The Average Cost Of Building A Tesla Revealed In Year-End Earnings Report

Tesla makes a habit of defying conventional wisdom. For instance, conventional wisdom in the auto manufacturing business says you can’t make money building electric cars. The cost of batteries is too high. The cost of creating software to control cars that are essentially computers on wheels is too high. And besides, only effete snobs will buy them. There’s no way to sell enough of them for the economies of scale that drive down costs to kick in.

The proof that conventional wisdom is wrong is contained in the year-end financial report Tesla released last week. According to Zach Kirkhorn, Tesla’s chief financial officer (CFO), “For Q4, specifically, automotive gross margin, excluding credits, increased to 29.2%, which is our highest yet. We do expect to continue to see stronger operating margins as we grow our volumes and improve operating leverage. Over a longer term horizon, we are quite optimistic about the expansion of margins. From the hardware side, we are aggressively driving manufacturing innovations and operational efficiency to reduce cost.”

Tesla Cost Per Vehicle Is $36,000

InsideEVs dug into the year-end report and found this fascinating nugget. Tesla says its cost of goods sold (COGS) per vehicle in Q3 and again in Q4 was $36,000. COGS includes all costs and expenses directly related to the production of a product. It excludes things like overhead and sales and marketing. Since Tesla doesn’t advertise like traditional auto manufacturers do, so it obviously saves lots of money there as well. Tesla says, “We believe our current projects, including large castings, structural battery pack, 4680 cells and many others, should help us continue to minimize our product cost.”

Keep in mind that the least expensive Tesla, the Model 3, starts at around $45,000, and the Model Y lists for almost $60,000. It quickly becomes apparent that with a COGS of $36,000, Tesla is one of the most profitable car companies in the world. So much for the “you can’t make money building electric cars” trope we have been hearing constantly for the past 10 years. Once again, conventional wisdom is not all it’s cracked up to be.