As a Cost Accountant I promise a tear down doesn’t even come close to anything other than materials cost unless they have an inside source of information. Labor, Labor Overhead, and Subcontract costs are the other three large contributors when doing manufacturing costing. Labor Overhead is usually a multiplier on Labor Cost to cover the cost of buildings, machines, and direct labor employees. There’s a couple of ways to address strategy at this point. The simplest is then to tack on SG&A (Office people costs), non direct manufacturing costs, financing costs, etc, to figure out your total cost. If your target margin is 10% you figure out a product mix sales strategy for top line revenue to achieve that. I’m guessing the Model 3 is low margin but by selling so many of them it helps pay for fixed costs (E,g, divide the factory’s property taxes by 200,000 cars vs 100,000). The model X is probably a higher margin product but alone can’t make the company profitable because of fixed costs. It wouldn’t surprise me if they start producing the SRs folks have already reserved in small batches mixed in over the next year but I could see them not wanting to commit to more until either sales volume is high enough the fixed component of the cars’ cost goes down to make it profitable or there’s a technology breakthrough that improves the manufacturing process to make the cars profitable at $35K. Certainly the more cars you sell you can get price breaks on quantity buys, too.
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Tesla Removes Mention Of Standard Range Model 3 From Its Website. What's Going On?
- Thread starter Exscite
- Start date
No, it doesn’t work that way. Your total product line yields a margin but individual products will vary. One product might have a 40% margin, particularly if it has a patent or new tech, while another may be breakeven to gain market share or to test the market. I’ll go out on a limb and say it would surprise me if many companies had the same margin for all products. Even GM and Ford say in earnings calls that trucks and SUVs are their higher margin product implying to me that cars are lower margin for them. But, if the car you’re selling for $35K costs $34.9K to manufacture you have to limit sales on a ratio to higher margin products to remain profitable overall.
MagnusMako
Member
Thanks for sharing the screen shots!
Standard range battery available in March 2018...Wow their plans changed dramatically.
Not surprising that they cancelled the Short Range model. The tear downs estimating price are ridiculously optimistic, based on high yields and established, efficient manufacturing processes. The basic design is just too expensive - even stripped right back to the poverty spec, it's just not going to be viable at $35k.
I think there is a lot of "fat" that can be cut out. I have a mid-range 3, and assuming that price on current base mid-range will come down to around 45k when all federal tax breaks expire, I think that it should be possible to shave around 10k off the car. Let's say 3-4k for smaller, re-designed battery, 2-3k for stereo system and leather interior, 1k for glass roof, and the cost should be close to 35k.
Tesla may need to take a hit on margin by 5-10% on a very base model, but there should be room to shave that much.
3k for the stereo and leather? Maybe they charge you that much, but there is no way that's what it costs them, and no way they will save that much after they fitted a cheaper stereo and cloth seats either.
The other problem is that as they struggle to produce enough cars they have been trying to reduce the number of configurations, so adding more doesn't save the actual price difference. As well as the need to hold stock for manufacturing, they need to produce documentation for service centres, keep long term supplies available for service and modify the software. A cheaper stereo will need different software. Okay it's Tesla so at least they don't need to test it.
And the question is always why, if they can do this, haven't they done it yet?
If they have considered to produce SR battery in 2017. It's should be perfectly viable for them to start that SR production now.
High weekly production, profits two quarters back to back and international market is ongoing. I think the next short term movement is SR battery.
No. Tesla's early production goal was depending on the successful automation of production.
Had it worked, Tesla would have _needed_ to sell the SR because they didn't have AWD at that point, so couldn't sell the 3LRD or 3PLRD.
But once it became clear that it was an unmitigated disaster, they had to throw bodies at production, and _couldn't_ _afford_ to sell the 3SR, having to sell the 3LR only, and the 3LRD and 3PLRD as soon as they could. And they were starting again from scratch with the Grohmann-designed line. Now, it makes sense that they have both time and need to change the SR pack design to lower the cost. (Elon Musk said it'll be better, and it could be, but they'll be focused on cost reduction. It might also be lighter to improve range, since it's possible that an increase in range of the SR could still give them more CARB and Chinese credit.)
Yeah, no. The SR Pack is produced on the same line that all other packs are produced on. The Grohman designed line is still being installed. The current SR pack is using the existing module design, where as there is a new module design to be more efficient.
Simply .... why bother?
The lowest end MR model right now is $42,900 ... minus $3,750 in federal incentives = $39,150.
Are there throngs of people who'd be buyers at $35,000 but not $39,150? Some, sure. But enough to pay for the engineering and design efforts in de-contenting the MR?
