Profit Target For Tesla Model 3 Five Times Higher Than Ford’s Average

Red Tesla Model 3 front

FEB 25 2018 BY EVANNEX 32

Tesla Model 3

Can Tesla really outperform Ford? Tesla Model 3 profits will play a role (Image: Petrolhead)

TESLA MODEL 3 PROFIT TARGET IS 5X HIGHER THAN THE AVERAGE VEHICLE FROM FORD

It’s remarkable that Tesla rocketed from its IPO to surpassing Ford in value in just 7 years. Tesla’s prowess on Wall Street has left many investors miffed. After all, Ford recently announced 2017 sales of over 6.6 million cars worldwide. Meanwhile, Tesla barely cracked sales of 100,000 cars. How could an industry behemoth like Ford be overtaken by this younger, smaller Silicon Valley start-up?

Dave Lee at Tesla Weekly has some fascinating observations on this front. Lee notes, “There appears to be a narrative amongst Tesla skeptics where the quantity of cars Tesla produces is compared to major automakers [like Ford] to minimize Tesla’s achievements… I’ll dive into this and show why the narrative is incorrect.”

*This article comes to us courtesy of EVANNEX (which also makes aftermarket Tesla accessories). Authored by Matt Pressman.

Looking at Ford’s recently filed 2017 annual report, Lee reports that Ford sold: “6,607,000 vehicles at wholesale throughout the world. Ford’s 2017 automotive revenue was 145.6B, which means that the average revenue per vehicle was roughly $22,000. Ford’s gross margin on automotive in 2017 was roughly 10%, and their profit margin (before taxes) was roughly 5%.”

Putting this in perspective: “For an average priced $22,000 car the Ford sells, their gross margin is $2,200 and their profit margin is $1,100. On average Ford makes $1,100 per vehicle.”

Tesla Model 3

A look at the new Tesla Model 3 (Instagram: washingtonsq)

On the other hand, “let’s look at Tesla and the Model 3. Tesla is aiming for 25% gross margin on the Model 3 and mid-teens profit margin (let’s say 14%). The average price of the Model 3 is projected at around $42,000… [so] the average gross margin on a Model 3 would be $10,500 and profit margin would be $5,880.  Compared to Ford’s average vehicle profit margin of $1,100, the Model 3 would be 5x as profitable.”

Lee continues, “In other words, one Model 3 is worth (in terms of profits) the equivalent of 5 Ford vehicles. So, if Tesla can sell 500,000 Model 3 and 500,000 Model Y (their small SUV due in 2020) annually, that would be 1M vehicles at an average of 5x the profitability of Ford’s vehicles. So the equivalent would be 5M Ford vehicles.”

Taking it one step further, “Let’s add in the Model S/X to the mix.” Lee points to historical data on Tesla’s margins for Model S and X and extrapolates: “Profit margin on each S/X would be $16,200 (if we assumed a average sale price of $90k). That’s almost 15x as profitable as the average Ford vehicle. So, 100,000 Model S/X would be the equivalent of 1.5M Ford vehicles in terms of profit. Combine 1M Model 3/Y and 100k S/X and you have the equivalent of 6.5M vehicles from Ford.”

Tesla Model 3

Tesla’s Model X and Model S (Image: EVANNEX)

“Let that sink in,” Lee concludes. “If Tesla can achieve what they’re aiming for, then just 1.1M of their vehicles would produce the same profit as 6.5M vehicles from Ford. And Tesla would just be getting started.”

===

Source: Tesla Weekly

*Editor’s Note: EVANNEX, which also sells aftermarket gear for Teslas, has kindly allowed us to share some of its content with our readers. Our thanks go out to EVANNEX, Check out the site here.

Categories: Tesla

Tags: ,

newest oldest most voted
Lamata

Tesla Has Superior Quality , While Ford Has Mediocrity and Quantity…

Warren M

Ha, that’s funny.Mathe at Carwow does a lot of great reviews. He was quite surprised by the fit and finish problems of the Model X. He said it was fast, but not much fun to drive:

https://youtu.be/hmd3mks6HPs

On the other hand look at his review on the BMW X3. He can’t get over the quality and solid build of simple things like the center console. And he found the BMW fun to drive. Unlike the Tesla, he gave the BMW a solid “BUY” recommendation:

https://youtu.be/JFjupgX3Cnc

Lamata

Bought & Paid For By BMW

Warren M

Yeah, amazing that he has done over 700 Videos, and only some of them are BMWs. And there are actually quite a bit of Tesla Videos in there. Please do your homework before making these assumptions:

https://www.youtube.com/channel/UCUhFaUpnq31m6TNX2VKVSVA/videos

pjwood1

Your jokes are what test drives are for.

