
Tesla Model 3 teardown points to $28k in potential material and production cost - hippich
https://electrek.co/2018/05/31/tesla-model-3-teardow-material-production-cost/
======
Someone
_”They claim that their cost analysis resulted in materials and logistics
costs of $18,000 and labor costs of $10,000 for a total cost potential cost of
$28,000.”_

If a factory worker costs $10,000 a month, that would be a person-month of
labor per car, or 4 persons to produce a single car in a week, or 20,000 to
produce the 5,000 each week that Tesla aims for.

Because of that, I doubt that $10,000 labor costs number is correct.

Reading the referenced
[https://www.wiwo.de/technologie/mobilitaet/elektroauto-
zerle...](https://www.wiwo.de/technologie/mobilitaet/elektroauto-zerlegt-
tesla-model-3-kann-gewinn-abwerfen/22625806.html), it talks of _production_
rather than _labor_ costs, so I think my suspicion is right.

~~~
forkLding
I have visited the Toyota factory in Ontario, Canada. What stood out to me was
how little people was involved, literally everything was automated and the
only labour people were doing was testing the cars by driving it (or even just
checking the colour) when it came out or standby mechanics to maintain the
machines.

I see Tesla as incorporating more labour than regular cars but not extensively
as modern car plants have pretty much eliminated the need for humans.

~~~
dogma1138
Labor does not mean only people but the cost of assembly. Robots aren’t free
they need to be maintained by highly skilled and in the current market also
highly paid workers and theya aren’t free to run either. They have expensive
consumeables and they need to undergo constant maintenance for even basic
things as maintaining their zero.

~~~
forkLding
Yea I included the mechanics who do maintenance in my paragraphs when I was
talking about labourers, you might have to reread that part, when I was there,
they largely hang out in one roofed area within and arent utilized as heavily
as you expect.

I think from a layman perspective we expect mechanics to be constantly busy
and fixing and maintaining but they only fix if there are issues and with a
company like Toyota the realization is that they're so experienced and
familiar that the maintenance costs reduce with time simply because its
cheaper and much more efficient that way and because its much easier to fix
the same issues.

As well, a mechanic that is fully utilized is actually a bad thing as that
means you plant is constantly being shut down to fix things and not producing
cars, as thats how you fix things in a TPS system.

Also car plants nowadays are wonderfully automated, the materials were being
shipped around using driverless carts with sensors and music to alert people
or things in their way. Its also suprisingly devoid of human noise aside from
the machines clanking.

------
pasta
The biggest cost of any car is R&D.

So this article doesn't tell us much.

~~~
toomuchtodo
It tells you what Tesla's margins are going to be, as R&D cost per unit
decreases/is amortized over more units as production scales up. Check out
their free cash flow [1]. You'll see that it's always in the red before
production scales up (Model S first, then the X, and now the 3).

TL;DR If production continues to scale up, the Model 3 will be wildly
(relatively speaking for the auto industry) profitable (and the battery cost
is possibly under $100/kw, which would be big if true).

Sidenote: Elon's enormous pay package [2] that was approved requires one final
condition be satisfied; four consecutive quarters with 30-percent gross
margins. If I had to bet real money, I'd say 2018Q3 is when those margins
begin to be realized, his compensation delivered 2019Q4/2020Q1, and his plan
to go to Mars accelerate (possibly as a direct SpaceX customer).

Sidenote #2: The Model 3's battery pack has the lowest amount of Cobalt in the
industry (2.8%, known state of the art is ~8%). Panasonic (Tesla's battery
production partner) is currently working to remove the need for any Cobalt
whatsoever [3]. Good for margins, good for production throughput, mixed bag
for conflict areas Cobalt is sourced from. Can't win 'em all.

[1] [https://i.imgur.com/HjyKxTm.png](https://i.imgur.com/HjyKxTm.png)

[2] [http://money.cnn.com/2018/03/21/investing/elon-musk-tesla-
pa...](http://money.cnn.com/2018/03/21/investing/elon-musk-tesla-pay-
package/index.html)

[3]
[https://ca.reuters.com/article/businessNews/idCAKCN1IV14Y-OC...](https://ca.reuters.com/article/businessNews/idCAKCN1IV14Y-OCABS)

Usual disclaimer: TSLA investor

~~~
notenoughstuff
> _Check out their free cash flow [1]. You 'll see that it's always in the red
> before production scales up (Model S first, then the X, and now the 3)._

That's a charitable interpretation. From your link it's nearly always
_significantly_ in the red, outside of a couple anomalous quarters 5 years
ago, and the one quarter they sold a bunch of ZEV credits.

It certainly doesn't look like "it's positive, except when they're scaling
up!" to me. I guess one sees what they want to see.

~~~
martythemaniak
This is because they're always spending money to grow. They do this because
they want to grow and are growing. This graph shows you they spent money to
launch the Model S, then went profitable. After this they invested to launch
the X, then went profitable. Then they invested to launch the 3, and now this
year they aim to be profitable again. And you know what they're going to do
after that? Spend money to launch the Y and Semi, then go profitable.

Can they use the profits from S/X to deliver the 3? Yeah, but not on the
timelines that their customers and the market demands. People want their Model
3s today.

