Here’s Why CNBC’s Look At Tesla Model 3 Teardown Is Flawed

Blue Tesla Model 3

AUG 17 2018 BY STEVEN LOVEDAY 83

In a multi-car comparison, the Tesla Model 3 proves its tech dominance and low production costs, but that’s not how CNBC is framing it.

A recent article on CNBC says the Tesla Model 3 is years ahead of its peers when it comes to technology. It even goes so far as to say that the tech is “military-grade.” However, when analyzing production costs to make this new-fangled tech a reality, the publication believes Tesla will still lose money on the $35,000 version. Interestingly, the company doing the teardown didn’t have access to a $35,000 base Model 3, so these statements must be taken with a grain of salt. CNBC also keeps one important detail out of the title and the premise of the article.

This isn’t the first time the Model 3 has impressed engineers and others who have performed teardown and analysis. Previously, others have said that the Model 3 is inexpensive to produce. This time, the work was done by engineers hired by UBS. The task was to compare tech and manufacturing costs between the 2018 Tesla Model 3, 2017 Chevrolet Bolt, and 2014 BMW i3. Right away we find it strange that a new, higher-trim Model 3 is being compared to a base 2017 Bolt and a four-year-old i3. We’ve seen such weird comparisons before, but have no idea why these choices are made.

The teardown was performed on the $49,000 single-motor, rear-wheel-drive Model 3 Long Range that Tesla first released over a year ago. According to CNBC, an analyst for UBS revealed that engineers were enamored with the car, especially due to its technology. He also said that the analysis showed that Tesla will lose $6,000 on every car once it moves to sales of its base, $35,000 model.

How did the engineers come to this cost conclusion?

The analyst noted that the engineers estimated the $49,000 car to have a profit margin of about 18 percent. If Tesla sold that same car for $35,000, obviously money would be lost.

But wait a minute here …

The $49,000 car is not the base model. It has upgraded tech and many other additional upgrades and features due to the currently “required” Premium Upgrades package. It also has a larger battery pack, which is one of the most expensive components in an electric vehicle. Extrapolating its margins to the base model just doesn’t make any sense. However, there is no base model to dissect at this time.

With that being said, Tesla CEO Elon Musk has made it clear that the automaker can’t afford to build the base Model 3 yet. He even said that doing so could make Tesla “die.” So, we do know that the company is well aware that it won’t be making as much profit by selling the base model. However, this is expected and generally true about any automaker’s base vehicle.

By selling the more expensive, higher-profit-margin vehicles early on, Tesla hopes to become profitable. The idea is that once the company is consistently producing 5,000 Model 3s per week and has all the kinks worked out, it may be able to sell the base Model 3 for a small profit and not have to be concerned.

The most interesting part of the story, which CNBC avoids in the title and doesn’t shed much light on – The higher trim Tesla Model 3 beat both of the above competitors in cost. To clarify, this means that the upgraded, non-base Tesla Model 3 was cheaper to build than the base 2017 Chevrolet Bolt, as well as the 2014 BMW i3. CNBC‘s headline doesn’t say the Tesla Model 3 is years ahead of peers in tech and cheaper to build. It says Tesla will lose money on a car that the automaker hasn’t even built, based on a car that is loaded and has a larger battery pack. What?

Very interesting …

CNBC also shared a video interview with former Tesla director of engineering, David Lyons. He talks about working with Elon Musk and sheds some light on the recent tweets and SEC situation:

Source: CNBC

Categories: Tesla

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83 Comments on "Here’s Why CNBC’s Look At Tesla Model 3 Teardown Is Flawed"

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Bill Howland

No detail?

Hauer

AND the SR will have a different, cheaper, lighter battery technology as well.
So, basically,, worthless speculation at best.

Bruce Sanders

Nice article, but shouldn’t we be speaking about the article on the front page of The New York Times? Shouldn’t we be speaking about Tesla’s stock price action today? Shouldn’t we be speaking about the corporate announcement that they have renewed their determination for a Chief Operating Officer to help (the apparently ailing) Mr. Musk. Shouldn’t we be speaking about the reasons or lack of such for the average American to buy a Tesla after today? How is all of this being ignored on one of the most prominent positive-Tesla sites on the web?

Paul Smith

It’s being ignored because it’s BS.

esto perpetua

After the teardown, are they planning to put it back together? If not, what junkyard are the parts going to be? I am definately interested.

antrik

Probably keeping them for future reference. At least that seems to be what Munro is doing…

James Niggelsbury

“To clarify, this means that the upgraded, non-base Tesla Model 3 was cheaper to build than the base 2017 Chevrolet Bolt, as well as the 2014 BMW i3.”

Well yeah of course. The Model 3 doesn’t come with a nice all carbon fibre body like the BMW i3. Nice stuff costs money of course.

