Tesla Motors Inc (TSLA) Gen III Model E Unlikely To Cost Below $48K

Tesla Motors Inc (TSLA) Gen III Model E Unlikely To Cost Below $48K
Blomst / Pixabay

Tesla Motors Inc (NASDAQ:TSLA)’s mass market Generation III Model E is anticipated to hit the roads sometime in 2017. Tesla CEO Elon Musk has said that it will be a truly mass market car with a price tag of around $35,000. The car would have a gross margin of 15%, and will offer 200-mile range. But according to Stanphyl Capital Management, that looks more like a pipe dream.

Much of Tesla’s profits come from optional upgrades

For the fourth quarter 2013, Tesla Motors Inc (NASDAQ:TSLA) reported a net revenue of $761 million. It you exclude $13 million from Toyota Motor Corp (NYSE:TM) and Daimler AG (ETR:DAI) (FRA:DAI) (OTCMKTS:DDAIF) powertrain revenue, and another $15 million in regulatory credits, Model S sales generated $733 million. Divide that figure by 6892 cars, and you’ll get an average selling price (ASP) of $106,355 per car.

Jim Chanos Unveils Lastest Short As Fund Manager Bets On Further Market Declines

Data 1639507577Jim Chanos has a new short target in his sights. Earlier this week, the hedge fund manager disclosed that he is betting against "legacy" data centers that face growing competition from the trio of technology giants, which have previously been their biggest customers. The fund manager, who is best known for his winning bet against Read More

Tesla Motors Inc (NASDAQ:TSLA) earned 25.2% in non-GAAP gross margin on that $106,355 ASP, i.e., $26,801 per car. The basic Model S with 60kWh battery is priced at $70,000 excluding tax credits. Stanphyl Capital assumed that all upgrades above the basic price, i.e., $36,355 per car above the $70K price, generate 45% gross margin (35% margin on battery upgrades and 50% on other upgrades). That means $16,360 of Tesla’s $26,801 gross profit came from the battery and optional upgrades. That means the build cost of the most basic Model S is $59,559, and the gross margin is $10,441.

Elon Musk says that the Model S will be priced at $35,000. The most rumored numbers suggest that the battery costs $260/kWh. That means the battery of the Model S costs $15,600. The Model E is likely to have a 48kWh battery, which would cost $12,480. But the gigafactory should reduce the battery costs by about 35% to $8,112. So, Tesla Motors Inc (NASDAQ:TSLA) will be able to save ($15,600 – $8,112) $7,488 per Model E.

Tesla needs additional ways to preserve margins

Tesla Motors Inc (NASDAQ:TSLA) has to find sources of additional savings. Elon Musk has said that the Model E will be smaller than the current Model S. Stanphyl Capital Management estimates it would save about 400 pound/car in aluminum. At $0.75/pound, that generates $300 in savings per car. The Model E may also save 100 pounds in vinyls and over plastics. At $2/pound, that’s a $200 saving per car. The research firm says that producing the Model E is likely to require a lot of new tooling, because it won’t be able to use many of the Model S tools. Assuming there is at least some shared tooling, the electric vehicle maker can deduct an additional $100 per car in amortization costs. Tesla deducted $64 per car in amortization in 2013.

Tesla Motors Inc (NASDAQ:TSLA) can generate additional savings with smaller video screens, wheels, tires, and brakes. The research firm assumed this could add up to $400 in savings. Moreover, as the company grows, it will be able to negotiate better deals from component suppliers, which is projected to be a maximum of $3000 per car.

Will Tesla suffer a $13,000 loss per Model E?

The most basic Model S has a build cost of $59,559. Subtract $7488 in battery savings, $300 in aluminum savings, $200 in plastic savings, $164 in amortization savings, and $3000 in “bulk order” savings. So, the manufacturing cost of the most basic Model E would be around $48,007. So, how can Musk sell it for $35,000?

