Will Model 3 Mid Range affect profitability?
As Tesla is removing its Long Range rear-wheel drive Tesla Model 3 in favor of the all-new surprising Mid Range rear-wheel drive version, a question arises - is this wise from the business perspective?
One of the recent Teslike.com articles addresses gross margins. By assuming battery capacity of particular versions (as the only/main difference) and battery prices at $115/kWh, you can estimate how the gross margin of Mid Range or Standard Range versions will vary compared to the assumed gross margin of the Long Range version.
In attached examples (below is one for 25% gross margin for Long Range), it turns out that the decrease in price is bigger than the cost savings over the lower amount of batteries, which translates to several percent lower gross margins with every step to Mid Range and Standard Range.
Tesla Model 3 gross margins (Source: Teslike.com)
It sounds reasonable to us that the more affordable Model 3 will earn less for Tesla. This is why Tesla was pursuing the Long Range, and then all-wheel drive Performance versions, as well as why the general automotive industry was moving from cars to SUVs.
In the case of the cheaper Model 3, customers will probably opt for less optional equipment too.
At first glance, it seems that by introducing the Mid Range Model 3, Tesla will decrease profitability. However, there are other factors that could increase profitability:
- some customers will go for the Long Range Dual Motor version (because Long Range rear-wheel drive is removed), others will take Mid Range with maybe some more options
- some customers will go for the Mid Range version now instead of continuing to wait for Standard Range version