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tester

The CFRP is a really interesting material, but what does the customer actually gain from it?

I’ve owned a 2014 and currently own a 2017 i3. Both have FAR less range, roughly the same MSRP, and have drastically fewer repair options than a Model 3. In fact a disturbingly high % of crashed i3s get totaled if the CFRP is touched, even though it’s technically repairable. The problem is it’s not *practically* repairable widely at reasonable cost. The only clear win is it weighs about 600 lbs less than Model 3, but it’s also a much smaller in length and usable interior/storage space, so it’s not a 1-to-1 comparison.

I think CFRP is proving to (so far) be a swing and a miss from BMW. Especially since they don’t seem to have been able to bring it to their main lineup in any significant way.

James
Thank you tester for a reasonable and logical viewpoint coming from an actual multiple i3 owner. I get criticized by BMW fans when I point out that i3’s lightweighting results in their glorious praise that the car is so efficient, Yet that efficiency does not result in the consumer’s wellbeing. As eggheads we can marvel at tech all we want, yet its the end benefit to the people that is what is important. Consumer-wise, the i3 buyer spends $50,000 on a platform that has the range of a LEAF, seats 4. and handling dynamics with it’s skinny wheels that compares to low end ICE subcompacts costing $20,000. I back this up with facts and track times but the BMW believer is conned in his Ultimate Driving Machine spell. It must be better because it cost more and has a BMW propeller logo on the hood. CFRP is cheaper to make than a true total carbon fiber structure. It is ingenious and if mass produced, could make an EV even better, The way BMW planned it’s use for the I3, it reduced the need for a large battery pack, saving them money. So the i3 fans love that BMW saved money… Read more »
antrik

“CFRP is cheaper to make than a true total carbon fiber structure”? What the hell are you talking about? Carbon fibre (like any other fibre) needs to be combined with a matrix material to produce a stiff structure — and that matrix material happens generally to be some sort of polymer (plastic). CFRP is simply the fancy complete name for what is commonly known as just “carbon fibre”.

Pushmi-Pullyu

Yeah. I had high hopes that CFRP would replace steel and aluminum in car bodies, and with high production, might become significantly cheaper than using metal. But altho BMW pioneered using carbon fiber for a mass produced car, the i3, they have not followed that up with using it for any other model. Also, other auto makers have not followed suit.

This rather suggests to me that both BMW and its competitors think that was a failed experiment. I find that disappointing. 🙁

James

Agreed. The engineering needed to accomplish the lower workforce, higher efficiency CFRP production line evidently cost more than we may guess. BMW calculated the effort was worth it in the reduction if workers needed plus the benefit of using CFRP parts in their entire line of gas cars.

They built a carbon fiber factory in my state and then doubled its size, indicating that this strategy was winning.

Evidently, the costs incurred to get there were harder to recoup than they had calculated. This is my speculation as to what occurred. After all, the development of CFRP was largely to help their current products meet strengthening Euro and Chinese MPG, C02 and emissions regulations, Compliance to these pressures can be expensive. This trumps the need to actually make a profitable BEV that has a range of over 200 miles*.

*PP, note how cleverly I included the word trump, as I know you love it so much. 😎.

This is getting absurd

So Elon Musk is about to be removed or resign as president of Tesla, is under SEC investigation, Tesla is down ten percent in a day and nearly 25% in the last ten in day,etc, and you guys just keep running opinion pieces attacking any negative Tesla press interspersed with videos of Teslas drag racing.

You need to change the name of this blog – it has very little to do with the growth and adoption of EVs and seems almost exclusively obsessed with a cult of personality.

CDAVIS

@This is getting absurd said: ”So Elon Musk is about to be removed or resign as president of Tesla…”
—————

Lol… FUD Fail.

Scott Franco

“You need to change the name of this blog – it has very little to do with the growth and adoption of EVs and seems almost exclusively obsessed with a cult of personality.”

I don’t know what “blog” you are referring to, apparently this web site. I haven’t seen any particular obsession with Elon Musk (who you are apparently talking about).

Perhaps you could find yourself another web site?

Pushmi-Pullyu

“So Elon Musk is about to be removed or resign as president of Tesla…”

Well then, if you honestly believe that’s true, you should definitely rush out and add more to your “short” investment in TSLA. In fact, since you seem to be so sure, you should sink every penny you own into it, and even borrow money to do it. Why not take out a second mortgage on your home? After all, you can’t possibly lose, because Elon is about to be ousted as CEO, and is almost certainly going to jail, right?

(WARNING: The above comment may contain traces of sarcasm.)

Pardon me while I put on my hip boots. The manure is getting pretty deep in here.

