Does It Cost Too Much To Purchase A Tesla?
In hardly more than a decade, Tesla has single handedly accelerated the transition to all electric transportation. Legacy automakers who once poo-poo’d the viability of electric vehicles (EVs) are now releasing very appealing all-electric models of their own. With the competition nibbling away, is Tesla’s catalog of 4 vehicles enough to maintain market dominance? And is the vehicle cost just a bit too expensive for many people who’d like to purchase a Tesla?
An attendee at this week’s invitation-only Goldman Sachs Communacopia & Technology Conference in San Francisco spilled the Tesla beans to Business Insider. Tesla executive Martin Viecha revealed the automaker’s plans for the next 5 years as he spoke at the conference.
Of particular interest were important trends and metrics that the company uses to gauge progress, what a robotaxi service might look like, and other possible company products for the future — including what to expect when it comes to a new, lesser expensive Tesla model.
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As the head of investor relations, Viecha is charged with providing the company management and board of directors with information about trends, shareholder concerns, and competitor actions that might impact the company.
EV architecture, Viecha explained, “is so different from the internal combustion engine, it allows for a third revolution in automotive manufacturing.” The first revolution was Ford’s Model T, and second was Toyota’s streamlined production process of the 1970s. The third revolution of EV architecture is dependent on the intersection of battery supply and technology, which together dictate the cost of making EVs.
Adding a Lower Priced Model, Inviting More People to Purchase a Tesla
Will Tesla bring a lower priced model into the line of vehicles it offers? Yes, well, someday. Viecha responded to this question with an unequivocal “eventually.” The possibility of a more affordable Tesla EV is a must-do because the company wants to be a high-volume manufacturer. To become one, it needs a broad portfolio, which will require a less expensive offering.
That need for an affordable Tesla is so pressing that, before its company-operated robotaxi service can be unveiled, a lower price model must be produced. “This is an important sales lever that we’ve never touched, but, in the future, we might be boosting demand in other ways,” Viecha elaborated.
The Model S and X are the first generation of Tesla’s platform. The Model 3 and Y are the second generation. The robotaxi platform is generation 3, he explained.
The company acceptance that a lower priced model was necessary came about, in part, due to the stronger than expected demand for the Model 3 and the Model Y. The base price of the Model 3, the entry-level sedan, is $40,390. The Model Y Long Range’s price is $58,190. Consistent orders for those models reduces the immediate need for a new model, Viecha was quick to note.
“Model Y will, basically, next year become the best selling vehicle of any kind of all time in the world,” the executive projected, emulating a comment that Tesla CEO Elon Musk made in 2021.
Key Elements of Tesla Manufacturing
Having been the current era pioneers in battery electric transportation, Tesla wants to continue this trajectory, Viecha said, pushing the boundaries of what it costs to produce an electric vehicle.
Per vehicle cost: Viecha explained that, in order for Tesla to grow, the per vehicle cost of manufacturing is the most critical aspect to keep under control. More important than any other metric, per vehicle cost determines how many cars it is that companies can produce and the extent of overall possible company growth.
Battery supply: Viecha said that battery supply is finally at a level where Tesla can purchase all the cells it needs, which will reduce production times. Predicting that the industry will grow commensurate with battery supply, he suggested that areas such as the building of cells and battery packs, battery design, and mining and refining of lithium, nickel, and other raw materials will play key roles in Tesla’s and other EV automakers’ capacity to regulate costs.
Manufacturing: Tesla cost per car dropped from $84,000 in 2017 to $36,000 in 2022, improving the company’s profitability. Stronger vehicle and factory designs invited more streamlined manufacturing and capacity. Interestingly, few of the cost savings were derived from batteries. As new facilities produce more cars, they will be able to manufacture each vehicle for less than $36,000, Viecha said.
Benefits of new Gigafactories: Tesla’s initial factory in Fremont, California in the Silicon Valley region is a less advantageous site to build company cars than its newer Tesla factories, Viecha disclosed, yet the Fremont factory accounts for about half of Tesla’s production. Shanghai and Berlin are more cost effective places to build. (Viecha seems not to have referenced the other new Gigafactory in Austin, Texas.)
Full Self Driving: Several tidbits around Tesla’s Full Self Driving (FSD) software service emerged. Viecha said that “supervised” FSD, where drivers and the software can intervene, is being used on US city streets by about 100,000 people. “We profoundly believe mass collection of data and AI is only way to solve generalized autonomy,” Viecha said. “That’s the path we’re taking.”
Such “supervised autonomy” means that drivers must continue to be attentive; to fail to do so could mean losing access to the service (which customers paid several thousand dollars for — current price being $15,000). Based on the data Tesla sees, supervised FSD could roll out to Tesla’s entire fleet in the US by the end of this year, Viecha predicted. (CleanTechnica’s own Zachary Shahan is one of those beta users. He is not as bullish.) As Tesla collects more data from interventions, it will address issues as they emerge, leading the company to roll out more software updates to improve the system, based on the feedback. This iterative process will, ultimately, get Tesla to full autonomy, Viecha explained. (If this week’s software update is any indication, there is still much data analysis and application work that needs to be done.)
Final Thoughts
Viecha’s remarks seem to indicate that Tesla will continue to focus on the fundamentals that have helped it achieve such remarkable success already. All along, Tesla has focused on 3 basic premises to drive its market dominance:
- Continually reduce manufacturing costs, especially through robotics and in-house production, wherever possible.
- Appeal across demographics through 4 S3XY models — Model S, Model 3, Model X, and Model Y; a lesser price model may be part of future planning but is not imminent.
- Work toward true full self driving (FSD) through research and data collection.
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