Will The Tesla Model 3 Really Achieve A 30% Profit Margin?

Blue Tesla Model 3

JUL 27 2018 BY EVANNEX 61

CAN TESLA PULL OFF A 30% PROFIT MARGIN WITH ITS MODEL 3?

Okay, Model 3 is a great car (even the marauding army of anti-Tesla trolls isn’t trying to deny that). But is it profitable? The answer to that question is obviously of existential importance to Tesla, but it’s also critical information for competing automakers and has important implications for the future of electric vehicles in general.

*This article comes to us courtesy of EVANNEX (which also makes aftermarket Tesla accessories). Authored by Charles Morris. The opinions expressed in these articles are not necessarily our own at InsideEVs.

Above: Tesla’s Model 3 (Image: Charged)

We know how much Tesla receives for each Model 3 it sells, but what it costs to make each unit is of course top secret. The only way to get a reasonably accurate estimate of those costs is to take the vehicle apart and study it piece by piece. With so much riding on the question of Tesla’s Model 3 production costs, two separate groups of interested parties have performed teardowns, and the results are very interesting indeed.

Earlier this year, a group commissioned by German automakers dismantled several Model 3s and estimated that Tesla’s costs per vehicle should be about $28,000, leaving room for a healthy profit margin (Elon Musk seemed to concur, calling the report “the best analysis to date”).

Above: Sandy Munro presents some surprising observations after tearing down the Tesla Model 3 (Youtube: Autoline Network)

Around the same time, teardown specialist Munro & Associates took apart a pair of Model 3s. While Sandy Munro offered some serious criticism of the new EV’s build quality, he raved about its electronics and battery technology. Now that Munro has had time to complete his analysis of Model 3, he estimates that Tesla should be able to earn at least a 30% margin on the Long Range RWD version.

“I didn’t think it was gonna happen this way, but the Model 3 is profitable,” Munro said, admitting that some crow was being eaten at his shop. “Over 30%. No electric car is getting 30% net, nobody.”

Above: Munro came away impressed with the Model 3 (Image: The Street)

Munro credits Tesla’s in-house development of components, and the functionality provided by Model 3’s all-encompassing touchscreen, for the EV’s surprisingly low cost of production. “That’s the magic of using components that are already on the car. You make them work double or triple duty,” he said.

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Written by: Charles Morris. This article originally appeared in Charged. (Sources: Autoline NetworkTeslaratiElectrek)

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

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61 Comments on "Will The Tesla Model 3 Really Achieve A 30% Profit Margin?"

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I’ll take 25% happily…

and you would STILL BE ABOVE GM, Ford, Chrysler, Fiat, Dahmler, VW, Audi, Honda, Lexus, Toyota, Kia, Hyundai, etc.

It had better return 30%. Bloomberg reporting Green Light Capital is short Tesla, long GM. Based in part on competition and declining government incentives. Then again, Einhorn owns a chunk of the New York Mets! Now there is a real short!

LOL, long GM. Another short who’s never driven a Tesla and still thinks GM has an advantage. This is called “Asymmetric Information”. Poorly informed shorts making Disastrous bets.

We just had the Munro teardown.
Had this guy had any brains he’d have followed that information very carefully.
No wonder you’re Much Better Off in a Vanguard S&P 500 Index Fund – Admiral Shares.

I’ll bet he thinks Seeking Alpha has legitimate market analysis.

TSLA 30 day: -26%, and selling’s picking up.

Anyone looking at short term movements is a gambler, not an investor. Over the long term, Tesla will greatly outperform the market.

Green Light Capital, what a joke. GM has just been getting hammered, and so has Einhorn with his Tesla short.

Yup, the Taycan and the E-Tron Quattro both come on-line in about 18 months. Add to them the I-Pace, and that’s it for Tesla (when they actually figure out how to build cars). The Quattro is particularly sexy, and puts the minivan X to shame. And when the Maccan goes full EV? and the 911? At this point, who in their right mind would be long on Tesla. But I guess rational market analysis makes one a member of the “marauding army of anti-Tesla” (nice editorial integrity).

