Tesla Gen III to Eliminate Price Premium for Electric Vehicles; Sales Could Hit 200,000 Units Per Year

AUG 8 2013 BY ERIC LOVEDAY 27

Tesla is Still on a Roll

Tesla is Still on a Roll

After the unveiling of the BMW i3, Tesla Motors stock prices rose up again to hit a new all-time high.

BMW i3 In Action

BMW i3 In Action

Why?  Well, some would argue that the i3 was not seen as competition to Tesla and that unveiling of BMW’s electric vehicle further confirmed that Tesla has absolutely no reason to worry.

Deutsche Bank analysts Dan Galves, Rod Lache, Mike Levin and Patrick Nolan basically agree that Tesla is in a league of one.  Deutsche Bank promptly upgraded its TSLA status from Hold to Buy, while providing us with several reasons for the change.

According to Deutsche Bank, Tesla is essentially the only automaker out there that can eliminate the electric vehicle price premium.  BMW couldn’t do it with the i3, but we don’t think that the German automaker was trying to.

But for Tesla, the Gen III electric will be all about closing that price gap and Deutsche Bank thinks the electric automaker will succeed on that front.  As Value Walk says:

Panasonic Cells Packed in Tesla Housing.  The Cheaper These Become, the Lower the Price can be for a Tesla.

Panasonic Cells Packed in Tesla Housing.

“Analysts at Deutsche Bank looked at the cost compared to the profit of Tesla Motors proposed mass market vehicle, and they think it will entail a major leap forward. They see the automaker being able to fully close the cost premium which exists on electric vehicles over traditional internal combustion engine vehicles. In fact, they see the company being able to do this while still maintaining that 25 percent gross margin promised earlier this year—something other analysts have been skeptical that the company could do.”

And if that price gap is closed down, Tesla sales will soar.  Here’s what Value Walk had to say in regards to that:

“The analysts compared the Tesla Motors Inc Generation III with the cost premium gap of the BMW 3-Series segment. They said all Tesla needs is a 5 percent share of its addressable market—which would be 200,000 units, including both the Model S and Model X—in order to get a gross margin of around 28 percent on average. They note that even if research and development and SG&A costs almost triple from their current levels, they would be within the 8 percent of sales range, which would imply 20 percent margins.”

Can you imagine Tesla selling 200,000 units per year?  That would be some leap from where Tesla stands today.  It all comes down to price.  If Tesla can make that 200-mile electric and sell it for a profit at $40,000 or less, then the sky may be the limit.  There are a lot of “ifs” to contend with, but Tesla has proven time and again that it’s capable of quieting the skeptics and stunning the world.  Can Tesla do it again?

Source: Value Walk

Categories: Tesla

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27 Comments on "Tesla Gen III to Eliminate Price Premium for Electric Vehicles; Sales Could Hit 200,000 Units Per Year"

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Well, it all depends on whether they can get the battery price down. That’s partly their integration costs, but a lot depends on the cell manufacturers.

Or, in other words:
Battery, battery, battery battery battery battery battery battery battery battery battery battery battery. Battery battery battery battery, battery battery battery battery battery battery battery battery.

As I’ve commented elsewhere, all indirect evidence suggests that even a complete 85kWh battery pack is costing Tesla less than $200/kWh (3.1Ah modified 18650 form-factor cells), which is one of the reasons why Tesla was able to eliminate the price premium for a compelling luxury EV (the other reason is starting in the luxury segment). Low-volume orders from Chinese retailers for mediocre-quality 4.0Ah 18650 cells already run under $350/kWh. Those who know more than I do suggest that the huge volumes Tesla requires, the simplicity of their modified cell design, and being partly owned by their supplier, Panasonic, that Tesla is most likely able to acquire Panasonic’s superior 4.0Ah 18650 cells for as low as possibly $250/kWh. By the time production ramps up in 2017, it is pretty clear that these cells will be available to Tesla under $200/kWh. Tesla’s battery packs appear to be very straight-forward in physical design, and the manufacturing process is almost entirely automated. Those who know more than I do suggest that a vast majority of the cost of a completed Tesla battery pack is the cells. All of the indirect evidence strongly suggests that, by 2017, the cost of a complete GenIII battery pack… Read more »

“Can you imagine Tesla selling 200,000 units per year? That would be some leap from where Tesla stands today. It all comes down to price.”
————–

Well, they have to be able to build them too. Building 500 cars/week and 5000 cars/week are two different things. Scaling up should not be oversimplified.

The good part is that they are not short of space…but, yes, it will take more capex and an increased workforce, and mass-producing anything makes chasing quality a never-ending pursuit.

