With newer production methods in new Tesla factories, the production costs of the Tesla Model 3 are coming down. Part of the new margin these lower production costs make possible need to be used for the profitability of the company. But it also opens up the possibility of lowering prices.
The Model Y is based on the Model 3. They originally shared about 70% of their parts. The Model Y also saw a number of improvements that have not gotten applied to the Model 3, and some that have. The newer Model 3 and Model Y coming from Giga Shanghai are better cars by design than the models coming from Fremont. Because, as someone explained, you can not replace the engines of your plane while flying over the Pacific. To upgrade the production lines in Fremont, they would need to be shut down for some time. Just like the Model S & Model X production lines were shuttered for improvements. With those lines being approximately the only, or now main, source of income Tesla has, shutting them down has just not been an option.
Next year, we will see Model Y production reach volume production in Giga Brandenburg and Giga Austin. They will use the big single casts for front and rear with a structural battery in between. That is about 700 fewer robots to make the cars. That is a big improvement, both in costs and in quality. With LFP (lithium-iron-phosphate) as the battery chemicals, the cost of the battery is much lower. There are many other improvements, like the Octovalve, to regulate the temperature and create a more rationalized production assembly line. (The production line in Fremont resembles the Gordian Knot.)
In the last year, we have seen rising prices because of scarcity of parts (not only chips, but all over industry) caused by the Covid-19 pandemic. With supply chains recovering and much lower production costs, the Model 3 SR+ will likely be possible for $35,000, still with a very healthy margin for Tesla.
The Tesla goal of quickly transitioning to clean transportation requires more competitively priced BEVs. The lower price will also increase market reach. If the incentive for BEVs is extended and the incentive for Tesla vehicles is revived, this will really mean the end of fossil fuel cars.
This is pure speculation, though. It is fueled by wishful thinking and previous price policies deployed by Tesla. We’ll see what happens.
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