Is Audi or Jag going to sell cars with average selling price point of $45k? Are they also planning to sell 500k to 1m of those per year? Do they have charging infrastructure? Do they have cult-like following like Tesla does? Are they the most talked about car brand? Audi plans to sell 800k electrified cars by 2025 (not BEVs). I could go on…

“…who in their right mind would be long on Tesla.”

Ummm… anyone who invested within 2-1/2 years after Tesla’s IPO, and has seen their stock value rise by an incredible 10x to 15x?

I imagine very few of them are eager to sell off their investment!

BTW — Too bad about all the money you’re losing by shorting TSLA, Mr. Tesla Death Cultist.

Now that we have seen the Quatrro and it’s specs, this comment hasn’t aged well.

It’s pretty easy to find articles written by Tesla shorters (or subsidized by them) claiming that Tesla is teetering on the edge of financial collapse.

It’s also pretty easy to “write” such an article, since Tesla shorters and their shills have been churning them out for years. Just take one from a few years back, change the dates, replace the words “Model S production” or “Model X production” with “Model 3 production”, toss in a reference or two to current Tesla Death Cult conspiracy theories, and you’re done! 😉

Fortunately, there are some writers who do actually publish the Truth about Tesla’s finances:

https://cleantechnica.com/2018/07/23/tesla-shorts-are-scared-exposed-desperate-memo-to-media-dont-be-duped/

Cut the price to 30K and make it up volume…..

In about 3-5 years, they can. Not yet.

Like Solar City, I think Tesla should go DIRECT to the PUBLIC if it needs future investment funds. Cut out the lier’s from the process.

Some cities and states have done that with “Mini-Bonds” that are non-transferable and non-convertible – investors have to hold them for the full term until they mature. They can’t be sold in the bond market and aren’t redeemable until maturity. That is the only way they could do something like that without having some wall street bank do all the work for the CUSIP number and register it as a security that is tradable on an exchange.

Mini’s usually have low entry costs. They could sell them for $1,000 dollars with a 3 year maturity, and call them “Model Y Bonds” instead of taking reservations! Guaranteed good for at least another half billion in investment $$. LOL!!

Musk will not be going to the public or regular public. They will instead go to Silicon valley friends.

The actual figures were 36% for the LR premium and 18% for the base SR.

And Munro said gross, not net. Not a lot of research in this ‘article’…

Bingo.

I had some hopes when I saw this “Evannex” article was actually from “Charged” and only indirectly from Evannex, but sadly it’s just as empty of solid info as most of Evannex’s cheerleader articles.

The reading equivalent of eating a rice cake. 🙁

Is it really a “30% margin” when a significant portion of it is financial magic that prices in a $5b/year government subsidy and ignores cap-x? Yeah, no.

Where do you get the $5b/yr subsidy number ? You’re taking about the wrong company. Should it be Exxon instead ?

From reality – tax credits and carbon credit trading, both totally artificial influences on the EV market and upon which Tesla needs to survive.

http://www.latimes.com/business/la-fi-hy-musk-subsidies-20150531-story.html

And that’s just the feds; Nevada gave Tesla $1.3b:

https://www.scientificamerican.com/article/nevada-gives-1-3-billion-tax-break-to-electric-car-maker-tesla/

So no, it shouldn’t be “Exxon instead,” at least not in an empirical, objective reality in which you don’t seem to occupy.

You did actually read the LA times article, right? Or did you just stop at the headline? – It factors in 30% federal solar credits for ALL Solar City customers, SpaceX incentives from Texas, and NASA contracts for manned flight back to the space station. It covers NY tax incentives for GFII, as well as NV tax credits for GFI. – The only thing really related to EV’s is the $7.5K tax credit for the 1st 200K cars. – All car companies are getting that (if they choose to sell an EV) Any nearly LARGE company expects local/state tax credits for building new facilities (mine certainly does). I’m quite sure we could find a much larger set of incentives for Exxon facility construction (simply because they are a much larger company, with many more facilities). Some very quickly Googling found: https://www.theadvocate.com/baton_rouge/news/business/article_dda03446-100e-11e7-a85d-9f6e9ca27ade.html Besides, folks in glass houses, shouldn’t really throw stones – Your quote of ” tax credits and carbon credit trading, both totally artificial influences”, very much applies to the oil industry as well. – See: “No other investment category in America can compete with the smorgasbord of tax breaks that are available to the oil and gas industry” –… Read more »