If Tesla sold that many in one year in the US that would really take a chunk out of gasoline demand and might even shut down a few gas stations.

When EVs reach the critical mass and gas stations become unprofitable and have to close, the death of ICE cars will self accelerate.

Will Tesla be willing to open a factory in China?

To get the 200,000 / year they need 4,300 / week if they follow a 47 week year.
One month off for a job well done.

NPNS!
Volt#671

I am concerned moreso with the dealer situation with Tesla over the technology obstacles at this point. A comparison was made to BMW and it’s 3 series. Well, BMW operates 300-some dealerships in the U.S. alone. How many dealerships does Tesla intend to have when the Blue Star is slated to come on-line? And what are the chances of their internet sales scheme coming to fruition? Or will people nationwide even embrace that kind of sales model vs. a traditional sales model? Bottom line, if Tesla were to shooting to sell 200,000 Blue Stars, they will need some sort of dealer body or better accepted internet sales model to move the metal. Case in point..take Mazda for instance. All of the automotive publications adore the new Mazda 6. They love it. But every month it is one of the lowest, if not the lowest selling sedan in its segment. The reason I keep hearing for this is that Mazda doesn’t have enough dealers, and not enough marketing muscle either. So it doesn’t matter how great the product is, if people can’t find a place to buy and have their vehicle serviced, they will look elsewhere. I hope Tesla can sell… Read more »
Tesla’s reasoning behind not going the traditional dealership route was that since they don’t move enough cars as a brand (vs BMW, Mercedes, etc.) they cant have their own dealership network. So the Model S ends up on the same lot as a bunch of gas powered vehicles from other small name brands. When it comes down to trying to sell someone on the value of an electric car vs. gas, it becomes more difficult. Then there are issues like dealer markup, haggling over prices, etc. And when you look at things like maintenance and other sources of recurring revenue for the dealership, the Model S comes in dead last compared to all the other vehicles on the lot. So what is their motivation to sell a Model S? Right now its not a problem (Tesla generates more sales by word of mouth and their website than they can manufacture), but in 2014 it starts to be an issue. The question is how do those dynamics change when you go from moving 20,000 cars per year to 200,000? Do you generate enough revenue to have a dealership network build you a separate brick and mortar dealership? Fiat looks like it’ll… Read more »

EVs still have A/C systems, heaters, sensors, power windows, power locks, windshield wipers, headlights, air bags, hydraulic braking systems, electric power steering, switches, buttons, heated seats, seat belts, coolant system, etc.

However, that being said, EV operation is extremely efficient. No oil changes, no filters, brake pads and rotors hardly touched, no transmission fluid, no fuel pumps, no fuel lines, no exhaust system, no turbo- or supercharger systems, etc.

It is my understanding that auto dealerships make their money off of service and used cars and parts. Out of those three, EVs will have a used market, and a few needed parts (the generic things common to all vehicles listed above). That’s it.

I don’t see many independent dealers doing well with handling Teslas (or EVs in general), particularly with used-car big-box places like CarMax that does most shopping and transactions online.

Plus, if they are able to sell online, they only need a few hundred stores and/or service centers with service loaners available for test-drives. They would never need to maintain an inventory – continually replenishing/selling the loaner stock would do the trick.

Yeah, I don’t see a profitable business model for an independent dealer network, even selling 200k units per year in the US alone.

I liked your response Anthony. And I can see some of the concerns Tesla has in regards to dealerships selling Teslas along side of gas driven cars. But those concerns seem (at least to me) outweighed by the benefits of an old school dealer network too. I am in no way an apologist for car dealers, but the benefits I could see would be, a. Have stand-alone dealers with service bays built in. Not lumped together with other brands such as Joe Schmoe’s Ford/Lincoln/Tesla. b. Many people will find it just too wierd to buy a car off the internet. Buying a coffee maker off of Amazon is one thing, but a car, quite another. c. As far as no-haggle pricing, Saturn used to pretty much adopt that when they were in existance. If Saturn/GM could do it with their dealers, why couldn’t Tesla? d. What happens when you need service work? Or say you are in a fender bender? Are they flying a service/body shop crew from California every time something happens? I would feel a lot more warm and fuzzy if I had a dealer nearby that if anything goes wrong, they are there to help. Point “d”… Read more »

You need to read up on Tesla Service Centers and Ranger service. They come to you, at home or work or wherever. And now, if the work needs to be done at the service center, they drop off a loaner and take yours to the shop. They bring it back when it is done, and pick up the loaner.

For years now, no-one who owns a Tesla in the US has been more than 100 miles from a Service Center.

