Lucid CTO & Former Tesla Engineer Says Model S Is “Hugely Profitable” For Tesla

21 hours ago by Eric Loveday 33

Tesla Model S P100DL with Tesla Forged Lightweight Arachnid Wheels

The Model S is hugely profitable, says a former Tesla exec.

Those are the words of Peter Rawlinson, the CTO at Lucid Motors (the Lucid Air is reported to arrive in 2019 and have a range of up to 400 miles, starting from around $60,000) and former lead engineer on the Tesla Model S. He stated:

“If you’re leading the leading company in the world in electric cars, what you don’t want is for others to start following you. There’s a great myth that Teslas are not profitable. They’re hugely profitable. The Model S is hugely profitable. I know it is.”

Tesla Gigafactory – Lots Of Money To Construct This

If anyone knows, it would be Rawlinson, the lead engineer of the vehicle.

Inverse adds:

“Since it went public in 2010, Tesla has not reported a single profitable year. This is despite soaring revenue, glowing reviews, and a skyrocketing stock price. For all the hype around electric cars, it doesn’t seem like a smart investment, but a rival firm believes Tesla is trying to propagate a myth that there’s no money in electric cars.”

“That appeared to be confirmed by SpaceX’s chief technology officer Tom Mueller earlier this month. During a Skype call with a group from the New York University Astronomy Society, Mueller claimed that Elon Musk told him the marginal cost to produce a Model S is $30,000. The base-level Model S starts at $68,000.”

We’ve long believe the Model S to be profitable, but Tesla as a whole not to be. This confirms our beliefs.

Lucid Air

Inverse explains:

“On the surface, it seems like Mueller’s revelation confirms Rawlinson’s assertion, but it’s not that simple. Marginal cost is the amount to produce each additional unit, and does not factor in the costs that came before. It answers the question of how much making another Model S costs, rather than showing how much the Model S on the street cost to make.”

Basically, start up costs, tooling costs, factory purchase, construction, etc. isn’t figured in to that marginal cost, which is why Tesla profits on a car, but not overall.

Source: Inverse

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33 responses to "Lucid CTO & Former Tesla Engineer Says Model S Is “Hugely Profitable” For Tesla"

  1. georgeS says:

    “Mueller claimed that Elon Musk told him the marginal cost to produce a Model S is $30,000.”

    The Chevy BoltEV direct cost is also 30,000$

    http://insideevs.com/swiss-financial-giant-ubs-tears-down-chevy-bolt/

    Not sure what gives.

    “On the surface, it seems like Mueller’s revelation confirms Rawlinson’s assertion, but it’s not that simple. Marginal cost is the amount to produce each additional unit, and does not factor in the costs that came before. It answers the question of how much making another Model S costs, rather than showing how much the Model S on the street cost to make.”

    I disagree. If you include all costs you need to know a lot of assumptions. Anyone remember when it was claimed that GM Lost 40,000 on each Volt? You can fudge the numbers anyway you want on total cost just by juggling assumptions. I think direct costs is a better number. Much easier to understand.

    Besides R&D are sunk costs anyway.

    1. R.S says:

      On the Bolt: It depends what you include as direct costs. Is workforce a direct, or an indirect cost? In reality it is something in between, because you can’t hire a tenth of a person.

      And marginal costs aren’t direct costs. Direct costs are the costs of production, divided by number of cars. Marginal costs are the costs of building another vehicle. They are only the same, if the factory is running at 100%.

      On the topic of direct costs vs total cost:
      Both have their use. In the case of a new vehicle it’s definitely harder to figure out the total costs. But just looking on direct costs can lead to very false conclusions.

      The Bugatti Veyron, for example made a lot of money, if you just looked at revenue over direct costs, but if you include R&D it lost money.

      The same goes for other vehicles, it isn’t just enough to sell them for less than they cost to make, you also need bring back the money you spent elsewhere.

      That’s why most car companies see electric vehicles as unprofitable, not because the direct costs would be too high, but because they don’t sell in high enough numbers. Which will definitely change in the future, but it is the case for most EVs, that are currently in production.

