TMC is an independent, primarily volunteer organization that relies on ad revenue to cover its operating costs. Please consider whitelisting TMC on your ad blocker or making a Paypal contribution here: paypal.me/SupportTMC

Model S price justification (why so expensive?)

Discussion in 'Model S' started by AlexSV, Jul 17, 2012.

  1. AlexSV

    AlexSV Member

    Joined:
    Jul 5, 2012
    Messages:
    20
    Location:
    Los Angeles
    Can anybody explain why Model S is so rediculously expensive? How come the car with just a battery and two electrical motors costs the same price as my 911 which is piece of art in engineering? What is the real profit margin for TM?
     
  2. AnOutsider

    AnOutsider S532 # XS27

    Joined:
    Apr 3, 2009
    Messages:
    11,923
    I think your problem begins at "just a battery"...
     
  3. kevincwelch

    kevincwelch Active Member

    Joined:
    May 13, 2012
    Messages:
    2,017
    Location:
    Chicagoland
    This piques my interest.

    Has there been any discussion among TSLA investors regarding when the Model S may turn a profit? (This is just my ignorance; perhaps the company is already in the black.)
     
  4. SoCalGuy

    SoCalGuy Member

    Joined:
    Apr 22, 2012
    Messages:
    253
    Location:
    LA/NYC
    The price is not "rediculously" expensive (its not even "ridiculously" expensive either). You have to factor in the hundreds of millions of dollars spent in R&D to develop and commercialize the technology. That investment is recouped over the useful life of that tech and amortized over each unit/car sold. With a relatively low volume vehicle, that expense can be relatively high. (E.g. if Toyota spends $1B to develop a new Prius but expects to sell 10M priuses worlwide, it can amortize that upfront capital over 10M cars so the unit costs is say $100/vehicle if Tesla spent $500M to develop the S platform but only expects to sell 100,000 of them, then the unit cost is much higher at $5,000/car - that is above and beyond the actual unit costs of materials, labor etc) Similarly, each component in the vehicle has associated unit costs as does the factory used to produce the Model S. Simplicity is not something that is easy or cheap - there's a reason why Apple products cost much more than their clunky generic PC counterparts - there's a cost to engineering elegance and simplicity.
     
  5. AnOutsider

    AnOutsider S532 # XS27

    Joined:
    Apr 3, 2009
    Messages:
    11,923
    Elon has stated they can be profitable off just selling 8k Model Ss a year. They expect to begin paying back the loans at the end of the year and be profitable next year.
     
  6. It is true that Tesla spent most of their R&D dollars on the powertrain and development of the 17 inch display, and the interior got the short end of the deal from an investment standpoint. I know several people that sit in the Model S and have commented that there is no way this is a 100k car. For the base model the Model S is a decent value, when you start to look at the Sig Performances and there not being much different with regards to the interior (between base and performance); this is where people do not see the value proposition of the Model S (when comparing to other 100k+ sedans). Tesla probably makes a healthy profit on the 85KWH Model S and barely breaks even on the 57,600 version.
     
  7. ckessel

    ckessel Active Member

    Joined:
    Jan 15, 2011
    Messages:
    4,266
    Tesla has (several times) stated 25% gross margins and expected profitability in Q1 2013.
     
  8. ckessel

    ckessel Active Member

    Joined:
    Jan 15, 2011
    Messages:
    4,266
    In my mind, it's a $50k car since the upper end is mostly battery cost (or Perf wiring/inverter stuff). Or maybe a $30k car, depending on how you view the the 40kwh battery. So, yea, its other intangibles like interior aren't really going to match competitors at the high end of the price range.
     
  9. kevincwelch

    kevincwelch Active Member

    Joined:
    May 13, 2012
    Messages:
    2,017
    Location:
    Chicagoland
    Very nice.

    Has anyone here on TMC plotted the growth of Model S reservations? Would be interesting to see how that rate changes in the second half of this year when the vehicle starts hitting the production numbers.
     
  10. AlexSV

    AlexSV Member

    Joined:
    Jul 5, 2012
    Messages:
    20
    Location:
    Los Angeles
    My problem? I am fine. Thank you. But if I am right and Tesla is pushing severely overpriced product Tesla will have problem. And very soon. I guess that number of people who are ready to pay $100K for the car which should really cost twice less is very limited.
     
  11. kevincwelch

    kevincwelch Active Member

    Joined:
    May 13, 2012
    Messages:
    2,017
    Location:
    Chicagoland
    Do you suppose then that Tesla short changed the interior experience and is pushing the 85 kWh variants in order to make that profit earlier?

    I agree that the interior is very spartan. I am a minimalist myself, but the lack of luxury feel in the cockpit compared to other similarly priced vehicles has left somewhat of a frown on my face as I move forward here.
     
  12. Todd Burch

    Todd Burch Electron Pilot

    Joined:
    Nov 3, 2009
    Messages:
    4,737
    Location:
    Smithfield, VA
    You clearly need to read up more about the car. It only has one motor, for instance. And to underestimate the engineering on the Model S is inaccurate.