Pushmi-Pullyu

@ WARREN:

Reading your comment, one comes to the inescapable conclusion that you must be financially invested in BMW, either thru the stock market or thru your job.

People don’t get that famous “Tesla grin” by driving a car that’s not fun to drive!

Warren M

@Pushmi-Pullyu, I find it completely absurd at how the Musk Fan Bois cheerlead everything that is Tesla. So yes, I have had the LEAF, Focus EV, and even 3 BMW i3s at once. Guess what, I love the small, nimble and efficient hatchback package of the i3. I don’t want a big heavy sedan like a Tesla. I mean, the i3 has a much smaller turning radius than any current Tesla, which I appreciate EVERY day I drive my BMW. And in that category, it is tops. Arguably, it is one of the most advanced cars out there. I love my BMW so much, I just go out for drives, exploring and having fun. In the last 3 weeks I went to Bakersfield over the Grapevine, 5640Ft Mount Wilson, and all over Los Angeles. The car is that fun. And most i3 owners will tell you the same.

Warren M

And yes, when someone like LMAOTA constantly bashes everything that isn’t Tesla, its too hard to sit back and not offer some insight and facts to correct these false assumptions that everything non-Tesla is bad.

DL

I’ve owned a number of Fords and they have been great cars. I had a pickup that’s now almost 15 years old, has been passed on to my next generation, and is still running great. You might want to make fun of Ford, but no Teslas are 15 years old yet. Let’s see how they hold up.

EVShopper

The main flaw with this comparison is that Tesla brands itself as a premium brand. You can’t compare all of Ford to Tesla. Need to look at how much profit Ford’s premium brands get. Like Lincoln or their higher end Trucks and SUV. Ford also sells budget and economy cars that real people can afford, that don’t make much profit.

Will

Wow, this article is full of flaws. Wheres the editor on this site. Please review these puff pieces

Doggydogworld

Ford and Tesla calculate gross margin much differently. Direct comparisons like this are meaningless.

Ambulator

Yes, this is a very superficial comparison. A detailed one would be too hard to understand, anyhow.

Warren M

Yeah it’s funny how some people only use market cap valuation to compare with a company’s actual material assets.

Pluto

Actually this article seems to come from Tesla Weekly, Dave Lee/DaveT.

Lamata

A Best Kept Secret .EV’s Are cheaper to Built maintain & operate than Their ICE counterparts.

Vexar

Unless you are GM. Losing $9000 on every BoltEV made and making it up in ZEV credits… If GM were serious about making EVs, they wouldn’t pay for LG to do all the work. I mean, yay Korea and all, but this is not what I would call making America Great Again, GM. I should give GM a pass, though. They have not, as a corporation, been around as long as Tesla. They are a start-up, built on the ashes of a like-named predecessor, already burdened with an angry, manipulative dealer network, and a whole lot of UAW representation and influence.

Cecil T

How do manufacturers figure in warranty costs? Is that built into the up-front profit calculation of the vehicles, or does it come out of “profit” down the line?

Texas FFE

Economics 101; There is no profit in the long run. The money a company makes in excess of expenses is what that company has to make in order to keep producing that product. If a companies revenue is excessive then other companies enter the market and compete for market share.

Tesla is a long ways from making any kind of consistent profit. To say that the Model 3 makes five times more profit than the average Ford is nothing more than a big joke. If Tesla ever does get to point where it can make a consistent profit then other manufacturers will compete head to head with Tesla and Tesla will have no choice but to have similar profit margins.

As far as market capitalization, I believe the stock price is way over valued. All it’s going to take is one serious production problem or one serious hiccup in the economy and most of that Tesla market value is going to disappear. But Musk is such a good ringleader that I’m sure that he can keep the Tesla circus going a few more years or at least until he abandons Tesla and pulls his money out.

William

“Musk is such a good ringleader”, is that the best you can come up with, a P.T. Barnum “circus” reference?

Like, “there is a sucker born every minute”!

