As we move towards a mostly electric car world, it is imperative that manufacturers find the formula that allows for lower production costs but also margins large enough to ensure the viability and sustainability of the business.
THE Tesla Model 3 seems to have managed to find that formula and, as we reported earlier, it may even be more profitable than anticipated. A German company dismantled and analyzed the Model 3 down to the last screw and concluded that the cost per unit would be $28,000 (just over €24,000), well below the $45-50,000, the average purchase price. of the Model 3 that are currently produced.
As if to confirm these conclusions, we now learn, in general terms — via Autoline — from another study, carried out by Munro & Associates, an American engineering consulting company, advancing with a gross profit margin of more than 30% per unit for the Tesla Model 3 — a very high value, not very common in the automobile industry, and unprecedented in electric cars.
There are two caveats to these results. The first is that this value will only be possible with the Model 3 being produced at the high rates promised by Elon Musk — he even mentioned 10,000 units a week, but currently produces half that rate. The second caveat is that the calculations essentially involve costs of materials, components and labor to produce the vehicle, not considering the development of the automobile itself — the work of engineers and designers —, its distribution and sale.
The value they reached is not less than remarkable. Munro & Associates had already done the same exercise for the BMW i3 and the Chevrolet Bolt, and none of them even came close to the values of the Model 3 — the BMW i3 makes a profit starting at 20,000 units a year, and the Chevrolet Bolt , according to UBS, gives a loss of $7,400 for every unit sold (GM predicts its electrics will become profitable starting in 2021, with the expected drop in battery prices).
"It's like a symphony of engineering"
Sandy Munro, the CEO of Munro & Associates, at the outset, doing a first look at the Model 3, was far from impressed. Despite having really appreciated his driving, on the other hand, the quality of assembly and construction, he left a lot to be desired: “the worst assembly and finishes I've seen in decades”. It should be noted that the dismantled unit was one of the initials to be produced.
But now that he has completely dismantled the car, it has genuinely impressed him, especially in the chapter on the integration of electronic systems. — or wasn't Tesla a company born out of Silicon Valley. Unlike what you see in other cars, Tesla has concentrated all the circuit boards that control the most varied functions of the vehicle in a compartment under the rear seats. In other words, instead of having multiple electronic components scattered throughout the car, everything is properly “tidy” and integrated in one place.
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The advantages can be seen when analyzing, for example, the interior mirror of the Model 3 and comparing it with that of the BMW i3 and Chevrolet Bolt. The Model 3's electrochromic rearview mirror costs $29.48, much less than the $93.46 for the BMW i3 and $164.83 for the Chevrolet Bolt. All because it does not integrate any electronic functionality, unlike the other two examples, with the Bolt even having a small screen that shows what the rear camera is seeing.
During his analysis, he came across more examples of this kind, revealing a distinct and more effective approach than other trams in his design and production, which left him quite impressed. As he said, "It's like a symphony of engineering" — it's like an engineering symphony.
Also the battery impressed him. The 2170 cells — the identification refers to the 21 mm in diameter and 70 mm in height of each cell —, introduced by the Model 3, are 20% larger (compared to the 18650), but they are 50% more powerful, numbers appealing to a engineer like Sandy Munro.
Will the $35,000 Tesla Model 3 be profitable?
According to Munro & Associates, it is not possible to extrapolate the result of this Model 3 to the announced $35,000 version. The dismantled version was equipped with the larger battery pack, Premium Upgrade pack and the Enhanced Autopilot, raising its price to approximately 55 thousand dollars . This impossibility is due to the different components that will be able to equip the more affordable Model 3, as well as the materials used.
It also helps to justify why we have not yet seen the beginning of commercialization of this variant. Until the production line wins the “production hell” mentioned by Musk in the past, it is interesting to sell the versions with greater profitability, so the Model 3 that are currently leaving the production line, come with a configuration very similar to the analyzed model.
The next variants to come out will be even more expensive: the AWD, with two engines and all-wheel drive; and the Performance, which should cost 70 thousand dollars, more than 66 thousand euros.
Despite the positive conclusion after the in-depth review by Munro & Associates, what is certain is that Tesla still has a long way to go before it becomes a profitable and sustainable company.