Tesla Motors Inc (NASDAQ:TSLA) shares were up 1.61% to $212.97 at 10:39 AM EST on Monday.

Updated on

No posts to display


  1. You can easily get 200 miles with less than 60kWh. By having a smaller car you have less weight thus less energy needed. If they can get NHTSA to remove the provision of requiring mirrors, it would be even easier.

    The Tesla Roadster had over 200 mile range with a 53kwh battery for example.

  2. Yes most GEN III’s sold will cost more but that is only because people will add optional extras.
    The $35K will be a reality but there will also be a performance version for around $50K.

  3. Bottom line is the author is an imbecile. Elon Musk has done everything he said he was going to do. No reason to doubt him now.

  4. No one would have predicted that Tesla’s model S electric car would become the best all around car for 2014 according to Consumer Reports. It will not be easy to bring the car down to that cost, but Musk will use all of his ingenuity into it. Now here is what will be very difficult for Elon Musk. He will not make Space X a publicly traded company until he has space ships that are bringing people to and from mars.

  5. This piece completely discounts the potential impact of Lithium NMC batteries, which are expected in production around that time. Current estimates project double capacity per kg with 25% more cost per kg. Based upon that estimate, a 48 kilowatt-hour battery would cost less than $10,000 and easily provide 200 miles of range due to 50% battery weight savings.

  6. He’s making big assumption abut how much the battery is costing Tesla now…he doesn’t know for real. So, his claims are not credible

  7. These may be some of the most narrow-sighted comments I’ve seen in a while. I’d rebut, but I think Republic and JonF below have adequately made the point.

    Plus, as long as you keep talking about Hybrids, you’re missing the point.

  8. Why don’t you link us to yours first? Seeing as you’re the one who included the stat. I’d like to see where you confirmed this 99% Leaf data.

  9. Laughable article!…is funny how these so called “article writers” come up with is stupid assumptions ( these writers have no idea how to build an automobile ). With current technology using 18650 cells a 45-50kw pack and smaller car without all the high end luxury stuff of the model S, the basic model e will cost about 25,000 to build initially and once is mass produced the cost will even come lower. These articles are useless attempts to detract people from investing in Tesla. As usual, this writer which is named on the SA articles as “Logical Thought” is plain absurd!…

  10. You take stanpyhl at its word? They’ve been shorting Tesla for a while and are getting desperate.
    The Model E is nothing more than a BMW 3-series with an electric motor and battery replacing the gas engine.
    If BMW can make the 3-Series car body for $22k, I can’t see why Tesla can’t do it for $25k. Next, with battery prices coming down, I can’t see why Tesla can do the whole electric drivetrain and battery pack for $10-12k. After all, at one point, Tesla offered Model S owners the option to pre-pay a battery pack replacement for $12k for 8 years. That was for an 85kwh pack. The E base will probably have a 45kwh pack. And it won’t be at the estimated $250/kwh cost today for the Model S. It’ll probably come in at half that by 2020 with the gigafactory online.

  11. Mr. Speigle? Eh, who cares…Perhaps the Model E will be 37K at 14% margins or 39K at 11% margins, in the end it doesn’t amount to a hill of beans. Or even a pile of used ones. A little research will show you why – if you have an open mind.

  12. I disagree with this article. Here’s why:

    1) “more like a pipe dream.” For starters, people have been accusing Elon Musk of fanciful pipe dreams for years, yet he continues to realize those dreams. When will people start believing?

    2) The Model S is already a premium car that appeals to “premium” car customers that want premium car options. They are early adopters who are investing in what they believe is the future of transport. If you’re already able to spend $80k on a car, you can probably (and as the numbers show, obviously can) afford to add a bunch of options. The Model “E” is going to be targeted toward the upper-middle class, who will be more conservative with their optional add-ons, because they cannot afford to add 40% to the price of the car. So applying the statistical math from the Model S to the Model E is is akin to drawing a direct parallel between the buying habits of Porsche 911 customers vs. Volkswagen Jetta customers. And that is just ludicrous.