J P DeCaen

Imagine how many videos there’ll be when the Roadster 2.0 starts to roll. Vexing!

antrik

I find it hilarious how, in one post, you are both complaining that this site is supposedly obsessed with a cult of personality, *and* complaining about the lack of reporting on some personal drama involving this very personality…

David Green

UBS got their information from Munro, and then did their own analysis..

Brett

Can you cite the source article you’re referring to, I haven’t been able to find the one indicating a $6,000 loss per unit, I’ve seen $2,300.

The articles I’ve seen have also indicated that the primary driver of the projected loss are related to higher than anticipated power train costs, those ‘luxury’ package we’re likely considered by the analysts, but I can’t seem to find UBS’s actual report for 2018.

Tesla has also stated that selling the $35K Model 3 would cause it to ‘die’. So there may be some merit to notion that a base Model 3 is insufficient for near term financial needs, but given strong demand for Model 3 dual motor and long range options, by they have production capacity for the base model, the cost per unit would likely have fallen to the point where a $35K model would be profitable.

Shaun

I see the troll bot army is in full force trying to to disrupt yet another pro-EV site for the sin of writing anything remotely positive about Tesla.

William

EVen the “highly respected” Consumer Reports, has the 2018 Tesla Model 3 ($59k as Tested in September ’18 issue) ranked at an Overall score of 77.

2018 Nissan Leaf ($38.1k as tested) has Overall Score of 75.

That’s only a 2% difference in Overall Score!

Road test score is Model 3 at 82, and Leaf at 71.

11% difference for the road, between the two vastly different EVs.

Very interesting reviews and perspectives coming from the reviewers, at CR and CNBC, on the Model 3.

Pushmi-Pullyu

But CR is interested mostly in “reliability” and cost, not interested in other reasons people choose to buy cars, such as how much they enjoy driving them, or how well they are designed for ease of use (an area in which Tesla excels, perhaps more than any other auto maker), or how “cool” they think the car is.

Note that both the Tesla Model S and the Model X score in the top 10 in CR’s own customer satisfaction surveys. Every year. If the average car buyer was as obsessed with reliability as CR, those numbers would be very different.

William

Excellent point in the weight of importance regarding Tesla (other Model) excellent, industry leading, customer satisfaction numbers.

It will be interesting to see how The Model 3 will fare, as the larger CS data sets trickle in, over the next 6 – 12 months.

Doggydogworld
Steven – ” multiple others have said that the Model 3 is inexpensive to produce.” – I’ve only seen cost numbers from two teardown reports – this one by UBS/Munro and the one in Germany. “we find it strange that a new, higher-trim Model 3 is being compared to a used base Bolt ” – It wasn’t a used Bolt. It was a new Bolt they tore down in 2017. “Extrapolating its margins to the base model just doesn’t make any sense” – Nobody extrapolated margins. Munro estimates cost for every component. They make adjustments for components that are different in the base model. Example, they first figure out glass roof cost. Then they subtract glass cost and add in estimated steel roof cost to calculate base model cost. Munro has been doing this 30 years, he knows how much Tesla’s steel roof will cost within a few percent. They do the same thing with seats – subtract out the powered, heated seats in the teardown car and add in base model seats. Make all these adjustments, add up all the costs and that gives them the base model manufacturing cost. These adjustments are generally small. The big adjustment is… Read more »
MaartenV

Where is the information coming from that the UBS cost estimate is based on Munro’s teardown.

It is stated that UBS commissioned a teardown. It ‘hired’ the engineers.
Sandy Munro has repeatedly stated that his Model 3 teardown was his own initiative and the costs were for his company. He hoped to recoup the costs by selling his reports.

And the numbers Sandy Munro shared about the Model 3 margins were very different from the numbers used by USB.
If it is based on the Munro teardown, the USB financial extrapolations are very questionable.

Nix

It is going to be disappointing if we find out that Munro was hired by USB to do the teardown, and did not disclose that information.

Pushmi-Pullyu

I don’t buy that Munro, or anybody else without access to Tesla’s trade secrets, can possibly know “within a few percent” what the marginal cost of producing a Model 3 is. They would have to know what kind of contract Tesla has with its suppliers, and what the break points are at which higher volume yields lower unit price. They would also have to be able to accurately forecast the future, to see just how fast Tesla is going to increase production, which again will affect marginal cost.

Even Tesla can’t accurately predict that; how could any third party such as Munro come up with an accurate estimate?

I think there is general understanding that higher volume of production yields lower unit costs. I don’t see how Munro can possibly know exactly how economy of scale is going to affect Tesla’s production of the Model 3. Munro may be able to look at the overall market and come up with an estimate based on the history of other auto makers’ contracts with suppliers, but at best that’s only an educated guess.