…none of which has anything at all to do with Sandy Munro’s “Model 3 teardown” analysis, in which he claims making the Model 3 will show an average gross profit of 30%.

https://insideevs.com/munro-tesla-model-3-profitable/

Sadly, whoever wrote this article hasn’t read Tesla Death Cult comments like yours and others here, or he wouldn’t have made such a light-hearted reference to “the marauding army of anti-Tesla trolls”.

The way mean-spirited, false FUD claims from the Tesla Death Cultists are used to carpet bomb comments here and disrupt meaningful discussion, is nothing to dismiss casually.

Kind a Wierd that Troll1999 now uses Kind a Weird as his screenname, ROFLOL!

Look the poor shorter is trying so hard to make good news bad. It is almost cute if it wasn’t so sad.

Hardware had fixed cost per unit, but for software such as EAP and FSD development cost can spread out over the entire fleet. The more Tesla sells their car the less software cost per vehicle becomes, the higher the gross margin. I can’t find any concrete info on the take rate for EAP or FSD, but according to self reports from buyers, the rate is significant (my personal take rate is 50% for EAP, 0% FSD).
I hope Tesla will disclose it in their earning report.

Again, what percentage of that margin is the $7500 tax credit that is almost certainly going away very soon? You guys pretend like it doesn’t exist (which makes sense, since it won’t much longer).

Tax credit goes back to the pocket of the tax payer and has no direct relation to profit margin. It does play an important role in the purchase decision of many people, and may affect the short term demand. But based on the backlog, Tesla still has healthy growth ahead.

“No direct relation to profit” except that it, you know, drives sales. How do they – and the margins – look after you raise the base price by $7500? Or price in the billions in cap-x that the feds and States have paid (Nevada $1.3b).

God, listen to you guys…It would be so much more respectable to simply say, “I really like Elon’s chutzpah and what he’s trying to do for the environment, so I’m a supporter” instead of trying to make totally irrational business cases that are prima facie absurd. BTW, I appreciate his chutzpah and what he’s trying to do for the environment, but I find it really, really weird how people are willing to lie to themselves and others about the nature of Tesla as a company. Whether or not Tesla makes it, EVs are here to stay, so there’s no reason to invest in this cult of personality.

By the way, I went to a Kelly Moore paint store in Reno about a month ago to pick up some paint. Got into a discussion with the manager and he mentioned that last year alone his store sold the Gigafactory 18,000 gallons of paint. The store was quiet, didn’t do a ton of sales- until about 3 years ago when the Gigafactory came to town. Now the store employs 10 more folks since the sharp uptick in sales. That’s just ONE example of a ‘rising tide lifting all boats’ in Reno.

Still think Tesla only takes and doesn’t give back?

Uh, yeah, because the numbers say so, not your anecdotes. I mean, you can tell me all the stories about all the gallons of paint sold in the Western Hemisphere, it still doesn’t change the fact that Tesla has yet to make money, despite receiving billions in subsidies every year.

You miss my point, which isn’t hard to figure out. Kelly Moore sells more paint, Kelly Moore employs more people. Those people don’t like living outdoors so they buy or rent a home. That rent / mortgage translates to construction jobs. Those construction workers don’t like living outdoors, either. So they copy the Kelly Moore employees and rent or buy a home. Both the Kelly Moore and construction employees inevitably get hungry, so they go to the nearest supermarket and give the grocery store some of their money. The grocery stores’ margins increase, and they hire more employees. (see what’s happening?)

