
Munro Teardown Shows Tesla Model 3 Solidly Profitable [video] - solarkraft
https://youtube.com/watch?v=pAS-yjWj9DY
======
Animats
That's bill of materials cost. What's killing Tesla is labor cost in assembly.
Tesla has about 10,000 employees in Fremont, to produce about 3500 cars a
week., per Bloomberg.[1] (No, not 5000 cars; they got up to 4500 once,
though.)

Modern auto assembly plants typically run about 15-30 labor hours per car.[2]
Tesla's Fremont plant is somewhere over 110, even in good weeks. In bad weeks,
the ratio is much worse.

The point of the teardown is that the design isn't inherently expensive. If
Tesla ever gets their assembly plant working properly, they could make money.

Musk commented "go to Ford, it looks like a morgue", after apparently visiting
the Ford Rouge plant. Ford's PR person replied "No doubt the vibe is funky in
that 'makeshift tent,' but it's not bad either across the street at the
#FordRouge plant where a high quality, high-tech F-150 rolls off the line
every 53 seconds like clockwork." That's what's supposed to happen. Cars
coming off the line at a steady rate, union workers not being worked to death.

[1] [https://www.bloomberg.com/graphics/2018-tesla-
tracker/](https://www.bloomberg.com/graphics/2018-tesla-tracker/) [2]
[https://www.motortrend.com/news/toyota-chrysler-have-
north-a...](https://www.motortrend.com/news/toyota-chrysler-have-north-
americas-most-efficient-plants-1859/)

~~~
Giorgi
Not true, Munro does labor of cost assessments as well, not just BoM. If Munro
is saying car is profitable then I am pretty sure he factored that in.

~~~
raisedbyninjas
Does it factor in the warranty maintenance? Tesla seems to have a high rate of
warranty work from noisy drive units to retrofitting titanium armor to all the
battery packs.

~~~
toomuchtodo
You're referring to changes made to Model S vehicle manufacturing over half a
decade ago. The lubrication of the drive units has been automated, and battery
pack armoring is built into the current cost model for all production
vehicles.

------
fhood
Wow, and absolutely brutal amount of work must have been put into those
reports. How do they estimate the cost of parts made inhouse?

~~~
froindt
Looking at the shape of a part, estimated quantity required, etc. an
experienced manufacturing engineer can give you a very good guess as for how
it was made. One of my industrial engineering professors encouraged us to
bring any parts we were uncertain of to him for analysis (and I did stump him
one time with the plastic molding on the end of a DVI cable).

There are fixed costs and variable costs for production. Creating the dies and
molds is a very large fixed cost which gets spread across all units created.
Based on the size of the part, estimated tolerances required for successful
operation, and other factors, an estimated die or mold cost could be created.

The material, electricity, and labor are variable costs of production, all of
which can be quite easily estimated.

Now, on the rear view mirrors they had cost down to the penny. Unless they
have some other datasources they're using, I'm guessing it's an estimated
cost. Unless I learn more, I'd be skeptical of those prices. I'd be more
comfortable if they posed an estimated cost per component and rolled it up
into an estimated cost for the rear view mirror assembly.

~~~
danso
How much off was your professor about the DVI cable?

~~~
froindt
He was quite close.

[https://commons.wikimedia.org/wiki/File:Dvi-
cable.jpg](https://commons.wikimedia.org/wiki/File:Dvi-cable.jpg)

This image shows a small amount of flash (extra material where two halves of a
mold meet) on the edge near the screw. The main question was how the plastic
housing was manufactured. The piece I gave him had no visible flash. It was
either two pieces attached together (with an adhesive, solvent bonding, or
ultrasonic welding) or the metal plug components were inserted into the mold
and the plastic was injected (overmolding).

He suggested overmolding because there was no seam to be found. Even feeling
the edge felt like one piece. There was some misalignment on the screw hole
though, which was the reason it couldn't have been overmolding.

