Can the Tesla Model S be profitable at $57,400? Not according to these calculations...
Tesla Model S – Click above for high-res image gallery
Tesla Motors' charismatic frontman, Elon Musk, will be showing up on the Late Show with David Letterman tonight to dazzle America's TV audience with his gorgeous all-electric sedan. Tesla says that when the Model S goes on sale at an undefined point in the future, the cost for the base model will be just under $50,000 – $49,900 to be exact – after a $7,500 government tax break. Business Insider has a word for that: Horsefeathers.
BI teamed up with Mark Boyadjis, an auto analyst at iSuppli, and they did some math based on actual numbers used in the auto industry and a lot of educated guesses. The result? They didn't exactly find a lot of room for profit if the car sells for $57,400. Their math is based on at least one error – they say the replacement battery for the Roadster is $36,000, but that's a carry-over mistake from Edmunds – it's actually $30,000. Still, that's the equivalent to the base price of an entire "near luxury" sedan – one that conventional automakers have trouble making margins on. That big, sexy touchscreen? Estimated to cost $4,000. Add everything from chassis and body panel costs to in distribution, marketing, further engineering, and lest we forget – building a factory, and Musk's price target starts to look more and more implausible.
BI has a good point here – Tesla needs to be careful with their pricing predictions. The ambitious startup made big financial mistakes when pricing the original Roadster – which didn't make everyone happy – and there's not a lot of room left to goof up a second time.
Gallery: Tesla Model S
[Source: Business Insider]
Reader Comments (Page 1 of 2)
Ben 8:22PM (4/29/2009)
There are several errors in the linked article's analysis. First of all, let's go by Tesla's math that replacement packs for the Roadster cost $36,000 today (for the customer). At a 20% margin, that's a $30k cost to Tesla today. For the base model S's smaller pack, Tesla's cost today is about $30k * 42/53 = $23,773. (The linked article does actually factor this in; it doesn't just use $36k as the price.) And if we follow Tesla's assumption that the cost will fall by a factor of three in seven years, that works out to a cost reduction of 14.6% per year. Since the Model S ship date is realistically about three years off (best case 2 1/2 years), that leads to an actual cost to Tesla of roughly $14,850 for the battery pack in three years. Factor in 3% inflation, and that's still only about $16,000 in 2012 dollars, a far cry from the author's $28,528 figure.
Finally, considering that the battery is by far the single most expensive component of the car, and that there's no engine (just the proven electric motor and drivetrain), and that the 17" touchscreen will almost certainly be AN OPTIONAL FEATURE, the projected $57,400 base model pricepoint doesn't seem nearly as farfetched.
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Jon 3:30AM (4/30/2009)
nope. wrong.
the touchscreen WILL NOT BE AN OPTION.
the only options that will be on the Tesla are the various battery packs. That is all.
But other than that, good analysis.
Snowdog 8:50PM (4/29/2009)
I have no problem with the price target. What makes a luxury car expensive? Nicer interior and often top end engine. With no engine at all here they shouldn't have much trouble meeting the price except for the battery part.
I wonder how they get all the expertise to build a whole car. Building a whole car from the ground up for the first time from scratch will be an extreme challenge. The roadsters is mainly built by Lotus. This is a whole other game.
What is their parts bin? Assembly line? Design database with years of crash data, etc.
I would love to know how they pull this one off.
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sidewinder 10:14PM (4/29/2009)
$4,000 for the touchscreen? Cost? Is that Qty 1 pricing?
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sp 9:08AM (4/30/2009)
Exactly whoever said 4k for the touchscreen is completely bonkers. Touch overlays are not that expensive. How much is a 720p 17" monitor? This will be cheaper for not needing all the extra crap a monitor has, but more expensive for the transflective upgrade so it can be seen glare free in sunlight, still the estimate for the cost is just stupid.
keveng 10:09AM (4/30/2009)
You have obviously never tried to pass a government automobile spec. 4k is, unfortunately, a very good cost estimate for 3 years from now. Why do you think the dvd system built into a car is a 2k option, vs the $300 system from best buy? The $300 system didn't have to meet a 30g "bump" load without detaching from the vehicle and flying around the passenger compartment. It didn't have to stay intact during a 35mph front end crash. That is just 2 of about 30 government tests that it would need to pass. Let alone warranty testing to insure that will still work in 10 years, good luck on an aftermarket system with a 1 year warranty.
nick 10:11PM (4/29/2009)
I said this when it first came out. They are nuts thinking that they can make a more complicated car than the roadster for less than 60k. My guess is that the car ends up costing $80k+. I don't understand why they didn't price everything on the car out. But you take the roadster, cut out a small part of the battery pack, and add a lot of additional features/costs/complexity. Additionally the component build out required for this car will be much more than the roadster, unless they plan on borrowing a large number of parts from the suppliers.