@Tom A

This is great news to me Tom since I was under the impression I was 400 miles away from a Tesla Service Center… Do you have other information? I thought I had the choice between Queens NY and Columbus Ohio seeing as I am in Buffalo NY.

That is certainly possible – however, they do in fact make house calls – they always have. The Tesla Service Rangers will come to your home or work or wherever.

The loaner program is new this year.

I may be recalling the statement incorrectly…it may have been that 90% of Roadster owners were within 100 miles of a service center…it would require going back a few years and looking for it…not worth the effort at this point.

Yes, it will be interesting to see how ppl adopt this sales model. Not that the Apple iPod comparison is fullproof, but I’d like to know the #’s on how many people buy iPods at the store vs. online. I know many people check them out at the store, but do they make the purchase there, or do they buy online? Does Tesla just need a bunch of boutique stores with 1 or 2 cars, or do they actually need to stock product all over the US? Can they stock everything in California and ship when needed? Would 3rd parties such as Amazon be interested in selling/stocking Teslas?

The service aspect is a whole different manner. I don’t think Tesla can afford to fly tech’s from California for every service call in the US, plus they will need local equipment. Maybe Tesla should incorporate a service center at each Supercharging station. (2 birds 1 stone)?

Tesla already has service Rangers that make “house calls”. As of last year, every Model S owner was no more than 100 miles away from a service center.

Tesla now also delivers loaners and drives your car to the service center and back if the repairs cannot be done on location. Tesla also announced that they are going to increase the number of service centers faster than stores, since they need more convenient service centers and that sales generated by service centers are about the same as their stores.

Try aerodynamics and light weight..

Just design it an get back to us.

It would be great if Tesla could sell 200k $40k EVs per year. That would mean Tesla would have to outsell the 3-Series, C-Class combined. Not gonna happen.

But the difference in that price range, is that ‘most’ 3-Series and C-Class sales are to single individuals with only 1 vehicle in the household. The full EV base demographic is households with at least one ICE vehicle in the home fleet.

Which means that a $40k 200 EV mile Tesla may be able to compete with 20k – 40k annual sales. By 2017MY the remaining $40k market will opt for a 80 – 100 EV mile plug-in Hybrid that offers 500+ total range. Two cars in one….EV when you want it, hybrid when you need it.

I think what makes Tesla so difficult to analyze and predict to those that don’t follow EVs (*ahem* financial analysts *cough*) is that they are making strides in a new, untested market; Tesla cannot even be compared to itself, since the limited-production Roadster, which was only partly designed and built in-house, is not an apples-to-apples comparison to the Model S, their first mass-produced, vertically-integrated vehicle; the vehicle platform has potential economies of scale, potential simplicity of manufacture, and potentially very low maintenance, that there is nothing to compare it to, and it will just take time to realize the potential of EVs from start to finish.

Something else to think about:

Look at those videos of the factory. Telsa is cranking out lots of aluminium sheet metal parts for the car. Detroit is trying to move to more aluminum right now, and having a slow time of it. Aluminum is not like steel, and has lots of “springback” and other properties that make it difficult to run off a press line. Telsa is gaining a lot of manufacturing experience not found elsewhere.

The other thing that people don’t think about is the fact that Tesla does not employ a bunch of automotive newbies, but rather a lot of people who do have automotive industry experience. Also, the presses came from Detroit and the dies are made by the same suppliers that make stamping and forming dies for everybody else.

Tesla and the computer battery industry are in a strange thing in that if you think about it a Tesla car alone has more batteries in it then say 3000 I phones or 4000 flash lights. If you look at it from this aspect Tesla alone could easily on it’s own create a major battery shortage and might even drive prices in the market with one of it’s cars devouring thousands of battery cells.

In terms of this though I have heard news that Panasonic is reopening up several closed down assembly lines that make this type of battery at several existing factories. Along with reopening up a battery factory they closed down last year that will be retooled to make these types of cells. If what they say is true about making 40,000 cars next year that alone could easily eat up the existing and planned new battery capacity in the world as of now.

Yep, one of Elon Musk’s comments on the Q2 earnings call pointed out that the amount of cells they need just for ramping up the GenIII sedan production will exceed the amount currently demanded by the entire world-wide laptop industry “by a decent margin”. Hence, the talk about Panasonic revving up idled plants.

Tesla’s plans have always sounded great but to actually be in production with the S and when all of the awards they have is fantastic. I only wish they would back off the 200 mile or more range mantra, then I could believe a quality $35k model will be made. The S is great value IMO but it is no longer close to Tesla’s original goal of starting at less than $50k. A real world range of 140 miles is plenty for a lot of people. As long as battery costs are a significant percentage of BEV total cost, range will match needs in the larger portions of the sales pyramid.