------
karpodiem
...at what selling price? M3 Long Range starts at $49K, which can be
configured with a $2500 deposit for delivery in a few months.

The M3 short range (starting at $35K) can't be configure for delivery at this
time.

~~~
greglindahl
The short-range Model 3 is just the long-range one with a smaller battery and
a less fancy interior package, so it's not rocket science to estimate its
margin from the long-range car teardown.

~~~
jsight
It also lacks the glass roof. Maybe there are a few other small feature
differences as well? But I agree, it isn't exactly impossible to estimate its
cost from the cost of the LR PUP version.

------
compcoffee
Good, I hope Tesla can find their space and actually become a feasible
company. My "commuter" vehicle is paid off in 2 years, so I hope in 3 or 4 EVs
are widespread enough to buy one. I drive about 120km round trip, so an EV
makes a lot of sense. Don't let my comment history fool you; I'm pro EV, and
even pro Tesla. I simply believe TSLA is overvalued, because they aren't going
to rule the world.

That said, there's a big gap between "theoretically" profitable, and GAAP
profitable. Tesla's problem won't be the margin on their assembly and parts;
it will be the ongoing maintenance and potentially demand for cars that, up to
now, are far more expensive than advertised.

~~~
mberger
I'm in the same boat. I'm not rich enough to afford a Tesla so I'm hoping the
Leaf or similar hit the 20k - 30k mark when I'm ready to buy. I have a 4km (!)
commute so range is not an issue. What will be an issue is fitting my house
with a charging station.

~~~
raisedbyninjas
You can get a low-mileage used Leaf under $10k today.

~~~
compcoffee
> _You can get a low-mileage used Leaf under $10k today._

Doesn't meet my requirements, unfortunately.

I need 2nd gen.

~~~
r00fus
Why?

------
ggm
There was a story about people inside Tesla identifying weld simpification.
I'm interested if the teardown was before or after that change, because my
working assumption is construction time impacts cost. But not bill-of-
materials inputs, so the impact on the cost side, might be low, it just goes
to flow-rate of _amounts_ of cars made.

Love to know: does changing manufacture of fixed-size parts like this alter
cost?

~~~
larrydag
The old saying "time is money" definitely important in manufacturing

------
martythemaniak
This isn't the first time this kind of teardown has been performed and they
all show the same thing. The $35k base model made at scale later this year
will be profitable.

I know this doesn't sit well with the whole "Musk is a fraudster/bullshit
artist" wave that's hit HN and most online forums recently, but sometimes
things are really simple. They'll make the car and sell it a profit.

~~~
DmenshunlAnlsis
What $35k model?

[https://arstechnica.com/cars/2018/07/tesla-
drops-35000-price...](https://arstechnica.com/cars/2018/07/tesla-
drops-35000-price-from-model-3-page-insists-plans-havent-changed/)

I’ll believe it’s a thing when it starts to ship, until then it’s PR for a car
that’s much less affordable.

Edit: the mass downvoting of any comment critical of Tesla/Musk, and flagging
of any negative article is getting really old. It’s especially galling when
people float conspiracy theories about an anti-Musk bent as a justification
for this.

~~~
martythemaniak
Have you considered the fact that you're getting downvoted because the
negativity requires an increasingly conspirational mindset?

What I'm saying is, what you you're seeing could be explained thus: "It takes
a few months to spin up production of new trim levels. Like other companies,
this company's years-long plans sometimes get delayed by several weeks or
months. The company has spent a lot of capital on fixed costs and are focusing
on being cashflow positive by prioritizing high-margin sales first"

To make sense of Tesla's actions doesn't require your to believe anything out
of the ordinary, nor even anything specific to Tesla. I might have just as
easily described Intel shipping a chip.

OTOH, the negative case is always shifting, there are always rumours, the
books are cooked, the production numbers are bunk, the QC issues are
underreported, etc etc. Until a few weeks ago, the line was that they couldn't
make them in large numbers. Now that that's gone and forgotten, the current
line is about the base model. When that ships, the line will shift to the
Model Y or FSD.