Musk abandoning Tesla, now that does have a Dyson cordless vacuum on wheels sucking sound to it.

mevp
Tesla is a great company. But just like the overall US stock market, it’s valuation is quite high when you look at objective measures. Yes, even factoring in growth. So much irrational exuberance in the market right now. Fact: the market goes in cycles. Comparing Tesla to Ford is crazy. Apples to oranges. Legacy costs vs disruptive growth company. Bottom line: don’t invest emotionally. Use that emotion for buying consumer goods like fast electric cars. True story: my spouse wanted to short TSLA. I encouraged her not to. It’s already shorted too heavily, plus the true believers + shorts could create some weird volatility before it comes back from the stratosphere. I love Tesla’s long term prospects. I’m not so bullish on TSLA (notice the difference there?) Car companies, no matter how good they are, just happen to still be car companies. The 25% thing has a conundrum built into it. If they approach those margins, there will be a LOT of competition within a few years. There’s going to be a fair bit of competition either way, and they don’t own the battery tech. Good on Tesla for selling a lot of stock while the gettings were good. Hopefully… Read more »
Pushmi-Pullyu

“Bottom line: don’t invest emotionally. Use that emotion for buying consumer goods like fast electric cars.”

Good advice. Sadly, most individual investors buy and sell based on emotions rather than facts or logic. I am amazed at how often I’ve read comments from investors that “I had a good feeling about that stock, so I bought it” or “I was worried about that stock, so I sold it.”

Individuals who make money in the stock market generally do so by making dispassionate buying and selling choices, based on economic realities and market trends. (Institutional investors have methods of “gaming the system” to ensure they make money; ways not accessible to individual investors. But that’s a subject for another day, or at least another comment.)

And that’s why I would never invest in Tesla stock. I’m much too emotionally invested in the company to ever make a dispassionate buying or selling choice.

Pushmi-Pullyu

While it’s true that Tesla’s gross profit margin is considerably higher than that of large auto makers — and not just Ford — it’s also true that this is generally the case for small auto makers. I suspect that if you compared the profit margin of Porsche and Aston Martin and Audi to Tesla, you’d find that Tesla is much closer to the average for auto makers of this size, especially ones which only offer “premium” models.

Sadly, this is just another Tesla puff piece from Evannex. Just like most of the others from that source, it’s almost entirely lacking in scope or perspective.

eyeroller2018

Okay, so the author compares real profit per car (Ford) to targeted profit for a car that is currently in production-hell ramp up (M3):

“TESLA MODEL 3 PROFIT TARGET IS 5X HIGHER THAN THE AVERAGE VEHICLE FROM FORD”.

I tell you what, my personal income target for 2018 is 10 times higher than my real income 2017. Once I achieve my targeted income I’ll be flush enough to retire.

[Do people think a little about the scribbles posted on this website? This is getting now offensively stupid, comparing a target of one company with achieved numbers of another. Especially as the one company as of now has not proven that they are able to meet targets in the time they initially state]

CH1

I get it. We sbould not compare like with like. Instead, let’s compare Ford’s actual performance to Tesla’s hopes and dreams for the future.

Let’s also forget Tesla’s numerous present and past failures to meet production and financial targets. Musk promise of Porsche-like (40-50%) gross margin on the Model S/X should be discarded down the memory hole, along with the revised promise of 30% and the mounting actual net losses.

And under no circumstances should we look at, let alone consider, Tesla current balance sheet. A glorious future is just beyond the horizon, as always.

Hans Blix

There will of course be no such thing as margin compression for Tesla. E.g. competition putting pressure on prices such as Jaguar I-Pace, Porsche Mission E, Audi q6 e-tron and the big BEV rollout plans of large manufacturers in the next years.

Pete

In other words Tesla aren’t worth the money, overpriced.

HH

Yet another “analyst” who seems unable or unwilling to correctly interpret the numbers. Comparing gross margins from Ford and Tesla is like comparing apples and oranges.

Ford calculates it’s margin based on wholesale prices and takes R&D costs into account. Tesla calculates it’s gross margin on retail prices, yet does not take into account to cost of running it’s dealership network when calculating the gross margin. Furthermore, they don’t take any (not even a certain percentage due to vehicle development costs or refreshes) when calculating their gross margin.

You can think of either methodology whatever you want. Point is – they are not comparable.

HH

Of course I meant

Furthermore, they don’t take any (not even a certain percentage due to vehicle development costs or refreshes) *of their R&D costs* when calculating their gross margin.

Hans Blix

LOL

Mulon Esk

Tesla AIMS…

Pep

BS. You are considering that Teslas margin will sustain in the future, but that is just wrong, as most automakers will sell electric vehicles too, meaning competition meaning lower margins.

Plus this: it is quite certain that ford will continue to sell millions of cars, however it is not so certain than Tesla will reach the target.