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

[deonb]

I want to say one word to you. Just one word. Are you listening?

Plastics.

 

[JeffK]

I want to say one word to you. Just one word. Are you listening?

Plastics.

The Graduate?!

 

[Booga]

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

They can probably make some good estimates of what people will ultimately buy using the distributions found on the Model S. Do some people buy a base Model S? Sure, but it's not common, and so you don't need to price your products based on it. You might lose money on it as a matter of fact, and it's okay.

It's going to be just fine - I think people are worrying too much.

The base price of the car is what they committed to, but if they find costs are higher than anticipated, they can easily "adjust" the average selling price by modifying the upgrade costs. Some of those upgrades are going to be seen as essential, and so they have wiggle room. For example, I wouldn't be considering a Tesla if they didn't offer Autopilot. Therefore, if they find they need another $500 on the purchase price of the car to achieve their margin targets, then just add that to Autopilot costs. People like me will get it either way. If it becomes too expensive, I'll obviously just cancel my order entirely, but otherwise, I'm not getting a Tesla without Autopilot.

 

[JeffK]

They can probably make some good estimates of what people will ultimately buy using the distributions found on the Model S. Do some people buy a base Model S? Sure, but it's not common, and so you don't need to price your products based on it. You might lose money on it as a matter of fact, and it's okay.

It's going to be just fine - I think people are worrying too much.

The base price of the car is what they committed to, but if they find costs are higher than anticipated, they can easily "adjust" the average selling price by modifying the upgrade costs. Some of those upgrades are going to be seen as essential, and so they have wiggle room. For example, I wouldn't be considering a Tesla if they didn't offer Autopilot. Therefore, if they find they need another $500 on the purchase price of the car to achieve their margin targets, then just add that to Autopilot costs. People like me will get it either way. If it becomes too expensive, I'll obviously just cancel my order entirely, but otherwise, I'm not getting a Tesla without Autopilot.

Same here, there are certain upgrades many users will see as mandatory regardless of costs to a point.

I personally want a fully loaded one, but the bare minimum would include supercharging, autopilot, AWD, and a cold weather package.

 

[alseTrick]

They can probably make some good estimates of what people will ultimately buy using the distributions found on the Model S. Do some people buy a base Model S? Sure, but it's not common, and so you don't need to price your products based on it. You might lose money on it as a matter of fact, and it's okay.

It's going to be just fine - I think people are worrying too much.

The base price of the car is what they committed to, but if they find costs are higher than anticipated, they can easily "adjust" the average selling price by modifying the upgrade costs. Some of those upgrades are going to be seen as essential, and so they have wiggle room. For example, I wouldn't be considering a Tesla if they didn't offer Autopilot. Therefore, if they find they need another $500 on the purchase price of the car to achieve their margin targets, then just add that to Autopilot costs. People like me will get it either way. If it becomes too expensive, I'll obviously just cancel my order entirely, but otherwise, I'm not getting a Tesla without Autopilot.

I'm not worried about Tesla's price points in regards to the company making a profit on the vehicle. I know consumers will buy the base 3 at $35,000. I know Tesla knows that as well. I know many consumers will purchase multiple options and that Tesla is expecting an average price of over $40,000. My comment was directed at a poster who said Tesla "do[es]n't expect for anyone to buy a Model 3 at $35K." OF COURSE they do. They'd be stupid not to.

 

[jkk_]

but the bare minimum would include supercharging, autopilot, AWD, and a cold weather package.

Biggest battery (I'm assuming that includes supercharging) and tech package or w/e it is called these days (adaptive headlights etc.) and that should be it when combined with your list, if the model S and X packages are any indication. Performance package(s) might be nice but I doubt I can justify the costs of those.

 

[FlatSix911]

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.

I really think this is the correct answer ... for the first 2 years of production.
Take a look at the Model X production ... only high spec models have been delivered for the first year.

 

[SpiceWare]

I'm sure they expect there to be some who buy the base model, though I suspect they'll hold off on producing those as long as possible in order to give the battery costs time to drop even further. I don't think it'll be 2 years though, probably summer/fall of 2018.

 

[M3toSpain]

Thanks for all the replies - to me the answer probably lies somewhere between all of them, though I sincerely hope cheap 'plastics' won't be a major part. Will be interesting to see which any of the gimmicks (glass roof, HUD, 'spaceship steering controls') make it into the base model.

 

[Frank99]

I'll guess that 'plastics' (i.e. lower quality parts) will be an important factor.

Perhaps the brakes move from Brembo to a lower-cost supplier. Perhaps the sun visors get bought from the same M#@&*%#@s that built the ones in my Honda (that I've had to replace several times now). Maybe the stock seats become more like a Honda Civic than an Acura. Maybe instead of high-end Michelin tires, the stock tires come from Hankook.
There are a lot of places to take $5, $10, $50 out of the cost of various components. Sure, the perceived quality of the car moves down from the $100K strata to the $40K strata, but that's still a long way up from the low-end Kia's and Hyundai's of the world.

 

[cpa]

The Graduate?!

I would assume so. Murray Hamiltion (I believe) to Dustin Hoffman fairly early in the picture.

 

[EVNow]

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

I don't think volume reduction would result in equivalent cost reduction. Only some materials (like steel/Al) will cost less. A lot of other parts will cost the same (unless something else is done). Labor will be the same as well.