~~~
DmenshunlAnlsis
What I’m saying is based on missed targets, a price point that has never
materialized, and a total lack of personal investment in Musk or Tesla on a
financial or emotional level. If Intel made as many claims and delivered so
little I’d be skeptical of their ability to ever deliver as well. When I look
at Tesla I see a company that can only make its stated targets when they work
out of a tent with all hands on deck. That same company is saddled with debt
and has never turned a profit. It’s hardly doomed, but there are clearly real
problems to be overcome.

Then I contrast that with the pie-eyed faith of the “Musk is saving the world
for us,” fanboys and it makes me tired. The gulf between the reality of Tesla
and the “negative case” as you call it isn’t that wide, while between the
promise of changing energy forever blah blah blah is a lot of PR. The most
likely cases are Tesla succeeding _as a car company_ or failing _as a car
company_ and nothing more either way.

I don’t care if Tesla fails or succeeds, and I don’t know whether failure or
success lies ahead for it. I do increasingly see Musk as unstable and
unpleasant, and his most rabid fans as unbearable though. I’m approaching
console-wars and cryptocurrency levels of burnout with this topic and how
online communities discuss it. I feel dread at another predictable and heavily
flagged discussion every time Musk and Tesla is submitted, not excitement or
intellectual stimulation.

~~~
tokipin
> Then I contrast that with the pie-eyed faith of the “Musk is saving the
> world for us,” fanboys and it makes me tired.

There are things that the fanboys understand that critics don't. It will make
more sense to everyone once people understand that the Model 3 is the iPhone
of cars and the Gigafactory and other investments start paying for themselves.

As far as the pro-Tesla and anti-Tesla arguments, I find the two sides talk
past each other because the time frames being discussed are very different.
Case in point, it's not that Tesla investors are covering their ears and
saying "lalalala" about Tesla's missed deadlines. It's that _they don 't
care_. Based on the Model X delays, I didn't expect the Model 3 to even enter
production until the end of this year. Besides the financial risk factor, I
couldn't care less about the company missing its deadlines by a year. It
simply does not matter. Repeat for many other topics.

~~~
DmenshunlAnlsis
_There are things that the fanboys understand that critics don 't. It will
make more sense to everyone once people understand that the Model 3 is the
iPhone of cars and the Gigafactory and other investments start paying for
themselves._

If. IF. It could be the iPhone 1, or it could be a distant memory, or it could
just be another car. It’s the certainty and sense of destiny that makes the
fanboys so impossible to deal with, like cryptocurrency fanatics who can only
talk about “fiat is dead,” lines. Putting aside the extreme positions, Tesla
shows no signs beyond aspirations of being more than a car company. They don’t
seem like they’re about to keel over, or conquer the world, they’re just
making cars.

~~~
tokipin
> It could be the iPhone 1, or it could be a distant memory, or it could just
> be another car.

I think your mistake is thinking that this is a roll of the die. Just because
something is difficult to discuss doesn't mean there aren't people that
understand it. And many pro-Tesla arguments are systemic, which also makes
them difficult to convey (concepts like "game-theoretic equilibrium" are not
in common lingo). Many pro-Tesla-ites will sound hype-y because they don't
have a good way of explaining their conclusions, not because they don't have a
clear understanding.

~~~
DmenshunlAnlsis
“It should be possible to explain the laws of physics to a barmaid.”
-Rutherford

No offense, but this isn’t physics, and I’m skeptical of grand designs that
live and die in someone’s head without the ability to be communicated to
others. Maybe it’s hard to explain because it’s bullshit, and actually is
hype-y?