Anecdote. “Numbers say so, not your anecdotes.” I LIVE in Reno, pal. I see with my EYES what’s happening. You can intentionally ignore the rising Tesla tide that’s lifting a city and go back to Tesla’s earnings. The fact remains that you’re wrong about Tesla only taking, not giving back:

https://www.usnews.com/news/best-states/nevada/articles/2018-07-20/tesla-to-donate-a-total-of-375m-for-education-in-nevada

Don’t let facts get in the way of your narrative. And don’t forget to have a great weekend!

No point missed, because you didn’t make one, “pal.” Look up the difference between “anecdote” and “data,” since you apparently missed those definitions back in 9th grade science.

Nevada gave Tesla $1.3 BILLION to move to Nevada, so Tesla’s not really “giving” Nevada $375m, it’s just giving some of that money BACK (if it actually ever does). And what happens to the suckers holding the bag (that’s you and me, btw, since we’re the ones giving Tesla $5b/year in government subsidies and invested in Tesla through pension plans and assorted other financial instruments) when that “tide” goes out and takes billions and billions and billions in investor value with it?

I’m sorry, I guess because I can’t give you the impossible exact percentage of the increased revenue brought to the greater Northern Nevada area by Tesla then it doesn’t exist, right? It’s purely anecdotal then, and the “eye test” means nothing because I can’t provide an exact, quantified number to the amount of ‘rising tide’ that Tesla has brought to the area I live in. Maybe you can explain to me then, how to quantify the massive impact that Tesla’s had on the Reno area? Or are you gonna say it simply doesn’t exist? Again, Nevada didn’t GIVE Tesla anything up front, they granted them reduced taxes over the next 20 years that amounts to $1.3b in tax savings to the company. They didn’t write a $1.3 billion check to Tesla. And the minute Tesla broke ground, the jobs started pouring into the area. (I know, I know- more simple anecdotes, nothing more). And folks like you love cherry-picking when you point out subsidies to Tesla without mentioning the rest of the industry. Considering you never take time in your blind bias to realize that EVERY large company that comes to a state like Nevada gets the same type of… Read more »
I’ll admit the cult of personality around Elon is certainly a bit much, but Tesla is clearly in growth/startup mode. Look at Amazon, Tesla clearly has “chiutzpah” and has “bet the company” on somewhat risky bets several times. I agree with all that. – Given their current finances, it IS indeed possible they will lose that bet this time on the M3. But to not see a viable long term business case for Tesla, when we both seem to agree that ICE is dying and long term EV’s will win, seems a bit short cited. As for “Telsa is on gov’t welfare” argument, that’s definitely a slipperly slope, especially if your comparing them to the oil/gas industry. Finally, I’ll be the 1st to admit that Tesla’s current balance sheet is truely scary. I expect Q2 to also be ugly. That said, making 5K cars a week, and selling them at 25-30% margin, is definitely a step in the right direction. I’m fairly convinced they will show profit in Q3 & Q43 and some of that is “accounting magic”. But alot of their cash flow issues are due to investment and expansion, not “losing money on every car”. They WILL need… Read more »
The oil and gas industry isn’t Tesla’s competitor, other car makers are, and they don’t get the same subsidies that Tesla does. I suppose you could say the government subsidize ALL cars in one way or another via the gas tax, but again, no one company gets special, multi-billion dollar earmarks like Tesla does. Despite this having been going on for years – and making Elon a multi-billionaire in the process – the company still doesn’t make money. I don’t know how any rational person could look at those facts and conclude that the business model makes sense. As for a Tesla pickup, does anyone seriously think that’s a smart strategy? Does anyone think they can build a truck – a real truck, not a minivan masquerading as a SUV – that is tough enough for real duty while at the same time supplanting the F-150 as the second most sold vehicle in history? Of all the wacky things Elon has suggest, from digging tunnels to building compressed tubes to selling flamethrowers to transporting kids in capsules while calling heroes pedophiles, trying to take on Ford in the pickup market has got to be the very worst and speaks to… Read more »

Again, you’re wrong about subsidies. Every large company that comes into Nevada negotiates subsidy packages. You’re completely biased and wrong if you don’t accept that fact. The other 4 finalist states that were woo-ing Tesla were throwing the kitchen sink at them, too. It’s how it’s done. And saying that other large manufacturers don’t receive the same treatment is absolutely false. Subsidies are garbage, but it’s how the game is played and Tesla has no choice in the matter because they directly compete against companies that receive them, too:

https://subsidytracker.goodjobsfirst.org/parent/general-motors

By the way, it took a whole 30 seconds to Google a hole in your position.