Cost reduction needs to come mainly from
- Cheaper BOM (either thr' volume or simpler/cheaper parts)
- Simpler manufacturing reducing labor costs
- Reduce complexity to increase quality (and thus warranty costs)

 

[N5329K]

I'll guess that 'plastics' (i.e. lower quality parts) will be an important factor.

Perhaps the brakes move from Brembo to a lower-cost supplier. Perhaps the sun visors get bought from the same M#@&*%#@s that built the ones in my Honda (that I've had to replace several times now). Maybe the stock seats become more like a Honda Civic than an Acura. Maybe instead of high-end Michelin tires, the stock tires come from Hankook.
There are a lot of places to take $5, $10, $50 out of the cost of various components. Sure, the perceived quality of the car moves down from the $100K strata to the $40K strata, but that's still a long way up from the low-end Kia's and Hyundai's of the world.

It also "moves down" from the entry luxury car target Tesla has been gunning for. Look what comes standard in a BMW 3 Series and you'll have market expectations indexed. As a counter example, Chevrolet is hoping to sell a $20,000-looking Bolt for $37,000. I don't think Tesla would be smart to follow that example.
Robin

 

[timk225]

So many of you are making the mistake of thinking that just because the car is 25% smaller, it must be 25% cheaper because of that. Far from the reality. It may use less aluminum and steel, but not 25% of the total cost worth, not even close.

Cloth seats with leather as an option, fewer things as standard features, more items as extra cost options, are what will be needed to make its cost go down.

 

[RobertSeattle]

Did anyone ask Elon what number base he was using when he said 35K? "35" in Hex is 53 in base ten.

 

[stopcrazypp]

Just the things Tesla has talked about: average gross margin will be ~15% rather than ~25% for Model S. Battery pack costs reduced by 30+% by Gigafactory. There will be less use of aluminum and from the concept, the car will be even more minimalist (only single screen).

 

[Dave230]

Lurking for quite some time since making my reservation in March, but this is as good a place to weigh in as any...

I'm one of those who don't think there's gonna be that many going out at $35,000:

Autopilot (look at the current Model S numbers) - $2500

Dual motor, 4WD (Elon says under $5000) - $4500

Supercharger access (who knows, but it ain't gonna be free) - $2000

Wheels, performance packages, seats, cold weather packages, stereos, who knows what?

And that's just for starters. I'll pay whatever I need to when it comes up, but this is looking to me like a $40,000 - $45,000 car

 

[heysteveh]

Elon MuskVerified account‏@elonmusk
Model 3 orders at 180,000 in 24 hours. Selling price w avg option mix prob $42k, so ~$7.5B in a day. Future of electric cars looking bright!

Elon says average is $42K, That means they are expecting some to sell for $35K and some to sell well over $42K

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

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.

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)

I'm not worried about Tesla's price points in regards to the company making a profit on the vehicle. I know consumers will buy the base 3 at $35,000. I know Tesla knows that as well. I know many consumers will purchase multiple options and that Tesla is expecting an average price of over $40,000. My comment was directed at a poster who said Tesla "do[es]n't expect for anyone to buy a Model 3 at $35K." OF COURSE they do. They'd be stupid not to.

 

[alseTrick]

I'm sure they expect there to be some who buy the base model, though I suspect they'll hold off on producing those as long as possible in order to give the battery costs time to drop even further. I don't think it'll be 2 years though, probably summer/fall of 2018.

Should someone who made a reservation after the 1st reveal in April 2016, but only expects to spend $35,000-40,000 on the car receive their delivery body someone who didn't make their reservation until after the 2nd reveal (let's say November 2016) even if the November order is maxed out?

I fully understand someone who made their reservation on April 15th and wants to buy a $60,000 Model 3 receiving their delivery before a $35,000 reservation holder who reserved on April 1st. Reservations have pretty much been flat since late April. So I feel everyone in that first bloc should receive their cars before ANYBODY in a later bloc.

There are 375,000 reservations. How many are from the US, less than 2/3? Let's just use 250,000. How many of those will be orders of $50,000+, at least half? Let's just say 125,000. If it takes TWO years to deliver all 125,000 of those vehicles, they will be WAY behind on their 500,000 vehicles in 2018 goal. Embarrassingly behind. And Tesla really cannot afford to sell something like only 50,000 Model 3s by the end of 2018 (50,000 Model 3s in 2018 and 75,000 in 2019 = the 125,000 with price tags >$50,000). Even if they're selling 200,000 Model S/Xs per year by the end of 2018, that's only half of their 500,000 goal. If you think the Tesla bears/haters are out in force now...

Not only will it be bad for Tesla stock, their reputation in the marketplace, etc, but they will lose thousands of reservations from folks who cancel because they're tired of waiting and thousands more from folks who are no longer eligible for a single dollar of federal tax credits. On top of that, by 2019-2020 there is supposed to be a lot more competition in the marketplace that may start to siphon off some of Tesla's sales if they're slow to deliver.

It's imperative that Tesla ramp up production on the Model 3 quickly and successfully in 2018.

Jmo.

 

[alseTrick]

Elon MuskVerified account‏@elonmusk
Model 3 orders at 180,000 in 24 hours. Selling price w avg option mix prob $42k, so ~$7.5B in a day. Future of electric cars looking bright!

Elon says average is $42K, That means they are expecting some to sell for $35K and some to sell well over $42K

So you're confirming my comments?