------
vonnik
This reminds of the teardown German engineers did back in May to reach the
same conclusion:

[https://medium.com/@chrisvnicholson/analysis-teslas-
model-3-...](https://medium.com/@chrisvnicholson/analysis-teslas-model-3-can-
turn-a-profit-6c5e9b13afe9)

~~~
jillesvangurp
Also check this analysis of the same report by German Handelsblatt (in
English): [https://global.handelsblatt.com/companies/german-fears-
cover...](https://global.handelsblatt.com/companies/german-fears-covert-look-
hood-tesla-930180)

For reference, that's a quality German news publication making the point that
German car manufacturers are getting worried, which is probably an
understatement.

Basically last year, Tesla outsold the German manufacturers in their home
market for electrical vehicles. This year is not looking much better. The
total amount sold in Germany per month last year was about half what tesla is
claiming to do per week last recently. Meanwhile the model S is outselling
essentially all similarly priced traditional cars in Europe as well.

Unsurprisingly, VW, Audi, Mercedes, etc. have all announced electric vehicles
starting to ship "from next year" (numbers unknown, presumably nowhere near 5k
a week any time soon). Most manufacturers are being hand wavy about early
2020s type time frames for volume production. If they do have cost issues like
this analysis suggests, they'll be struggling to compete on price and volume
for quite some time.

So, Tesla undercutting them on price and volume is a big deal. Tesla doing
battery production and other components in house is a big deal as well. Tesla
opening up more giga factories in places with cheaper labor (e.g. China) or in
Europe (Germany is being rumored) is a big deal as well.

I've been reading all these comments about the imminent implosion of Tesla
here on hacker news and I just don't see it. Basically people pulling numbers
out of their ass and predicting they won't even last until end of the year.
Last time I read comments like this about a company was when I was reading
internal comments on the iphone launch while working at Nokia. Needless to
say, Apple did rather well regardless of those comments. Basically high placed
Nokia seniors were arguing passionately the iphone was shit, the cost was way
to high, and no way Apple could match their logistics, and btw. the latest
Nokia phones had feature X, Y, and Z so obviously Apple was fucked.
Spectacularly wrong on all fronts and Nokia was history five years later
because it never managed to recover from being so spectacularly wrong in time
to come up with decent, competitive products.

I learned a lot about seemingly smart people being completely wrong and
suffering from confirmation bias in that phase of my career. I'm seeing
exactly the same patterns in the car industry today.

I'm seeing a company doing more or less what Apple did to traditional phone
manufacturers about a decade ago doing more or less the same for cars. The
same kind of arguments and the same disbelief as Tesla ticks off milestone
after milestone. Also the same kind of excited user base. Teslas are selling
in a way that is very similar to how the iphone market has been rock solid for
a decade now. I wouldn't be surprised to learn that most Tesla owners were
also early iphone adopters. Sure Tesla is behind schedule. But what schedule
is that other than their own ambition? What clock is ticking exactly? What
other manufacturer is shipping 5K electric vehicles per week; or even planning
to, or realistically close to our producing and undercutting Tesla on price
and quality?

~~~
erk__
I think you underestimate how fast the car companies can set up a production,
at the same time Northvolt is making europes biggest battery factory to open
in 2020. I think that every european carmaker is going to have up to multiple
electric cars before IAA next year. Also you need to remember that apple never
really solved the production problem they outsourced it to Foxconn, and are
first now taking some of the production back.

~~~
jillesvangurp
I think car manufacturers are acting like they are behind schedule on a number
of fronts and are cutting corners to catch up. The fact is that Tesla has a
good 2-3 years ahead of them where they are essentially unchallenged. IAA is
nice for product demos but it's not the same thing as shipping products in
volume. Tesla announced the model 3 years ago, revealed it two years ago and
only started shipping in volume this year. The other car manufacturers are
talking about revealing products next year that they will start shipping from
2020.

Tis article suggests that Tesla has a pretty strong competitive advantage with
their batteries. That suggests that existing manufacturers are going to have
cost issues even if they get their production capacity ready on time and
batteries completely dominate the cost of the cars. The way I see it, they are
several years away from meeting current cost/production levels of Tesla today.

------
hayd
Which was the original video where he didn't like the fittings etc?