It was easy to tell how far from reality the Model S was, when the publicity shots came out and the taillights didn't work.
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vfx 10:37PM (4/29/2009)
Elon pointed out that screens like they want to put in the Model S are make by the millions so the unit price is dirt cheap. Perhaps Mark the car expert does not know this industry.
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FitFan 1:04AM (4/30/2009)
A 17" touch screen today costs about $600 retail. I know it's not the exact same part as you'd find in a car, but I'd love to know where they came up with the $4000 figure. In 2 years those parts will be even cheaper.
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James 1:50AM (4/30/2009)
The batteries do not cost $30,000. They are about $12,000 for 40 kwh when purchased in bulk. The liquid cooling and some other technology likely bumps up the cost. I think it is between $15,000 to $18,000 max.
The people who did that estimate are clueless.
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James 1:52AM (4/30/2009)
The $30,000 price for the battery is the price Tesla would charge someone to replace it. That is not the actual cost to Tesla Motors. You gotta figure they are marking it up. They were tossing that number out there to make their $12,000 battery replacement option seem attractive.
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Chris M 2:01AM (4/30/2009)
It reminds me of all those pundits who were so certain that Toyota was loosing money on the Prius. There is the same overestimating of costs, and the same underestimating of potential savings. Makes me wonder if there isn't the same motivation, a secret desire to see them fail.
That touch screen may look cool, but it is just a standard laptop monitor with touchscreen capability. $350, maybe $400, but certainly not ten times that!
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jpm 2:19AM (4/30/2009)
Exactly, they want to see Tesla fail. Reading that Business week article, there is a clear bias against Tesla. Why they want that is anyone's guess. We need to look at the big picture; we need more electric cars on the road stat! ... and more non-polluting sources of electricity.
paulwesterberg 11:04AM (4/30/2009)
Exactly, just because GM & Chrysler cant do it doesn't mean that it isn't a good opportunity for a company that is willing to actual R&D to create new innovative products. Business Insider is written for baby boomer execs who are fat, happy and afraid of change.
Noz 2:30AM (4/30/2009)
This car is a joke. When Citroen is coming out with an all electric car that is affordable, these morons are coming out with something that few people can afford. We need affordable alternatives. If all this money and time is going into developing battery alternatives, concentrating on high end markets is pathetic.
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Jon 11:58AM (4/30/2009)
They are targeted at different market segments - they both have a place.
Chris M 3:24AM (5/02/2009)
Citroen is a big corporation with the facilities to produce hundreds of thousands of cars, they can afford to produce large quantities of cheap low profit margin cars. Tesla Motors, on the other hand, is just starting up, with limited production facilities with a fraction of Citroen's capacity. To pay off development costs with that limited production, they must start out with high profit margin high end cars. But Tesla does plan on growing the company, increasing production capability, and leveraging the research and development for those expensive cars into making less expensive cars. Their 3rd model is to be priced competitively to other mid-priced cars.
There is an interesting historical analogy. The first cars made by Henry Ford was the Gentlemans Roadster, it sold for the equivalent of $140,000. The 2nd Ford model was the somewhat less expensive but still pricy Model S. It was the 3rd Ford model that was mass produced at an affordable price as the "Model T".
Noz 9:28PM (5/03/2009)
The irony of you bringing up the cost of new technology getting cheaper and cheaper....if only you could hear yourself.
Andy 2:49AM (4/30/2009)
I don't put a lot of weight on this analysis. You don't need to be an expert in the auto industry. All product costing works on similar financial principles. I'm sure Tesla have a competent financial team. (More competent than an amateur analyst blogger).
Products costs are high and margins are low for first 4-6 years whilst volumes are increasing, development costs are being expensed, start-up and capital equipment costs are being depreciated. If Tesla can achieve minimum volume targets they have more than a fighting chance.
Where they have opportunity to leverage development costs and components across product lines, the product costs will greatly reduce.
Batteries and electric dive trains have an advantage over complex modern ICE when it comes to leveraging across platforms. The same basic design could be used for decades with minimum modification. I eagerly await that day on behalf of "screwed over" consumers everywhere.
Industry laggards beware.
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Chris 3:44AM (4/30/2009)
People laughed and disregarded what I had to say when I said taxpayer money was being used to fund a company that won't have a car affordable enough for the normal U.S. taxpayer.
Hello people. Our tax money is being spent on a company so their products can be sold to the rich. Middle class will never get to drive a car like that. Wake up.
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