      1. georgeS says:

        “On the Bolt: It depends what you include as direct costs. Is workforce a direct, or an indirect cost?”
        -RS

        Workforce is a direct cost.

        see figure 78
        https://neo.ubs.com/shared/d1mFW2YvNRvHXA/

        1. R.S says:

          In car manufacturing assembly workers are mostly included as direct costs, while people working in machine maintenance, for example, are included in indirect costs.

          The UBS report includes only assembly workers under direct costs.

    2. Pushmi-Pullyu says:

      “Anyone remember when it was claimed that GM Lost 40,000 on each Volt?”

      Yes, but nobody at GM was making that absurd claim. GM bashers arrived at that estimate by, as I understand it, including the entire cost of the GM bailout in the cost of just one model: The Volt. Citing that as an example is pretty pointless. It was just politically motivated fake news.

      The term “marginal cost” does have a specific meaning. Let’s not be like Humpty Dumpty and claim we can use a word to mean anything we like. You can argue over whether or not the $30,000 is an accurate figure or not, but it certainly does not include R&D or tooling-up costs.

  2. Johnny says:

    This is why producing in large quantity is important because then each the “before” cost for each car is less. As a new and growing company, you just have to accept that there will be a lot of startup cost. All you can count on is profit per car.

  3. Shane says:

    Before everyone starts feeling like they got scanned, it is good to remember that number likely excludes costs after the production line such as sales, marketing, warranty reserves, etc.

    It probably also excludes zero-unit-cost “intangibles” such as software/programming, OTA updates, etc.

    And for what it’s worth, “Thank You!” to all you Model S and X purchasers for financially spring Tesla and making my Model 3 (soon I hope) more affordable!

  4. unlucky says:

    There’s a lot more cost to making a car than just the price of goods for stamping out one copy.

    Warranties cost you money. Supercharger networks cost you money. Acquiring equipment to do it costs a lot of money. Engineering costs a lot of money.

    The decision to use an already built plant and workforce (that would otherwise be idle) to produce a 30,001st car instead of stopping at 30,000 is surely profitable to Tesla. But all the costs of deciding to make the car at all and thus incur the costs of acquiring and setting up that plant and employing people to engineer cars is high and has to be counted to make a meaningful picture.

  5. Four Electrics says:

    All manufactured items have been marginally profitable since the Industrial Revolution. That includes ICEs and EVs. That’s a requirement for success, but it’s not the hard part. The hard part is profitable profitable.

    1. Four Electrics says:

      There are also a number of tricks you can play if you’re trying to optimize gross margin. Excluding R&D is a classic–its not a sunk cost as Tesla and other manufacturers are continuously changing their cars. You can also overspend on capital equipment, paying 2x to reduce gross margin by 1%, for example, but still losing when it comes to opportunity cost (lost interest).

      1. Pushmi-Pullyu says:

        Four Electrics said:

        “Excluding R&D is a classic–its not a sunk cost as Tesla and other manufacturers are continuously changing their cars.”

        Clearly you don’t understand the meaning of the term “sunk cost”.

        Quoting from Wikipedia:

        In economics and business decision-making, a sunk cost is a cost that has already been incurred and cannot be recovered. Sunk costs (also known as retrospective costs) are sometimes contrasted with prospective costs, which are future costs that may be incurred or changed if an action is taken.

        Once the first unit of a new car model rolls off the production line, all the R&D and tooling-up costs are sunk costs. Nobody, “Four Electrics”, is claiming that the term “sunk cost” indicates you won’t have further expenses in the same area. Sure, auto makers have to fiddle with a few things to fix problems as production rolls along. So what? That doesn’t magically cause the previous expenditures for R&D and tooling up to magically become costs that haven’t yet been paid for, or costs that you can avoid if you change your mind!

        1. Asak says:

          You have to be careful of going down this road though. Companies do this all the time where they present non-GAAP numbers to show how they’re *really making money* even when they’re not.

          The idea that the marginal productiob cost of the Model S is less than what it sells

  6. Haggis says:

    There’s no secret here and it’s not marginal cost or overall profitability that’s the issue. The car has a high gross margin per vehicle and that’s made clear in the 10-K. It’s not the expenses needed for the Model S that are relevant but that the expenses that have prevented profits to date have been related to growth, not to paying off the costs to develop or manufacturer the Model S. Had Tesla decided to rest on its laurels and not have future models or expand its presence, it would already be quite profitable. This article implies that the lack of profit is due to development of the Model S, and that’s just plain wrong. There has been a lot of money spent on the Model 3, on growth and on everything from developing trucks to roof tiles. You can’t add it up, divide by Model S sales and decide whether Tesla is making money. You have to consider that even slimmer margins on the Model 3 can offset the expenses, especially given the reservation count. But you also have to understand that if you don’t factor in expenses unrelated to any of those models, you are missing the big picture.