All just my opinion, of course.

antrik
These are important observations (especially regarding contribution margin vs. profit margin), and mostly matching my own thoughts. Some things to point out though: – The CNBC article literally says, “the cars would lose about $6,000 each at Tesla’s original plan to sell an entry model at $35,000”. That might very well be a misrepresentation of the actual UBS report — but unless someone has access to the original report, CNBC is the source we have to talk about here. – There is nothing hinting that they actually considered lower production cost for the base model. If they see 18% profit margin for the $49,000 variant, and a $6,000 loss at $35,000, that actually comes out to pretty much the same marginal cost. So what they are saying is that Tesla would lose $6,000 per car if they sold the $49,000 variant at $35,000 instead… Big surprise. (In truth, the base variant should be about $5,500 cheaper to make — about $3000 for the missing cells, and about $2,500 for the $5,000 premium package.) – The previous UBS report doesn’t seem to indicate they used any “industry sources” to estimate cell costs. For the Bolt, they simply went with the officially… Read more »
Roger Klurfeld

If you look at the Sandy Munro videos on Youtube, he states that the LR Model 3 has an over 30% net profit and he estimates that the standard version will have about an 18% net profit. CNBC seems to have gotten these numbers wrong.

James

Name me the last time CNBC, MSNBC or NBC ever did anything that WAS’NT fundamentally flawed.

Pushmi-Pullyu

I find the poor quality of CNBC’s coverage of Tesla to be rather shocking. Sometimes article there verge on anti-Tesla FUD… or even appear to cross the line.

It makes me wonder just what is motivating that. Some sort of anti-EV bias on the part of whoever owns NBC?

TheWay

I noticed it started when SpaceX announced plans for low latency cheap high speed internet.

My guess is, Comcast (CNBC’s parent company) most likely wasn’t too pleased.

TheWay

Ever since SpaceX announced that they will compete in the satellite internet business to allow for high speed affordable broadband. CNBC (owned by comcast) had turned deathly critical of Tesla with constant biased attacks.

Speculawyer

I think that it’s possible that the $35K base never ships. Maybe just a few & then discontinued like the 40KWH Model S. I’m not sure they have the costs down low enough. I hope to be proven wrong.

That said, even at $40K it would be great value. Only the Chevy Bolt EV is in the same territory and by most accounts, that car is a big money-loser for GM. Tesla doesn’t have a line of ICE trucks to subsidize the base Model 3.

antrik

Actually, if we trust UBS that 18% profit margin will be achieved on the $49,000 variant, the entry variant at $35,000 should at least get a positive contribution margin — in fact it might be almost profitable on its own. And considering that some people will likely add high-margin options such as Autopilot even on the base variant, I’d say it’s almost certain to be profitable soon enough.

Unless there are very few buyers for the base variant — and so far it doesn’t look like that will be the case — I very much doubt Tesla will kill it. At least until they bring an even cheaper model to market several years from now…

Will

👏👏👏👏👏 it’s jot a base model 3. So why they comparability these evs

Roy_H

I don’t believe that the statement “Tesla beat the other cars in cost” should be taken literally, but implies compared to retail price. They obviously feel that the reduced cost of the $35k version vs $49k is not much lower. $14k is a lot of difference, savings on battery ~$3k, glass roof another $3k?. Can others here come up with a reasonable list of component differences adding up to even $10k?

Speculawyer

The $35K version is only in black, has the shorter range battery pack, and eliminates the premium option package that costs $5K (and includes things like fake leather seats & motorized seat adjustments).

It’s going to be hard to make a profit on the base model since the battery is only 2/3s as large and all the things in that premium option package cost no where close to $5K.

antrik

Indeed the entry variant is probably only about $5,550 cheaper to make than the $49,000 (LR PUP) variant. However, it doesn’t need to be profitable on its own: it’s sufficient that selling both variants is more profitable than selling only the expensive variant.

For that, the contribution margin on the cheaper variant needs to be large enough to cover the extra CapEx and OpEx for larger total volumes; as well as lost profit from some people opting for the cheaper variant, who would otherwise have bought the more expensive one… I believe that should be easily achievable, if the $49,000 variant indeed gets 18% profit margin (as claimed by UBS), and the entry variant is $5,500 cheaper to make (as estimated by me).

Ryan

Thanks for detailed explanations and from Steven, Doggydogworld and antrik. It is strange that I could not find any original report from UBS online, while multiple media have cited similar opinions. Hard to not think the mistake between operating margin and profit margin, comes from the sell-side.
In one post from a new blog, which has been deleted now, I saw some figures from the original report as it claims to be. Some numbers seem strange when calculating the cost of 53 KWh model. Unfortunately, I did not save the post offline while it is available. It will be great if someone could share the link of original report, if that is ok to share.