cubic inches
Model 3 166? x 73" x 54" = 654,372 cubic inches
Yes 25%

I think it makes more sense to work up using a functional analysis.

 

[ABCCBA]

IMHO - Because they don't expect for anyone to buy a Model 3 at $35K. Average price will be a lot higher. My guess is they won't be rolling off the production line for less than $50K for a year or two after production starts.

 

[omgwtfbyobbq]

I'm guessing a simplified interior and production process are a big part of that. All those little knobs, switches, and so on add to materials, labor, and opportunity costs.

For instance, I think that the complexity of the X is it's biggest weakness, because that complexity probably increases the rate of defects, increases the cost, and decreases the maximum production rate.

My sense is that Tesla will maximize the simplicity of the 3 given what Elin has said about it and what he's said about certain aspects of the X, like the doors.

 

[JeffK]

Well ok so previous posts touch on it. The model 3 is based on an entirely new battery made up of 20070 cells instead of 18650 cells. This extra volume increases the energy density nearly 30% with similar manufacturing costs. Manufacturing in high volumes lowers these manufacturing costs even further.
Using steel instead of aluminum reduces costs of raw materials.
A simpler interior reduces costs even further.
The battery itself will probably be under $8000, AC induction motors aren't terribly expensive when produced by machine en mass, and the rest of the car should be cheaper than most standard ICE cars to manufacture. I wouldn't be surprised if the base model costs under $26k to manufacture.

 

[Krugerrand]

Magic

 

[Tiberius]

Magic

 

[N5329K]

IMHO - Because they don't expect for anyone to buy a Model 3 at $35K. Average price will be a lot higher. My guess is they won't be rolling off the production line for less than $50K for a year or two after production starts.

They might have real competition from established manufacturers building cars at a lower price point if they make that assumption. I know I would start looking.
Robin

 

[neroden]

Take a base model S.
$66k
Shrink the length 15%, shrink the height 5% shrink the width 5%... total 25% reduction.
Now it is $50k
cheaper matierials (steal instead of aluminium) save $5k
batteries generally get cheaper over time (including Gigafactory), save $3k
Less profit margin per car, make it up in volume, save $2k
No supercharging by default, save $2k
Cheaper features (trunk structure, front screens, door handles), save $3k
Now it is $35k

Let's try this again.

$66K. Profit margin 25%, so it costs $49500 to make.
Shrink the length 15%, shrink the height 5% shrink the width 5%... total 24% reduction; this gives $37,620. (Batteries are reduced in proportion to size.)
Unbundle Supercharging -- $35620
Steel is cheaper than aluminum -- $30620.
One fewer touchscreen, no power door handles, etc., save $1000 -- $29620 to manufacture
15% gross margin still available

This is a very rough method of computation. There are synergies between making the car smaller, giving the car a better Cd, and making the battery smaller, and I haven't really accounted for improvements in battery technology. Tesla will also be making huge efforts to design the car for easy manufacturing; the mare's nest of wiring harnesses in Model S says they didn't do that for Model S.

 

[ucmndd]

IMHO - Because they don't expect for anyone to buy a Model 3 at $35K. Average price will be a lot higher.

That doesn't mean they're going to tolerate selling those $35k cars at a loss. While the average transaction price will clearly be significantly higher than the entry point, that entry point car still needs to be profitable.

 

[sg021]

Gigafactory and intention of design to be lower cost will help, but production volume is probably the most important. If you just research why luxury cars are so expensive, the primary reason is volume. There are a lot of fixed costs with designing and building cars, so if you can spread that number over many more cars you reduce those costs per vehicle a lot.

 

[3Victoria]

So one can see many paths lead to a $35k Model 3: efficiencies of scale, reductions in cost (battery), smaller size, cheaper materials, and less glam (powered handles, etc).

 

[kwest]

Where are you folks getting all your fancy numbers?

When Elon is asked this question, he has said time and time again:

"Economy of scale"

How his company will achieve that hyper scale is not up to us to determine using our calculators and numbers pulled out of our you know what's

 

[alseTrick]

IMHO - Because they don't expect for anyone to buy a Model 3 at $35K. Average price will be a lot higher. My guess is they won't be rolling off the production line for less than $50K for a year or two after production starts.

If they don't expect there to be customers who buy the base model then Tesla leadership is stupid.

And Tesla will be in bad shape if it doesn't sell a single Model 3 under $50k for 2 years (late 2019/early 2020). Two full years should be plenty of time to get the vast majority of the current US-based reservation-holders their delivery, NOT just the highest specked vehicles (because unlike the S and X, the 3 is going to have a large segment of low-optioned vehicles). They can't afford another huge production flop with the Model 3, especially with all the hype they've drummed up and their 500,000 vehicle goal for 2018. (I don't think they reach that goal, but I think they have to at least hit 50-60% of it to keep the heat off.)