    1. Pushmi-Pullyu says:

      Haggis said:

      “Had Tesla decided to rest on its laurels and not have future models or expand its presence, it would already be quite profitable. This article implies that the lack of profit is due to development of the Model S, and that’s just plain wrong.”

      Thank you!

      It is amazing how many people can’t seem to grasp that concept. And not all of them are Tesla bashers, either.

    2. zzzzzzzzzz says:

      Haggis:
      “Had Tesla decided to rest on its laurels and not have future models or expand its presence, it would already be quite profitable.”

      No, it would not. It would not be able to pump and dump more shares and would go under water, and Model S would get long in tooth and they would have nothing to sell. Constant Research & Development is necessary business expense for every automaker or new tech company.
      Tesla CEO compensation by stock options was initially tied to share price and gross margin, so it is no surprise that stock is pumped and gross margin calculation is done in some unique way that no other automaker uses, like calculating gross margin on retail price and excluding expenses no other automaker excludes. Eventually it shows on profit/loss line anyway.

      1. Pushmi-Pullyu says:

        Since zzzzzzzzzz is a short-selling serial Tesla basher — notice his obsession with stock performance rather than the performance of Tesla as a business — we can be sure everything he’s said is wrong, and much of it is just repeating FUDster Big Lies.

        He is half-right on one thing, though: Since Tesla is a growth company, and other auto makers are not, its accounting is conducted as a growth company, and not like legacy auto makers.

        Go Tesla! (…and I don’t mean the stock price!)

  7. Bill Howland says:

    This is why friendly competition is a good thing.

    Too bad Chevy doesn’t bring out an EV or PHEV version of the IMPALA. I’d buy one in a second if it was reasonably priced. A BOLT ev drive train (to lower costs) which is already in production with 200 hp would be just fine for their large car.

    The Cadillac PHEV CT6 is a joke. Nearest authorized dealer to me, is 380 miles away for warranty purposes (warranty repairs of GM vehicles cannot be done in Canada, unlike Tesla). MY 2014 ELR is the better vehicle in several categories, plus it turns heads.

    1. Dav8or says:

      I’m convinced the vast majority of American new car buyers would choose a BEV if… it were reasonably priced. That has been and continues to be the stumbling block.

  8. DagBl says:

    Nothing new here. It is exactly what Elon stated in 2008:
    ” Build sports car
    Use that money to build an affordable car
    Use that money to build an even more affordable car
    While doing above, also provide zero emission electric power generation options

    Don’t tell anyone.”

    https://www.tesla.com/no_NO/blog/secret-tesla-motors-master-plan-just-between-you-and-me

  9. Doggydogworld says:

    A guy trying to raise money to build EVs claims the leading EV maker is only pretending to be unprofitable. Hmmm.

    1. floydboy says:

      He claimed no such thing.

  10. Terawatt says:

    It’s almost infinitely stupid to conclude, from the marginal cost being much lower than the sales price, that “Model S is profitable, Tesla isn’t”.

    As you go on to explain, the marginal cost excludes nearly all the very real costs incurred to make the car a reality! Which is why Tesla hasn’t made any money, indeed has used a lot more than it’s earned, despite the marginal cost to make a car being much less than they sell it for.

    Sure, Tesla invests a lot in its expansion. But the books distinguish between operational expense and capital expenditure. And Tesla never made any money operationally either.

    Can you obtain similar numbers for other cars? I bet the marginal cost is less than half the sales price for virtually every car on the market that sells fewer than 100k units per year! Cars that sell in the millions however are likely to need a much lower “markup” to be profitable, since it doesn’t cost more to develop or homologate and these costs are spread out over many more vehicles.

    It’s clear that Tesla’s costs other than marginal costs exceeded 30 k$ per vehicle, because otherwise they would have turned a profit.