“No one company gets special, multi-billion dollar earmarks like Tesla.” I think what you meant to say is, “no one company that receives special, multi-billion dollar earmarks like Tesla gets the attention for receiving the earmarks quite like Tesla.”

(Please continue having a great Saturday.)

Speaking of chutzpah…

The sheer volume of brazen Big Lies from you Tesla Death Cult members, and they way you carpet-bomb otherwise intelligent discussions here, sometimes takes my breath away.

Very nearly everyone who is a genuine supporter of EVs is automatically a Tesla supporter. We’re not fans of Tesla because of any supposed “cult leader” status of Elon Musk. We are Tesla fans because of what Tesla has actually accomplished, and is continuing to do. You want everyone to forget that.

Only you Tesla Death Cult members, who falsely pretend to be EV supporters, try to make everyone forget that Tesla is almost single-handedly pushing forward the EV revolution (outside China), and is doing far more to accelerate the pace of sales and improvements than all the other auto makers put together!

What a rational response, and it makes a lot of sense. I mean, so many people are Rio supporters, because they deserve undying loyalty for making some of the first MP3 players. Those Rio Death Cultists should be burned at the stake!

“Almost single handedly,” except for, you know, US CAFE standards making EVs a necessity and many EU countries phasing ICE outright. But you’re right – global policy is nothing compared to the impact of Tesla’s 25k units sold per year at $100k/unit.

You’re taking this way, way to seriously. It’s just a car. You don’t need to define yourself with a car. Go do something meaningful with your life, something unattached to a brand good, and the world will start to make a lot more sense to you.

And yet, only an idiot would short Tesla. So how much have you shorted Tesla for?

You do realize that $7.5K doesn’t go to Tesla, right – It does to the car buyer. – We can certainly debate if Tesla sales will be depressed as the credit fades away, but they do have a 420K backlog, and it’s no like Tesla is seeng a dime of that tax credit anyways. The car OWNER sees that credit. – Seems sort of like a critical point that your missing

I mean, I don’t know what to say. Company A sells a product for $30. Company B sells a product for $40, but the government gives anyone who buys product B $7.50 back. If consumers are unlikely to buy a product at $40, but will at $32.50, who benefits? Does the result of that sale go directly to Company A, or to the buyer of product A?

And that’s just the tax credit – you’re not mentioning the emissions credits the government created and Tesla trades for $billions. Or the $1b Nevada gave Tesla to build its plant. You guys can’t possibly be this obtuse.

Again, ‘obtuse’ may be up for debate. Pointing out Tesla for receiving the same tax breaks by Nevada that all its business neighbors at the Tahoe Reno Industrial Center received may be considered obtuse by some…

So now you’re using the tax credit in the latest retread of the long-debunked FUD that demand for Tesla cars is going to suddenly drop off a cliff.

#3 from Zachary Shahan’s highly useful exposé of the Tesla Death Cult’s FUD playbook:

3. Tesla vehicle demand: If scare tactics about Tesla’s finances don’t work for you, people trying to twist the narrative in favor of Big Oil or Big Auto instead of Tesla have another favorite up their sleeve — a claim that comes around semi-regularly that demand for Tesla vehicles is dropping. We saw this with the Model S even while demand was rising. We saw this with the Model X even while demand was rising. And we see this now with the Model 3, despite claims from Tesla that it has over 400,000 reservations for the Model 3 and more coming in every day.

https://cleantechnica.com/2018/07/23/tesla-shorts-are-scared-exposed-desperate-memo-to-media-dont-be-duped/

https://www.bloomberg.com/news/videos/2018-07-27/eisman-of-big-short-says-he-s-long-gm-short-tesla-video

Eisman is now shorting. Remember him? The guy who bet credit swaps? Predicted the ’08 implosion? People much smarter than you who do this for a living aren’t interested in your PR-crafted, emotional-based talking points, they just look at the empirical data – the numbers on the balance sheet – and make rational decisions.