One sure mark of a hater is that there doesn't exist a configuration of
reality that will satisfy their objections. Is Tesla spending borrowed money
to accelerate their growth and deliver products sooner? They suck, they should
be profitable. Are they using solely their profits to expand more slowly? They
suck, because they're having trouble delivering their products on time. Great,
awesome contribution.

~~~
notenoughstuff
> _This graph shows you they spent money to launch the Model S, then went
> profitable._

The graph doesn't "show" anything. You are interpreting it in a specific
(favourable) way. I don't agree. Also, free cash flow positive is not
"profit".

> _One sure mark of a hater is that there doesn 't exist a configuration of
> reality that will satisfy their objections._

Oh, there it is. Any criticism means you're a hater.

I'm looking at the numbers. That's reality. You, on the other hand, are
operating on future assumptions that may or may not come to pass. "Becoming
profitable" isn't a given, just because Elon said so. As of right now, they
are losing money at an accelerating rate. I guess we'll see.

And by the way, I'm not hater. I can see Tesla being the next Mazda, who make
some of the most popular cars in my area. Great cars, great company. Do you
know what its market cap is? $8BB. At Tesla's current market cap they need to
build millions and millions of cars at substantial profit. You can believe
that they'll achieve that and an investment today still wouldn't be worth it.
Does that surprise you?

~~~
martythemaniak
What you're missing is that Tesla does not want to be a Mazda, nor a Ford, nor
even a Toyota. They want to be an industrial behemoth that powers every part
of the carbon-free economy. They want to be a GM, GE, ConEd, Exxon and Uber
rolled into one. This is not some bizzare internet conspiracy, this has been
stated in plain English multiple times and has been voted on by their board.

Now, you might think that's too risky, too ambitious, or they'll never be able
to execute etc. Whatever. But you can't judge them based on your own made-up
ideas and standards.

~~~
Semirhage
He already pretty clearly said what he thought. _I 'm looking at the numbers.
That's reality. You, on the other hand, are operating on future assumptions
that may or may not come to pass_

Meanwhile your counterpoint is a very vivid fantasy of what Tesla wants to be
beyond a car company, which is something it’s not doing particularly well.
You’re engaging in just the kind of fantasy “Future assumptions” in question,
and really just buying into empty PR and marketing. The evidence suggests that
Tesla is a car company, and struggling to be _just_ that. It’s an act of
intense mental gymnastics to say that no, they’re not just a car company,
they’re a whole economic sector that started as a car company... before
they’ve even pulled off step 1. Maybe they will be, but the odds are not in
their favor, and it’s going to be a moot point if they can’t even turn a
profit on their cars.

Arguing from an imagined future should be the job of marcom, not you. It’s not
a failure of imagination or a lack of faith for rational people to look at
what is, not a vision of what may or may not ever be.

------
parvenu74
And it's only selling for $35k? I thought the rule-of-thumb was that you
charge 3x the "bag of parts" for a product you make, sell, and service. Apple
certainly got this memo... Elon is leaving a lot of money on the table.

~~~
rgbrenner
Thats for smaller ticket items. Boeing isn't 3x'ing the cost of a plane, and
neither are car manufacturers. Toyota makes an average of $2800/car, and GM
makes only $654/car [0].

Porche makes $17k/car... but that's on an average price of $100k.. so only
17%[1].

0\.
[https://www.detroitnews.com/story/business/autos/2015/02/22/...](https://www.detroitnews.com/story/business/autos/2015/02/22/toyota-
per-car-profits-beat-ford-gm-chrysler/23852189/)

1\. [https://www.autoblog.com/2017/03/21/porsche-17250-profit-
per...](https://www.autoblog.com/2017/03/21/porsche-17250-profit-per-car/)

~~~
briankelly
But the parent said "bag of parts" which implies only the cost of materials,
not the full per-car cost of production, and I can't tell if that also
includes things like R&D, marketing, insurance, etc.

------
holychiz
It's not clear from the article if this cost figure includes software
engineering cost which would be significant in Tesla's case.

~~~
bryanlarsen
No, gross margin doesn't include R&D. That money's spent and gone, so is
pretty much irrelevant towards future costs & profitability. Relevant from an
academic perspective, but not from a business perspective.

Or at least that's the traditional view; purchasers of Model 3's now expect
OTA updates so there is a little bit of R&D cost in the future but it's very
minor compared to what's already been spent.

That also doesn't include self-driving R&D, but that's not included in the
$35K base model so is also irrelevant.

~~~
notenoughstuff
> _purchasers of Model 3 's now expect OTA updates so there is a little bit of
> R&D cost in the future but it's very minor compared to what's already been
> spent._

Toyota spent almost $10 billion on R&D last year. Ford $8 billion. VW spent
$15 billion.

Tesla spent $1.5 billion. What is it that makes people think that Tesla's R&D
spend is so significant, and that it will diminish drastically in the future?
This is an R&D intensive industry.

~~~
bryanlarsen
Toyota will spend roughly $0 in R&D on the 2017 Camry in 2018.

------
Nokinside
The cost of the car for manufacturer might be: 60% goes into into the factory
and tooling, 20% into the parts and 20% is the rest.

If parts alone cost $28k and the car is sold for $35k, there is no profit in
the Model 3 even if the car is successful.

What I really want to know is how much Tesla pays for product recall insurance
per car.

~~~
mikeash
The one they tore down has a price of at least $49,000. They haven’t started
producing the $35,000 version yet.