    3) Giga factory. Tesla and (so far confirmed) Panasonic are about to put a big dent in the cost of battery production by building a domestic giga factory (probably in New Mexico) for battery production. This will be a major cost reduction for the Model E, making a $35k price tag much more attainable.

  13. If you apply this article to calculate cost of BMW 3 Series based on BMW 7 Series cost, 3 Series build cost will be around $45K!!! This is total non sense analysis!!!

  14. Elon has gone on record many times saying the 35K target price is #1 priority and they will reduce margins by any means in order to keep that price in place.

    Don’t forget, Model S/X buyers are paying for all the capital costs of the development of the Gen 3. Those high margins are there in order to meet that price point. You can’t create a high-volume low-cost EV from scratch without huge expenditures! Tesla is doing it The Right Way™.

    I think 35k is the sweet spot for the Gen 3 and will assure them lots of sales and the volume they are planning on. That car is the most important vehicle for Tesla long-term. By then the new battery factory will be built and ready and the Supercharger network will be complete and totally paid for by Model S/X buyers.

    Smart business plan if I do say so myself.

  15. 10B might be a little much. They could probably do with a max of 5B, but I think we will see closer to 2B, just a guess though. The X build out was pretty much already bought this past quarter. Now they are working to bring it all online in time for 2015.

    As far as GM goes they have long said that their long term goal is 25% GM, so right now they are able to get a bit more than that, but over time I think we will see it fall down and float around 25%. If they don’t that would be a disappointment and the shares would likely fall in response.

  16. Gabriel is right. The opportunity for freight is better than consumer autos if it makes sense economically. Unfortunately it does not make sense yet and is marginally successful for Telsa due to unsustainably high GM. They need to ride high as long as possible to fulfill their promise. I think they have a pretty good shot at it, especially if they raise equity. I’d love another nice $10b dilution @ 250 to build out the X factory and battery factory.

  17. Please continue to be wrong about Tesla…I enjoy making money from your short position. The evolution of cars is here. Those too blind to see it, see you in the poor house.

  18. The article seems to focus on savings as if the car were being built today. There are many unknown factors that will affect price in three years. That is three years to decide what goes into the car and what is removed to make the car the desired price.

  19. Gee. There’s an awful lot of assumptions in your thesis. A tremendous number, in fact. So many assumptions that you could just assume your way to whatever conclusion you intended to have in the first place. I hope the readers are smart enough to figure that out.

  20. Ok: You do realize the person who originally wrote that article on SA is short Tesla right?

    Then, let’s look at his methodology:
    Take a high end car, and start taking away pieces- well that does not work too well. Go ahead try it with another car. Take a Lincoln towncar and strip it down to a crown victoria; or take an Accord and strip it down to a Civic. Try that with an Avalon and try to back calculate a Corolla- you get more than the car is being sold for- that doesn’t make much sense at all and to pardon my phrase illogical

    The correct way is to take the materials, take the battery, take the labor and add all that together to get the cost of the car. Or heck, just use the BMW 3 series, take out the profit, take out the engine (now you are left with what we call a glider) and add in the battery.

    No to mention his battery costs are Way too high; current estimates peg them around $175-$200 per kwhr, so you are talking about maybe a $7000 battery after you factor in the cost decrease.

    My estimate pegs the cost of the Model E around 20-24 K to build, more than enough for the profit.

  21. “many buyers”? Research states that “many” is less than a quarter of Model S buyers, according to ‘the article ‘The young and rich snapping up Tesla’s Model S’ CNBC. Less than one quarter out of how many units sold?
    You’ll find the majority of 99% EV drivers in a Nissan Leaf. Do your research.

