The math is against Tesla Motors Inc. (NASDAQ:TSLA) and the price set for the upcoming Model 3. The globe’s leading EV firm is still riding the excitement gathered over the upcoming Model 3 concept. The car is around a year away from its launch and is set to sell at $35,000 at its most standard. Despite the assurances laid down by CEO Elon Musk back in March, many analysts remain convinced that the bulk of Model 3 sales will be delivered at a significantly higher price than that.
The predictions are supported by Musk’s own words. While the chief exec claims the upcoming EV can be bought for the advertised cost, he has also admitted that a normally equipped Model 3 will go for around $45,000. However, even that figure is thought to be misleading.
There is significant reason to distrust the price assurances set a year before the Model 3 goes into production. This is especially evident once we look at the unfulfilled price promises that came with the TSLA’s previous car releases. A year prior to the Model S’s launch, Tesla promised that the award-winning, luxury sedan will start at just under $50,000. This wasn’t the case though, and 2012 saw a standard Model S roll out at $67,400, nearly $20,000 more than assured.
The numbers fail Model 3 price
Looking at the EV company’s latest profit report, Tesla pulled in $1,778,442,000 from 16,790 non-leased cars during the three months building up to the end of September. That figure takes into account the total $1,917,442,000 derived from car sales, less the $139,000,000 Tesla got from its ZEV credit sales. The result suggests that the average Tesla sold in Q3 brought in $105,923.
The cost of these sales were far above the price of the Model 3 as well. Total car manufacturing costs summed up to $1,355,102,000 in Q3. Subtract that figure from the earlier $1,778,442,000 gross revenue derived from non-leased Teslas and we get a gross profit of $423,340,000. The averaged profit per non-leased car equates to $25,213 ($423,340,000 ÷ 16,790).
Take away Tesla’s $25,213 average non-leased car profit from its $105,923 average non-leased car price and you get an average car manufacturing cost of $80,710. Note that that number includes the combined Model S and Model X sales for the period.
This begs the question: How does Tesla Motors Inc. plan to lower its average $80,710 car manufacturing costs to something that will accommodate the Model 3’s low going price. Even if analysts generously assume Tesla will be able to reduce its costs per car by over $30,000, that would still peg manufacturing expenses per vehicle at $50,000.
The conclusion is that the average Model 3 will probably have to sell at around $60,000 or more if Tesla wants to derive at least 15% in gross margins per vehicle. That figure is significantly higher than the assured $35,000 per standard car. It even surpasses Elon Musk’s predicted $43,000 per typically equipped Model 3.
Nothing new from Tesla
The company’s flagship Model S sedan was a similar story. Tesla Motors promised to sell the car starting at $49,900. This entry model EV was supposed to come will a 40kWh battery pack. However, thge company pulled back on its previous price and rolled out the Model S at $65,00. Even those who dismiss the mass distrust thrown at the Model 3’s pricing have to admit that Tesla has a undying habit of not delivering cars exactly as promised.
A significantly upped Model 3 price will result in millions in refunded deposits made by hundreds of thousands of hopefuls. Indeed, the opportunity to get a Tesla at a discount is the most appealing aspect of the Model 3. Finding out the car will likely go for as much as an entry level, 60kWh Model S sedan will likely see hoards of people in line changing their minds about the car.
For now, we trust that the cost-saving efforts made by Tesla Motors Inc. (NASDAQ:TSLA) Will allow the firm to keep its promises. However, the numbers are not in Tesla Motor’s favor. We look forward to getting more Model 3 details in Spring.