    The battery tech in the Model S is unsurpassed by any battery technology in the world. Have you looked at the chassis design? Do you understand the value of the simplicity of the drivetrain? The lack of a transmission? That fact that you don't have to pour expensive gasoline into it? These things all have a value.

    Dig through the reviews here, and you will find several people who prefer the driving experience of the Model S to the 911.
     
  13. ckessel

    ckessel Active Member

    Joined:
    Jan 15, 2011
    Messages:
    4,266
    They've said they make the best margins on cars with the most options, that's true with every manufacturer, so I'm sure that's part of the decision on roll outs.
     
  14. kevincwelch

    kevincwelch Active Member

    Joined:
    May 13, 2012
    Messages:
    2,017
    Location:
    Chicagoland

    I'm not so sure you're right.

    There are over 10,000 reservations, and if you view my surveys, the majority of them are buying 85 kWh versions. That puts them all above $75,000 purchase price. So, the majority of people now are willing to pay a pretty penny for this car.

    I don't think Tesla is going to have a problem selling 15,000...maybe 20,000 cars. The problem Tesla faces, IMHO, is that the market for the $75,000+ car will dwindle rapidly since, really, the upper 5% of Americans are the ones who can afford this car. There's a lot of competition in this price range. In order to capture the upper 10 or 15% of Americans or break into the middle class, the price of a reasonably equipped automobile is going to have to be <$40,000. Beyond that, the infrastructure has to develop, and that's not Tesla's job. They are at the mercy of those that develop the technology, implement it, and the demand of the people.

    This is, of course, a philosophical opinion and based on no firm data other than a reasonable assumption.
     
  15. ElSupreme

    ElSupreme Model S 03182

    Joined:
    Jan 13, 2012
    Messages:
    4,279
    Location:
    Atlanta, GA
    AO didn't mean you have a problem. The 'problem' is your understanding the cost of the battery in the vehicle

    There are tons of 'designer' clothing manufacturers that would disagree. I would say Apple would disagree.

    The 85kWh battery alone costs about $40-$50. I assume that is what you mean by "twice less".

    A Bimmer 7 series is the same cost what say you there?
     
  16. AnOutsider

    AnOutsider S532 # XS27

    Joined:
    Apr 3, 2009
    Messages:
    11,923
    Yes, in the reservation tally thread there have been graphs and spreadsheets posted.

    ok, not problem, logic error. Aside from the R&D and other facts pointed out above, we're talking a massive battery here, not a run of the mill 12v off the Walmart shelf. That alone will add 10's of thousands to the cost of the vehicle. Please also remember the car starts below 60k. The 100k+ configurations include lots more batteries ($10k per step up in batter gets you to 80k alone), higher performance, and of course, more profit margin.

    I think consumers will end up recognizing the value add in Tesla's product. Apple doesn't seem to have a problem pushing MacBooks at their inflated price points (compared to PCs).
     
  17. AlexSV

    AlexSV Member

    Joined:
    Jul 5, 2012
    Messages:
    20
    Location:
    Los Angeles
    You can not compare Model S and 911. Different cars, made with different ideas in mind for different people. You can compare 911 with Roadster. I like 911 much better!
     
  18. ckessel

    ckessel Active Member

    Joined:
    Jan 15, 2011
    Messages:
    4,266
    There's a legitimate argument to be made that the high end Model S isn't competitive in some aspects (such as interior, parking assist, and such). It's certainly competitive on performance, external styling, handling, and such. Taken as an overall package, it seems to be competitive. Pretty much every reviewer so far has thought it's a competitive entry into Tesla's stated market niche.
     
  19. Todd Burch

    Todd Burch Electron Pilot

    Joined:
    Nov 3, 2009
    Messages:
    4,737
    Location:
    Smithfield, VA
    You mentioned the 911 in your first post, asking why they're in similar price ranges. Different things have different values to different people. Can you fit a family of 4 comfortably in the 911? No.

    Can you go a few hundred miles on $10 of gas in the 911? No.

    If there are people willing to pay the asking price for a product, then that is the very definition of that product having value at its price point. I wouldn't even consider the 911. Different strokes for different folks.

    For comparisons, look at the Model S vs. BMW 5-series (or M5). Each car is stronger in some areas and weaker in others. Some here prefer the S to the M5, others prefer a regular 5-series to the Model S. it all depends on what they value. That does not mean that the price is ridiculous.

    Also, you can take $10k-$20k off the cost of the Model S due to savings in fuel over its lifetime. Probably more than that considering premium fuel.
     
  20. AlexSV

    AlexSV Member

    Joined:
    Jul 5, 2012
    Messages:
    20
    Location:
    Los Angeles
    I'm not so sure about $40-50K for the battery. I can believe that Tesla would be happy to sell this battery for 40-50k. It doesn't mean that it's the real cost of the battery.
     

Share This Page