Tesla already noted that its upcoming next-gen EV platform will allow it to reduce costs, but there have been few details and no official timeline. Based on several pieces of information shared during the US EV maker's recent Investor Day, Tesla bull investment firm Ark Invest is predicting that the company will be able to reduce vehicle costs by around 50 percent over the next five years.
It seems Tesla already has some of the best vehicle margins in the industry, which has allowed it to cut prices on its cars significantly. As Tesla upgrades current factories and builds more, economies of scale help it reduce costs. Add the fact that the automaker continues to take on more in-house responsibilities, its battery-related efforts, and the confirmation of a new platform soon, and there's a recipe for spectacular margins.
Tesla’s Chief Financial Officer Zachary Kirkhorn concluded during the Investor Day presentation that the company is constantly working on cost reduction at every level and with the help of every team. He noted that Tesla already cut EV costs by 50% if you compare the flagship Model S and Model X to the newer Model 3 and Model Y.
Tesla was expected to reveal its next-gen platform at Investor Day and provide more details about its upcoming product roadmap. While they did touch on such subjects, the company's executives and team members didn't divulge much, aside from larger ideas and concepts.
Nonetheless, according to Ark Invest, Tesla did reveal how it will reduce vehicle and production-related costs. The steps as shared by Tesla and outlined by Ark Invest are as follows, via Teslarati:
- Tesla plans to produce 100% of controllers in next-gen vehicles
- Tesla plans to switch to 48-volt battery architecture
- Next-gen Tesla vehicles will use local ethernet-connected controllers.
- Tesla will transition to a parallel assembly process.
As you can see, the first step has to do with Tesla taking over more responsibilities in-house, which it continues to do at a growing rate. The presentation had a detailed discussion about 48-volt architecture, which Tesla was expected to eventually adopt. The EV producer also showed how the future assembly process will work.
Using the local ethernet-connected controllers will make the various wiring harnesses less complex, and we know based on several teardowns from Sandy Munro that Tesla already has much simpler wiring harnesses than the competition. In conclusion, Ark invest reported:
“These electrical architecture changes should cut costs and give Tesla more control over its supply chain at the component level. They also will enable Tesla to transition its manufacturing to a parallel assembly process, slashing its manufacturing footprint and wasted time by 40% and 30%, respectively,"
What do you think? Is this a given? Start a conversation about Tesla's future in the comment section below. Do you think Tesla's rivals will follow suit and figure out how to better cut costs and increase margins on EVs sooner rather than later?