    I don’t doubt that electric cars will become profitable. Indeed, the tech is already good enough for that, if materials prices do not change dramatically with much bigger volume (I don’t think they will, I think they’ll mostly decline, but they would of course soar if suddenly someone wanted to make millions of EVs in six months from now). But I’m out of patience with this ignorant insistence that Tesla is really profitable, or Model S is, when all the publicly available, legally-obliged, generally accepted accounting practices-based financial statements issued by Tesla itself states the opposite – as any dimwit can check for herself at Google finance.

    If you absolutely must advice on things you are utterly unqualified to have any opinion about, stick to the stock price. Here anything goes, since its “true” value depends on what assumptions and predictions you make. But stop lying about whether it’s profitable now.

    1. Terawatt says:

      And btw, most people would be shocked if they knew what stuff costs to produce. Most things are more expensive to sell than they are to make. Some products, such as shampoo, beer, of diapers, cost almost nothing to make, but very expensive to market and distribute.

      Or take pharmaceuticals or computer chips. You and I may pay several hundred bucks for products with a marginal production cost of ten cents. This doesn’t mean the corporations making them are extremely profitable (though they sometimes are); it’s a necessary consequence of the extremely high costs of product development, testing, production facilities, and all the other non-marginal costs that are nonetheless necessary to bring the product to market. Nobody tries to make a pill to cure motor neuron disease because it costs hundreds of millions of dollars to find a safe and effective molécule to do the job, and very few people have the disease. So even if such a pill cost a cent to make and could be sold for fifty bucks, it’s never going to be profitable.

    2. Pushmi-Pullyu says:

      “Sure, Tesla invests a lot in its expansion. But the books distinguish between operational expense and capital expenditure. And Tesla never made any money operationally either.”

      You can argue over the methods Tesla uses to count its money, but what you can not reasonably do is claim that you understand Tesla’s finances better than Tesla does.

      What you have done there is state your opinion as fact, which it’s not. Here’s another opinion on the subject:

      Last FY, Tesla spent ~$3B on property, plant and equipment (almost doubling it over the prior year), including $1.5B on construction in progress (none of which will be deprecated until the equipment/facility is put into service). If you are halfway savvy, you will want to understand that gap between gross margin and operating margin–is Tesla doing something useful with that money or are they pi$$ing it away? If you are a good little troll, you will cherry pick line items from the financial statements to make whatever point you want, but what you did is the equivalent of cucumber – walrus = purple.

      — Omar Sultan, comment at InsideEVs, March 24, 2017

      And here’s another opinion, by someone who understands finances much better than I do:

      “How Tesla Motors Could Be Profitable if It Wanted To”

      https://www.fool.com/investing/general/2016/03/27/how-tesla-motors-could-be-profitable-if-it-wanted.aspx

      1. Doggydogworld says:

        “Last FY, Tesla spent ~$3B on property, plant and equipment (almost doubling it over the prior year), including $1.5B on construction in progress …”

        That $3b doesn’t impact profit/loss.

        $30,000 marginal cost is a meaningless number without knowing what it includes. To get that low they have to exclude labor, for example, and who knows what else.

        1. Pushmi-Pullyu says:

          Investopedia says: The marginal cost of production is the change in total cost that comes from making or producing one additional item.

          I don’t see how that could reasonably exclude labor cost. If you make one more widget, or one more Model S, you have to pay your labor force to make it. Kinda hard to make it with no labor involved!

          If someone is defining “marginal cost” as not including labor, it seems to be that would be a perverse use of the term.

          But then, since I’m not a “financial guy”, perhaps how the term is actually used in business is one that doesn’t follow logically?

          http://www.investopedia.com/terms/m/marginalcostofproduction.asp

    3. Andrew says:

      Thank you Terawatt. Cannot agree more. You know what you are talking about.

  11. Pushmi-Pullyu says:

    “We’ve long believe the Model S to be profitable, but Tesla as a whole not to be.”

    It’s very tiresome seeing this babbling repeated over and over. We saw the same thing about Amazon.com less than two years ago.