  22. If you trace far enough, the Tesla thread which has a FAR more indepth analysis on the cost of the pack than anything I have ever seen come from “LogicalThought” (Seeking Alpha article writer), they are suggesting that the cost of the pack is sitting around 14k for the 85kW version. So lopping off the extras down to a 60kW I would put the price around 10k for that battery. Given a 20% size reduction of the car, lets assume 20% less weight, which means you could easily get away with 10% less battery which would put the cost at around 9.5k.

    If you don’t think they could build a roller for 25k you must be high. A Camry INCLUDING the engine costs you 25k at retail. A BMW 3 series starts at 32k (also including the engine) at retail. Take out the 7k for the engine, radiator, exhaust, etc and you can easily see how Tesla can make a 35k car WITH some nice features, at a profit. The question will be, how much profit? Can they hit the 15% gross?

  23. This piece discusses future battery and production costs like there’s certainty in these projections. There isn’t. They’re all fuzzy projections so it’s a bit silly to make it sound like they’re more firm than they are. My guess is that Tesla will succeed in bringing battery costs down even further than projected, given the huge ramp up we’re seeing around the world in battery production.

  24. This article is laughable. I wonder, if Mark B. Speigel, the original article writer covered his short position today….

    Even if Model E battery costs around $8000 it has far less parts than comparable gas engine car. If you add all savings of cheaper electrical engine, no transmission, no fuel injection….etc., I dare to predict that cost will not be much different from cost of BMW 3 Series.

    Tesla will change the car industry. If you own one, you will also be a believer. Imagine the driving experience where you never visit gas stations, never visit auto shop for oil change, tune up, transmission repairs, you save $$$ on fuel, no emission, most amazing smooth driving experience…

  25. Why would you waste your money on “personal computers” don’t you know, those things cost 40,000$, how dare IBM be wasting our time while making the 1% who can afford their PCs happy.

    Why would you waste your money on a Cell Phone, don’t you know these things cost almost 4,000$ (true story, first cell phone cost 3995 in 1983), Motorola is wasting our time.

    Why would you waste your money on these Liquid Crystal Display Televisions, with all their “High Definition” graphics (whatever that is supposed to mean), these things cost 8,000$ (again, true story, 2002 at 40″). LG is wasting our time while making the 1% who can afford their TV’s happy.

  26. You should do your research, many buyers of the Model S fall within the Middle of the Middle Class. ie, the 50-80k range household income. That is FAR FAR FAR away from the 1%.

  27. They have guided for a 15% gross on the Gen 3. This is of course including whatever their ASP gets placed at, so the options will play a role in the 15%… might see an ASP around 45k

  28. Actually Tesla is only planning on the volume production cutting about 10% off on the costs (when compared to the S/X)
    20% will come from savings in the battery, and the last 20% will come from the size reduction of the vehicle.

  29. Eh, I like to stay apprised of both sides of the argument. Helps me ensure I am not crazy about my position. But I dislike when FUD gets spread around in this fashion where someone reposts something as truth, and then it will only spread from there. “Hey did you hear? Tesla is going to be losing over 10K if they build the Gen3! I knew it couldn’t be done”… Speculation is one thing, but it makes me sad that by all accounts Tesla has been pretty reliable on what numbers they have passed around and people are jumping at this like it can’t be done. Hey, If those numbers change, I am sure Tesla will be the first to mention it.

    Keep in mind, they originally said 100k car -> 50k car -> 25k car… this ended up more like 109k car -> 70k car -> 35k car, and is still likely to change, and I am fine with that. Breaking the 50k barrier for a long range EV is huge and opens the market up to a lot of potential customers. Maybe Gen 4 will be the 20k car :)

    As of the lastest information on the Gen3 from Tesla, the word stands target price 35k at 15% gross margins, for at LEAST 200 mile range (guessing EPA rated), with plans to allow for supercharger access. Whatever they have to do to hit those marks, I don’t care, it could have the insides of a cheap Kia for all I care… ok, maybe not that cheap…

  30. Interesting how the disclosure laws apply to a second author (with no interest) copy-pasting an original author (with interest) and re-posting the same article…..