Let's assume $50m in cost to redesign the Model 3 into an SR edition - just engineering and testing costs etc (remember, it'd have to go through safety testing and all again since the battery pack would be different .... weight, balance, driveability, NVH, all would come into play. EPA range testing, etc. None of those are cheap.)
Now let's assume - for simple math - a 5% net margin on a hypothetical Model 3 SR sale. I doubt it's even that high, but that's $1,750 per vehicle.
You'd need to sell 28,572 more vehicles just to break even on that $50m in development cost.
Now, let's also factor in missed-opportunity cost. We know that Tesla is churning out as many Model 3's as they can produce. So, for every SR they'd make, they would NOT be making a MR or LR, both with presumably higher margin. So let's make an assumption that the MR and LR both have 5% additional margin over the SR. That'd be another 28,572 vehicles they'd have to build and sell just to get to even.
Would a $35k SR Model 3 really entice 57,144 people to buy a car who wouldn't buy an MR instead?
Some serious assumptions above, but you see where I'm going with this ... Building an SR version, just to hit some hypothetical price point, may never make sense. It doesn't to me.
If I were Tesla, I'd call $39,150 in the ballpark and move on. People are stuck on this $35k number like all of a sudden the floodgates would open for orders... I don't think Tesla has that problem.
The lowest end MR model right now is $42,900 ... minus $3,750 in federal incentives = $39,150.
Are there throngs of people who'd be buyers at $35,000 but not $39,150? Some, sure. But enough to pay for the engineering and design efforts in de-contenting the MR?
Let's assume $50m in cost to redesign the Model 3 into an SR edition - just engineering and testing costs etc (remember, it'd have to go through safety testing and all again since the battery pack would be different .... weight, balance, driveability, NVH, all would come into play. EPA range testing, etc. None of those are cheap.)
Now let's assume - for simple math - a 5% net margin on a hypothetical Model 3 SR sale. I doubt it's even that high, but that's $1,750 per vehicle.
You'd need to sell 28,572 more vehicles just to break even on that $50m in development cost.
Now, let's also factor in missed-opportunity cost. We know that Tesla is churning out as many Model 3's as they can produce. So, for every SR they'd make, they would NOT be making a MR or LR, both with presumably higher margin. So let's make an assumption that the MR and LR both have 5% additional margin over the SR. That'd be another 28,572 vehicles they'd have to build and sell just to get to even.
Would a $35k SR Model 3 really entice 57,144 people to buy a car who wouldn't buy an MR instead?
Some serious assumptions above, but you see where I'm going with this ... Building an SR version, just to hit some hypothetical price point, may never make sense. It doesn't to me.
If I were Tesla, I'd call $39,150 in the ballpark and move on. People are stuck on this $35k number like all of a sudden the floodgates would open for orders... I don't think Tesla has that problem.
Knightshade
Well-Known Member
That would, in fact, be surprising. But hasn't actually happened.
As noted elsewhere in the thread the 35k standard range is still even mentioned explicitly on Teslas website- just not on the order page, since you can't order one today.
...what SR pack?
The SR is not, and never has been, produced or sold by Tesla. It remains a future product right now so it's not being "produced" on anything.
By "Grohmann-designed line" I was referring to the vehicle manufacturing. Tesla's failure with the vehicle manufacturing has put more pressure on finding every cost reduction it can before releasing the SR.
The $3,750 is _after_ taxes. You can't just subtract it from the price.
Yes. $4k is more than enough to stop people buying.
And they'd sell _lots_ more than 28,572. You're talking about a $4k price difference.
The SR+PUP is the MR with fewer cells and maybe a different battery design. The battery won't make that much difference.
The base SR will also remove the profit margin on the PUP features.
Selling the base SR at a profit isn't just about what it takes to make the SR cheaper. It's about making _all_ Model 3s cheaper so that when Tesla has worked through the backlog of 3PLRD demand, it will have the margin it needs from its product mix to have sustained profit. Remember that Tesla was targeting a $42k ASP.
I'm not going to buy a Model 3 until Tesla is selling the SR.
Which is $11,500 more than the $27,500 they were expecting to pay ($35k - $7,500 incentive).
Even if the Short Range is released tomorrow Tesla screwed them out of the maximum incentive by doing their cars last.
Who's "they"? I wasn't "expecting" to pay $35k for the car nor "expecting" to get a $7.5k tax credit.
By "screwed", I presume you mean by not being willing to sell them an SR at a loss.
Knightshade
Well-Known Member
That's their fault, not Teslas. Tesla never promised any such a thing.
Yeah they'd have been MUCH better off getting to buy a $27,500 net price car at a loss from a company that would've gone out of business and left them with no support or warranty.
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