Published on March 4th, 2014 | by Christopher DeMorro


Cost Of The Tesla Model E Exaggerated In Flawed Study

March 4th, 2014 by  

Originally published Gas 2.


Elon Musk has always called for a $35,000 Tesla, but one research firm says that the numbers just don’t add up. Too bad the study makes flawed assumptions. But it’s still worth asking if can Elon Musk really deliver a 200-mile EV for $35,000.

Stanphyl Capital Management looked at Tesla’s profit margins on the Tesla Model S, and figured out that the cost to build a 60 kWh Model S is about $59,559. That means Tesla is earning over $10,000 per car right off the bat, but it’s the additional options that drive Tesla’s profit margins to over 25%, or about $25,000 on every $100,000 Model S sold, $100,000 being the average transaction price.

So basically, Tesla is pulling down big numbers because it up-charges on optional features like you wouldn’t believe. Sounds like a typical luxury car maker if you ask me. But what happens when the electric automaker goes down market?

According to Stanphyl, most rumors suggest that Tesla is spending about $260 per kWh for the Model S, putting the battery cost for the 60 kWh battery at about $15,600. The Tesla Model E will likely need at least a 48 kWh battery to go 200-miles per charge, which would put battery costs $12,480. If the Tesla Gigafactory lowers battery costs the expected 35%, tit will cost just over $8,000 for the Model E’s proposed 48 kWh battery pack.

So far, I don’t have any problems with Stanphyl’s math, but then the last couple of paragraphs get rushed and hurried, without nearly as much supporting math. The study suggests Tesla could save around $3,000 per car via bulk ordering, $400 per car with smaller video screens or wheels, and another $664 in random savings, and Stanphyl thinks each and every Tesla Model E will cost around $48,000.

That’s right where they lost me.

I think the most obvious point to make here is that the Tesla Model E is an entirely new and different car from the Tesla Model S. It is likely to be smaller, lighter, less powerful, and less luxurious than than the Model S. Stanphyl seems to think the only difference will be in the battery pack size and cost, but the Model E is going to need less of everything; less aluminum, less leather, less of everything. The Model E may not even need a 48 kWh battery pack to go 200-miles.

There are other methods of keep the cost of a car down, and $8,000 for a major part of the Tesla’s drivetrain isn’t that far out of whack with many modern luxury cars. What do you think the engine of a new BMW 3-series costs? But Bimmer seems to make plenty of money off of their luxury sedans. So why not Tesla too?

That said, Tesla definitely has its work cut out for it. First off, it may not have the $7,500 Federal tax credit to fall back on by the time the Tesla Model E comes to market. Also, a $35,000 Model E only works if battery prices continue to fall, and with a reveal rumored for next January, time is definitely working against Tesla. But considering a $50,000 Tesla Model S was already sold (though swiftly cancelled), at least on paper Tesla should be able to pull this one off.

Source: ValueWalk

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About the Author

A writer and gearhead who loves all things automotive, from hybrids to HEMIs, can be found wrenching or writing- or else, he's running, because he's one of those crazy people who gets enjoyment from running insane distances.

  • Shaun McNulty

    From the comments being posted it looks like people are expecting a model S for $35,000 and that is just not going to happen. Tesla will with no question hit the $35,000 mark and people will rack up add on just like the current model and make Tesla a fortune.

  • sranger

    No one knows what Tesla is paying for batteries now so all of this is nothing but guess work….

    However, we do know that the 85Kwhr cost $7,000 more than the 60Kwhr when you subtract the $2,000 for Supercharger and the $1000 Michelin tire upgrade both of which are included in the $10,000 upgrade from the 60Kwhr model.

    So $7,000 / 25Kwhr = $280 /KWhr.

    I assume that Tesla makes money on this upgrade so their cost (10% – 25% profit ) probably ranges from $252 to $210 / Kwhr

    Lets call it $220/Kwhr.

    Elon says he expects 30% cost savings. So call the estimated price at $155/Kwhr.

    A 155/Kwhr a 50Kwhr pack would be $7,700.

    That leaves $27,300 for tesla to make the car and a profit…

    I see absolutely NO reason to say this can’t work….

  • colinlee

    Several points to add. Lithium NMC batteries are expected around that time at about 2x capacity per kg at 25% more price. Weight is also a huge factor in range. If the Model E uses NMC and Gigafactory economies of scale, they could easily hit the numbers without options.

  • CMCNestT .

    Tesla figures it can reduce the price of battery packs by 30% in 2017 and by 40% by 2020 once the Giga Factory is fully ramped up.
    BMW can build a 3 Series glider for $22k. And the economies of scale are about 350k units. Maybe it will be a bit more for Model E with aluminum instead of steel but it should not be that far off.
    So approximately $30k-$32k cost for the base Model E.

