That $35,000 Tesla Model 3 People Are Waiting For, Currently Costs $38,000 To Make

That $35,000 Tesla Model 3 People Are Waiting For, Currently Costs $38,000 To Make
Tesla continues to have issues with making their upcoming $35,000 Model 3 car available for the promised price. Although the car itself has been positively received and its futuristic features have impressed reviewers and regular users, actually buying one of the vehicles has proven frustrating for many customers. Those who want to own a Model 3 have to put down a deposit, and even then up to a quarter of orders have been refunded due to production delays.

Now Electrek is reporting that Tesla CEO Elon Musk has told employees that the difficulties with the Model 3 production are very much still ongoing. While he confirmed that the company has now met their production goal of 1,000 Model 3s coming out off the line in a day, maintaining this rate will be a major challenge. Apparently, it is the construction of car bodies that is the limiting factor in production right now.

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SanJoseDriverSanJoseDriver - 12/4/2018 10:30:58 AM
-3 Boost
That's not exactly correct. The cost of a STANDARD BATTERY Model 3 would cost $38k right now. That version of the car will sell for $40k. Slim margin, but most buyers will at least be purchasing some upgrades. Autopilot for example is $5k at 100% margin as it's a software update. It can be produced at a profit already, and I'm sure will be released after delivering the performance/AWD versions to Europe and Asia.

The base $35k car will come without "Premium Upgrades." Not sure how much those options would cost, but it will likely shave $1k or more off the cost. They're ~1-2k away from breakeven on base.


vdivvdiv - 12/4/2018 11:10:03 AM
-3 Boost
Yeah, that DigitalTrends article is a total BS, perfect for the Autospies ;)
Major problems, I tell ya, Tesla needs a low-brow model to be "recognizable" in car manufacturing... what a crock.


zliveszlives - 12/4/2018 5:37:28 PM
+7 Boost
the 35K car was promised with a tax break of 7500 as well to make it a palatable replacement for most 20-30k car buyers.


TomMTomM - 12/4/2018 6:28:36 PM
+7 Boost
Sorry - SanJose - but a vehicle that costs $38,000 to make - would actually HAVE TO SELL for over $45,000 when you add in its share of the development costs PLUS a proper Retail Markup Plus support and warranty costs plus marketing.- I can guarantee you that a "profit" of only $2000 over cost to produce is not anywhere near an actual profit. After all their rebates - manufacturers end up with between 8 and 9% profit - but that is after ALL costs are applied, not just manufacturing cost. It is not unusual to see rebates of $8-10,000 on some high end trucks these days - yet they still make a profit.

The fact is - the Model 3 was NEVER priced correctly - to begin with - noting that a Chevy Bolt costs just over $31,000 to produce and really does not make a profit at its selling price either.


SanJoseDriverSanJoseDriver - 12/5/2018 1:47:52 PM
-3 Boost
I'm assuming the $38k is baking in everything including distribution costs (but I could be wrong). R&D I don't believe goes into gross margin, and for the 3 is already a sunk cost.


Vette71Vette71 - 12/5/2018 8:01:40 PM
+3 Boost
Gross margin is net revenue (list price-discounts-3rd party distribution costs) minus the cost to make the product, get it to the customer, and warranty expense. From the gross margin a company subtracts R&D, marketing, direct sales expense, finance and admin to get Operating profit. Next take out taxes to get Net profit.

In Tesla's case current R&D expenses are for the models promised for the future as well as future software upgrades. You have to pay for them now. R&D isn't a sunk cost unless you are going out of business. Since Tesla doesn't use dealers all marketing and sales are direct and are paid below the GM. Finally all those finance people we've been discussing and HR folks need to be paid. So a Model 3 Net Revenue = Gross Margin doesn't work.

Good news for Tesla, with cumulative losses of some $5B it will be a long time before they pay taxes.


SanJoseDriverSanJoseDriver - 12/11/2018 9:34:58 PM
+1 Boost
Thanks for the recap on the differences between those three. Tesla will continue to invest in R&D, but they won't be spending a billion a year on R&D for the Model 3 specifically, that will go way down and those resources will be more focused on other products. BTW, the Model 3 is a 10-year car model... all the updates going forward will be incremental versus major updates every 4-5 years like traditional auto manufacturers. That should help further optimize costs with higher volume.

One other cool factor, last week I was able to confirm that maintenance for the Model 3 is only required every TWO years. Think about that versus a traditional ICE car. That will help with service center capacity and is a big win for owners.


Vette71Vette71 - 12/4/2018 11:18:45 AM
+4 Boost
Even with a breakeven Gross Margin, the Model 3 would be an issue as there is nothing extra to support new model development, overhead, profit and eventually taxes. Software doesn't have a 100% margin, as it too needs to financially support a team that does repairs, upgrades, new applications and eventually the next generation. It too has to carry overhead and other costs. Look at the P&L of software firms. GM isn't equal to sales price.


mre30mre30 - 12/4/2018 11:39:17 AM
+3 Boost
These Tesla stories sure are entertaining. I will miss them, if Tesla goes down the tubes after the Weds Feb 20, 2019 FY2018 Earnings Release date
https://www.marketscreener.com/TESLA-6344549/calendar/


vdivvdiv - 12/4/2018 12:18:01 PM
-3 Boost
No worries. Tesla will make sure to stick around for the entertainment value ;)
You know, it is a whole lot more "entertaining" to drive one than read FUD about it every day.


zliveszlives - 12/4/2018 5:38:52 PM
+7 Boost
I for one hope Tesla doesn't go down, only because it would probably affect sapceX and in my opinion that needs to survive.


Vette71Vette71 - 12/4/2018 7:52:40 PM
+3 Boost
Tesla is already affecting SpaceX. Musk recently tried to float a $750M debt raise for SpaceX. He was only able to raise $250M. The word on the street it was all that was going on at Tesla, plus his own actions that caused potential investors to walk.


MDarringerMDarringer - 12/4/2018 8:03:33 PM
+4 Boost
Oops.


supermotosupermoto - 12/5/2018 1:36:29 PM
+6 Boost
Tesla has generated cumulative loss on 9/30/18 of $5,457 billion. Divide that by total cars sold of ~444k cars...Telsa has lost $12k on every single car it has ever sold. And the worst is yet to come (massive debt payments) starting in Q1 2019.


SanJoseDriverSanJoseDriver - 12/5/2018 1:49:06 PM
-2 Boost
Profitable in Q3, let's see what happens in Q4.


dumpstydumpsty - 12/6/2018 9:20:37 AM
+1 Boost
When many of Tesla's average builds/trim for their lineup commands the social media-driven "markups", there's no way the automaker can consistently make "low-cost" copies of the Model 3. That kind of unrealistic expectation is simply pure insanity. It just won't happen - today at least.

If Tesla is producing so many more Model 3's current, why haven't their production costs decreased? Maybe they can make the Model 3 for much less than when they started production. But why would they make "base/stripped-down" trim versions if they hadn't been ordered by a customer? That's not how Tesla operates, it builds to specific orders - not produce hundreds of copies of the same car & trim options to ship to dealerships like traditional automakers.


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