    Of course Tesla is profitable. Choosing to re-invest profits in growing the company doesn’t magically cause those profits to vanish! In all probability, Tesla — just like Amazon.com — will suddenly start showing a net profit after it has grown to the size it thinks is right, and then everyone will be astonished that the company could so “quickly” turn the corner. What’s that saying about becoming a success in Hollywood? Something like “It took me 10 years to become an overnight success.”

    Sadly, we’re going to continue to see this same brain-dead claim that Tesla “isn’t profitable” until Tesla chooses to stop growing. 🙁

    1. zzzzzzzzzz says:

      Pu-pu,

      Not that I care, but you are doing great service to Tesla shorts, they should send thank-you card to you. They repeatedly point to idiotic claims about “re-investing profits” and say that Tesla longs are only dumb cheerleaders who have no clue about basic accounting and don’t even know that capital expenses are depreciated over years and do not reduce profits or decrease losses immediatelly, and don’t even know that Amazon had enough cash flow to self-finance their growth and didn’t needed to be repeatedly saved from bankruptcy by share sale rounds.

      1. Bill Howland says:

        Yeah, I myself considered an “S” when it was much cheaper (the 40 kwh model I believe was in the high 40k range), but then the prices started going up.

        The basic car without options is currently too pricey for me.

        The roadster, a zero-options model I purchased was $109k plus shipping and tax, but I had had a good year in the stock market, and the BEV had no range competition and it was a case of Tesla allocating them rather than selling them, exactly.

        But now there are getting to be more choices in the marketplace. My BOLT ev goes alot further for a lot less money. Another thing is that the BOLT ev seems to be conservatively designed – on things like the power train and battery rating – anyone else would have called it a 65 kwh battery in lieu of the 60 they called it when that is near the useable size – something few if any other manufacturers do. I also see conservatively designed drive gearing, low temperature rise charging cables even after running at 32 amperes for hours, and extremely silent operation at 85 mph, showing the car is not being ‘pushed’ at all. A good value, now seemingly better than I initially thought.

      2. Pushmi-Pullyu says:

        zzzzzzzzzz continued his serial Tesla FUDster campaign:

        “Pu-pu,

        “Not that I care, but you are doing great service to Tesla shorts, they should send thank-you card to you.”

        Try to imagine how little I care about what serial Tesla bashers and FUDsters like you think of me.

        No… try harder. Much harder.

        “They repeatedly point to idiotic claims about ‘re-investing profits’ and say that Tesla longs are only dumb cheerleaders who have no clue about basic accounting and don’t even know that capital expenses…”

        I guess I’m even dumber, since I’m not even a “long”, nor an investor at all. 😉

        I certainly know that serial anti-Tesla FUDsters like you have been predicting for years, and predicting on a daily basis, that Tesla’s financial statements are a sham, and that the company will collapse any day now.

        So I’m not at all impressed by how well y’all pretend to understand finances. I have no doubt you can read a profit-and-loss statement. But when your extreme bias leads you to such frankly stupid claims and conclusions, then your financial knowledge doesn’t help much, now does it? BTW — how much money have you lost on shorting Tesla stock? Hmmm?

        However much or little you’ve lost by shorting Tesla stock, Tesla certainly appreciates your donations to growing their company! 😀

        “…don’t even know that Amazon had enough cash flow to self-finance their growth and didn’t needed to be repeatedly saved from bankruptcy by share sale rounds.”

        Thanks for proving my point, FUDster. I do know enough about Tesla’s finances to understand that their modest rounds of new stock shares are only a tiny fraction of Tesla’s income. But please, don’t let me stop you from displaying your very broad and deep ignorance of the subject!

  12. Chris O says:

    Apparently the numbers aren’t easy to come by but according to this guy as much as 50-60% of the cost of a car is overhead:

    https://www.quora.com/What-percentage-of-the-cost-of-a-typical-car-is-labor

    So it’s great that it only costs $30K to build an extra copy of a Model S but unless that car bear $30-$40K in overhead the total production run is not going to be profitable.

    So it looks like Model S needs to sell on average north of $70K for the Model S project to be profitable. Of course $70K happens to be where pricing starts.

  13. zzzzzzzzzz says:

    Yes, certainly, Model S is profitable and the sky is green because Saint Elon said so :/
    Why is it so that Tesla’s annual reports shows just billions in losses even before investments, compensated by regular share sales to gullible investors? Are they just dropping money in to the sea?

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