  31. The extra cost of building an electric car comes from the battery. The battery for the Model S currently costs $15,600. If LogicalThought (a Seeking Alpha username; he doesn’t give his real name) thinks there is no way Tesla can build a car for under $48,000, then by that logic he also thinks there is no way that any other car company can build a car for less than $32,400.

    I think it’s time for people to stop reading SeekingAlpha articles.

  32. Who do you think is more credible: the CEO of an automaker, or a long-term short who’s never put together two pieces of metal? BMW can sell the 3-series for mid-30s; there’s no reason Tesla can’t do the same.

    The base Gen III will probably have pretty slim gross margins; like all automakers, Tesla will earn hefty margins on the options. Model S buyers have been averaging about $35k just in options; even if the Gen III option buy is less, there’s still plenty of room for Tesla to hit its target GM for the line.

  33. Why is the market so obsessed with Bell, when we already have telegraphs coast to coast that give correspondents unlimited communication? Bell is wasting our time, while making the 1% who can afford their Telephones happy.

    Progress is expensive. Give Tesla a few years, then get back to me.

  34. 99% SICK OF TESLA
    Why is the market so obsessed with Tesla Motors, when we already have services coast to coast that give PHEV unlimited boundaries? Tesla is wasting our time, while making the 1% who can afford their cars happy. Investors should be focused on efforts that will lower battery manufacturing costs, for the benefit of all.
    Walmart Corporate’s announcement with regard to their WAVE semi-truck hybrid may be the key to lower overall PHEV prices. Their company video is available on YouTube: INTRODUCING THE WAVE CONCEPT TRUCK
    Lower Lithium Polymer battery manufacturing costs, could help demand for Plug in Hybrid Electric Vehicles, that the 100% can afford. Thank you Walmart!

  35. Can’t help but like Musk, can he be wrong sure, but i’m sticking with him, he is thotful and will lift every rock to find ways to deliver on his commitments he has proven everyone wrong so far and has been rewarded, as have his stockholders and car buyers. The haters will always hate.

  36. First of all, if you read guidance, Tesla will get 28% profit margins by the end of the year. You also have to factor that smaller car + more energy dense batteries = less weight. So Tesla does not need 60kwh battery to make 200 miles for the Model E. On top of that, your also forgetting that battery prices will keep dropping naturally even outside the gigafactory. Add in economies of scale and Tesla would be able to release the Gen 3 at around break even. Then their margins will grow every year as economies of scale improves and battery prices continue to drop.

  37. Full Disclosure: The guy who wrote the original article, handle “LogicalThought”, has had a Short position on this stock for a very long time, and has a long play short on this stock and keeps adding to it. He has a lot to gain by trying to drive the stock down, and has been pushing that the company wouldn’t be successful many, many times. If you click through to the source and read through the comments you will see many people correcting his false line of thinking. He has been proven wrong time and again on so many things regarding Tesla, and with his short position I would take everything with a HUGE grain of salt. The spin on this article is pretty great.

  38. Didn’t Tesla say they’re aiming for a 15% gross margin for the enterprise post-Model E? I might be mistaken, but that would be very realistic.

  39. Stuff like this is sort of just made up – stick to stocks and Musk will stick to making cars, solar stuff, rocket ships, tube trains……

  40. Gen III will be produced by a factor of 10. Obvious economies of scale at play here that are not being taken into account by the model above. I also mirror Alex’s comment. I’m still shocked that people are stuck in this same way of thinking.

  41. Wouldn’t that assume Tesla is going to consistently get a 25.2% in non-GAAP gross margin? Other companies are not getting anywhere close to that, why should it apply to Tesla?

  42. Take a Prius, add $5K for the battery and powertrain and $5K to make the car drive better. Voila, $30K to produce. I don’t think subtracting from the Model S is a good indicator considering the MS is a pioneering car with few economies of scale.

Comments are closed.