Actually, if we are honest, then lose of $7500 WILL mean that EV sales will drop for a bit.
Look at when O did the junkr rebate. When it ended cars sales dropped for 1-1.5 years, then it picked up.
However, Tesla can easily continue exporting big all over the world.

And the ICE folks pretend that this isn’t going on.

US Still Subsidizing Fossil Fuels To Tune Of $27 Billion
https://cleantechnica.com/2018/06/06/us-still-subsidizing-fossil-fuels-to-tune-of-27-billion/

G7 fossil fuel subsidy scorecard: tracking the phase-out of fiscal support and public finance for oil, gas and coal
https://www.odi.org/publications/11131-g7-fossil-fuel-subsidy-scorecard

EAP is 70%, FSD is 10%.

EAP is about 80% and FSD was about 20% before they changed the upgrade cost from $1k to 2k. I imagine it has gone up quite a bit with the upgrade cost increase.

A lot of the M3 design and components are really forward thinking. however, the build quality is quite inconsistent. The cumulative backlog of resulting product problems is cascading into the after sales warranty system. YouTube and Reddit are filled with photos and stories of Tesla cats delivered with inexcusable problems that are left to the service side to fix. The rush to production of the model 3 is now overwhelming the service side. This was predictable and. The auto industry has largely overcome most of the rookie mistakes Tesla is making. The margin from the crappy manufacturing is getting consumed by the rework and fixes thay are paying for under warranty. It’s so much cheaper to build something right the first time, GM was like this in the early 1980’s. The difference now is the Lemon laws that could force Tesla into buy backs of the really bad units.

The inevitable result of building cars in a parking lot under a tent.

And at the same time, the QA issues are settling down. Yeah, service is a mess because of that, but things are improving fast.

Wrong. Build quality is excellent. Keep up!

Below is a posting from Reddit by a Customer picking up their 80k model 3 performance edition earlier this week. Theses are all problems that are avoidable, you can see the impact of the dirty assembly plant manifesting. The condition of this new vehicle will cost the company a lot to fix under warranty.

“Acceleration is amazing. 30-70 on the freeway truly feels effortless (going to be super hard to avoid a speeding ticket). However, I’m really disappointed with the delivery experience and the quality the vehicle is in for a car that is almost $80K.

The appointment time was an hour late. The vehicle wasn’t even half charged. It was also filthy on the inside and out. Paint scratches and bubbles, rubber door trim sticking out, center console makes a loud popping noise. Black stains on the roof and door interior. My cheapie Chevy Volt arrived in 10x better condition. Anyone else have this bad of a delivery experience? I’m booking a service appointment in a week, but just sad that I have to after spending so much and waiting so long.

Also one interesting note, no rear badging on it.“

Munro does not have access to Tesla’s figures, he makes assumptions about how it’s being built and how much parts cost, he’s assuming normal efficiencies of the car manufacturing industry when he reaches his numbers. If the labor-heavy final assembly on the (unplanned) temporary production line falls short of normal efficiencies the cost will be higher (clearly that will be the case or all cars would be manufactured that way). And if higher than normal manufacturing errors lead to more rework and more warranty claims those costs will further erode profit.

My point is that the Munro report shows that the LR-RWD Model 3 can and should deliver close to 30% profit, but it cannot show that Tesla are making that amount. It also does not bode well for the $35000 version which constitutes the vast majority of reservations.

Finally Munro’s comments about profitability do not contradict his earlier comments about build quality, he stated that elements of the build quality were so bad it was reminiscent of a 1990’s Kia, he never withdrew that remark and that’s disturbing.

Yes, production needs to be streamlined to actually achieve that margin, and to get more consistent quality. That’s not a secret. Doesn’t mean Tesla can’t do it.

As for “vast majority of reservations” being for the base version, that’s a claim with no data to back it up.