~~~
devin
[https://www.youtube.com/watch?v=QCIo8e12sBM](https://www.youtube.com/watch?v=QCIo8e12sBM)

~~~
Nokinside
TL;DW of the original video is

* Electronics, batteries etc. are far ahead of others

* Car drives very well.

* Traditional car parts are total crap. Chassis very heavy without any safety or other reasons.

Munro says in a interview that had Tesla outsourced the manufacture and design
of of the car minus the scateboard to a company like Magna they would have hit
every target and even Toyota would be crapping their pants now. If the
traditional mechanical parts of the car would have been even decent, Tesla
would have mopped the floor with everybody.

Tesla has been throwing money away because they didn't outsource and they have
been loosing time against competition that comes behind.

~~~
sharpercoder
Outsourcing stuff usually hurts in the longer term as company knowledge is not
build up within the company itself. For many parts this is crucial in a car,
for other parts it has no effect.

~~~
ygra
They did this with the Roadster, though.

------
adrr
I don't understand how the rearview mirrors can be up to 5X difference in
price and have the same features(eg: auto dimming). Also BMW and Chevy are
likely sharing the rearview mirror with other models so the price difference
even makes less sense to me.

~~~
lgbr
Because the mirror is otherwise extremely simple. There are no buttons or
other electronics like you might find in the Bolt which would have OnStar.

~~~
adrr
There isn't going to be a cellular system and cpu for on-star in the rearview
mirror. It's going to be a board that probably plugs into the infotainment
system board. Also model 3 rearview mirror has a camera so $24 is very
suspect.

[https://electrek.co/2017/08/01/tesla-model-3-driver-
facing-c...](https://electrek.co/2017/08/01/tesla-model-3-driver-facing-
camera-autopilot-tesla-network/)

~~~
londons_explore
Low res cameras are only $2-5 now anyway.

[https://m.alibaba.com/product/1307752426/VGA-
OV7670-Camera-M...](https://m.alibaba.com/product/1307752426/VGA-
OV7670-Camera-Module-Lens-
CMOS.html?spm=a2706.7843667.1998817009.26.f8c942d4z41ejP)

------
olivermarks
Having a hard time believing this - as they say in the video 30% profit
margins are v rare in the auto industry. I trust Munro though...

~~~
newnewpdro
EVs _should_ have far better margins than ICE vehicles, at least in the
interim transition period where prices still reflect the cost of comparable
ICE vehicles.

They're far simpler to manufacture once all the electronics have matured
enough to be integrated. If you look at the Model 3, the power system is
largely bundled with the battery. So the gigafactory is pumping out that
module where much of the cost and complexity resides, and the rest of the car
is largely devoid of precision machining processes.

ICE vehicles have complicated transmissions and engines, lots of machining and
delicate assembly processes.

I expect there to be a period where the margins on EVs are quite fat thanks to
inertia in the market's price expectations established by high-cost ICE
vehicles. It'll wane once the competition matures and the undercutting
commences. These cars _should_ be much cheaper to manufacture (as well as
operate/own/maintain).

~~~
elihu
I think electrics will eventually be cheaper than gas (and I'm looking forward
to that day), but right now production is bottle-necked on battery supply. So,
manufacturers can sell cars for any price they like because electric cars are
relatively rare. It won't last forever, but it's a nice position to be in for
the companies that have a steady, reliable source for battery cells.

------
notananthem
It isn't solidly profitable, in fact, its solidly unprofitable. They haven't
been profitable yet.

~~~
melling
The company has been unprofitable. The video claims the profit margin on the
car is 30%. I've heard from a couple of analysts that Tesla needs to produce
between 50,000-60,000 Model 3's a quarter to be profitable.

Musk has stated that Tesla will be profitable in Q3 and Q4.

~~~
quickben
Assuming it survives until then (bond's maturing, etc).

~~~
melling
I think Tesla's only bonds due this year are $230 million in November, then
$920 million n March 2019. They still have about $3.5 billion in cash.

Also, I believe next March's debt can be converted to equity if the stock
price is about $360.