  • Ronald Brakels

    I won’t discuss the Tesla E right off the bat. Instead I’ll go on about the current cost of cars. These days $15,000 buys a nice internal combustion engine car. Not a real big car, but most people don’t need a large vehicle for their day to day driving. Now if we didn’t need an expensive piston engine in this car but instead replace it with an equally powerful electric motor which would be much smaller, simpler, more reliable, and much cheaper, that would result in a considerable saving. How much of a saving? I don’t know. Maybe a couple of thousand? And this car wouldn’t need a liquid cooled radiator, an oil pump, a muffler, or even gears as a single gear will suit an electric town car. Get rid of all this stuff and replace it with regenerative brakes and a place to slot the battery packs and how much money have you saved? I don’t know, I’m not a rev-head, but it’s going to come to a considerable amount. An electric car without batteries, but with adequate creature comforts should cost thousands less than a comparable internal combustion engine car. Just for the heck of it let’s say $12,000. Throw in $12,500 dollars worth of batteries, round it up to the nearest thousand and its $25,000. Now modern internal combustion engines are only as cheap as they are because they are mass produced, but that is exactly what Tesla plans to do with the model E. They may still have higher costs than internal combustion engined car manufacturers as they are just starting off and they may want to install a larger battery pack or maintain high standards of performance and comfort, but that’s what the difference between $25,000 and $35,000 is for. There is nothing stopping a quality electric car being built and sold for $35,000 or $30,000 or even less. All that is required is enough of them be built for economies of scale to apply.

    • Gary

      Things an EV don’t need:
      Internal Combustion Engine
      Fuel System
      Exhaust System
      Cooling System
      Call it $5000 worth.
      If batteries cost $200 / kWh and you need 20kWh to go 100k then batteries for 100k = $4000. Batteries for 200k = $8000. Batteries for 300k (200 miles) = $12,000
      So when economies of scale kick in a 100k EV should be slightly cheaper than the equivalent petrol car, a 200k EV should be around $3000 more and a 300k (200 mile) EV should be around $7000 more than the equivalent ICE car.
      And I’m sure I don’t need to tell anyone here how much cheaper they are to run.

      • DC

        add about $2000-$4000 for emotor and drive control system batteries don’t drive them self

  • John

    2013 nissan leaf’s price is $28,800. It has 24kwh battery. If the battery price is $260/kwh, A 48kwh leaf costs 24*260+28800=35040. If the battery’s cost can be reduced by 35%, it can save $4368 on battery.

    • J_JamesM

      Which is a good starting fund for making the car nicer, with maybe a more powerful motor than a LEAF or a nicer interior than the LEAF. Not that there’s anything wrong with the LEAF, but Tesla has some high expectations to meet.

  • EV docmaker

    This article is flawed 58kWh is more like it not 48kWh and in fact I think the finished car will do better.

  • Jim Seko

    Elon Musk reduced the cost of getting payload into Earth orbit by a factor of 4. He only has bachelor’s degree in physics with no prior experience in building rockets. He’s literally a self taught rocket scientist. If Musk says he can produce an affordable EV I have no reason to doubt it. Who are you going to believe, a self taught rocket scientist or some dipsh#t with an MBa?

    • Bob_Wallace

      My take on Elon is that he is a smart, focused guy with enough capital to hire the best. I suspect he’s a good judge of people and puts together teams of exceptional people. He’s not necessarily the person doing the ‘rocket science’, but he can head of team of people who can.

      I read an interesting article about Tesla. One of the points was that Tesla now has “gravity”. It’s achieved enough mass to attract the most serious and talented people available. If one wants to work on electric cars they want to work at Tesla.

      Were I a young engineer interested in EVs I’d take a job at Tesla for a much lower salary than at a company that is building only compliance/get a toe in the water EVs.

    • Rent-a-Rocket

      As one of my aerospace professors says “Anyone can build a cheap rocket.” The physics behind it really isn’t that difficult, but there is a lot more that goes into it than building affordable rockets and many people are giving him a little too much praise, or worse not giving enough credit to the NASA shuttles. There is a good reason they cost 4 times as much and you better believe that before buying into the hype.
      Now with that said, I do appreciate the work he and spacex are doing. As well as his work with Tesla. He is more of a business man with the will for progression than “self taught rocket scientist” and I respect that. Will he be able to manufacture the Model E at a reasonable price? No doubt. But like I said he is a business man and we will only see the production of the car when he knows he will be able to successfully make money off of it.

      • Jim Seko

        And he’s a damn good business man for sure. He sold a video game he wrote at the age of 12.

      • John

        Just keep in mind that your aerospace professor has most likely built nothing worth mentioning in his entire life. According to people who have never done anything, every job is real easy, as long as someone else is doing it. Those who can’t, teach. BTW I have 15 years of experience working on commercial aircraft.

      • Bob_Wallace

        Anyone could build a cheap rocket.

        But Musk has built a cheap, reliable rocket before anyone else got around to doing it.

        Of course he used what was learned from the NASA shuttles. And they learned from all the rocket research that came before them.

        Musk had no intention of being a rocket scientist. He was not looking to invent a new rocket engine/whatever. He was doing what needs to be done in every field if possible, to turn research into business.

        We can’t learn much by sending more rockets into near space. From now on most of our launches should be done because they make financial sense. Rocket scientists should be looking for ways to improve the process and ways to put us farther into the heavens.

    • Dennis

      Wow you make a brilliant point i like that one, kool

  • sault

    What if the cost to build the Model S is substantially lower than $60k? Weren’t they offering a low-end, 160-mile range variant with 40kWh of batteries for $59k before the tax break, but cancelled it after there wasn’t enough demand? Even at $260 per kWh, that only amounts to around $5k less in battery cost, yet the car itself was supposed to be $10k cheaper than the 60kWh variant. Extrapolating battery costs will never give you the complete picture.
    Regardless, there are no hard, substantiated numbers in this study, so it is all a lot of guesswork. In addition, the comparison with the Model S is flawed anyway since the Model E is a totally different vehicle with a totally different design / production history. For example, there were plenty of one-time costs associated with getting Model S production up and running, hiring the necessary people and smoothing out the supply “web” for the vehicle’s parts. Tesla Motors has moved down a HUGE learning curve on all these fronts and more. Model E production will also be 10x that of the Model S! Are you telling me that economy of scale doesn’t work anymore and that a company can’t get a better deal buying 100,000 parts from a supplier vs buying 10,000 parts from the same supplier? This study assumes only around a 5% reduction in cost from “bulk ordering”, but that is just a shot in the dark.
    Anyway Chris, this is a great takedown on another one of these “studies” that’s in the same mold as “A Prius is worse for the environment than a Hummer” nonsesne that we saw a few years ago.

    • J_JamesM

      The Model S should be impossible in its own right. And yet here it is.

  • J_JamesM

    Wow, what a terrible study. There are so many things that have been overlooked it isn’t even funny. Did anyone tell the author that the new Tesla is NOT, in fact, a new trim level for the Model S?

    • TedKidd

      Make you think they only understand this type of modeling?…

      • J_JamesM

        Ha! Never heard of that one before, but it seems apropos.

  • Jonas Johan Solsvik

    I got two comments:
    1. The tesla 40kWh cost $57,400, not $50,000. We are discussing pricing before incentives here, am I right? We never got to know the EPA range but it would have been around 150 miles rated range.

    2. The mid-sized Nissan Leaf has a 24 kWh battery and it is rated 84 EPA miles. The Tesla E is going to need at least 48 kWh, i would guess somewere between 50-55 kWh, to get 200 EPA miles.

    • J_JamesM

      50 kWh might be enough, if it is indeed smaller and significantly lighter than the Model S. Less weight means less energy. Less energy means smaller motor, smaller motor means less cost, etc…

      I don’t think the real question here is whether they can deliver 200 miles and $35,000. They simply cannot back down on either of those figures, they WILL deliver them no matter what.

      The real question is how much they will have to sacrifice to get to that figure- in terms of the base model’s appointments and performance, or lack thereof. The “luxury features” might be reduced to automatic windows and power steering. Performance might be sacrificed to a very-un-Tesla-like 9 or 10 seconds to 60 mph. I don’t think they would go so far as to have cloth seats standard, not on a $35,000 vehicle, but I fully expect cheapo plastics and a less-than-awe-inspiring touchscreen.

      • sranger

        Cloth seats are standard on the Model S now…

        • J_JamesM

          I had no idea. They’d really put cloth seats in a $60,000 vehicle…? I guess that just proves my point. If things don’t work out, the base model of the E will probably be appointed like a Camry. Semi-civilized, but cheap.

          • sranger

            They are very nice cloth seats…

            The GEN III will be fine. The one consistent thing about Tesla is that people always seem to underestimate them…

          • J_JamesM

            Oh, I have faith that they will deliver another miracle. I’m just concerned that the Model E might have a fair bit more compromises than the already-comparatively-spartan Model S, especially compared to other cars in its price bracket.

        • Ronald Brakels

          Car seats can be made from something other than cloth these days? Well, you learn something new every day. They used to be vinyl in Australia but that was so awful we got in the habit of covering them in sheep skins. Now that we’ve moved into the future with cloth seats the old fleecy car seat cover has almost disapeared.

  • AndroidDogHeatandSteelersFan

    Interesting very.

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