Is it really? Cars are cars. All of these car makers are producing some BEVs. Keep in mind the numbers here are worldwide.
I’m testing the claim at the top of the thread that Tesla’s factories are their secret sauce. That the efficiency there is what gives Tesla such large operating margins when compared to other car makers. Specifically, according to captainccs, “Giga factories that obsolete the old ways of making cars.”
I’m not sure the data supports that claim. In this small sample of 5 car makers, Tesla has the highest cost per car. Even after making grossly crude adjustments for the trim level of cars (luxury vs. utilitarian) their costs are comparable to a similar luxury car maker.
In my crude, back of the envelope analysis, I don’t see anything particularly striking about Tesla’s production costs in the last year. They’re comparable to another luxury car maker. Any improvement seems to be an incremental improvement, not a revolutionary improvement.
Not that an incremental improvement is bad, mind you. It’s good. But it doesn’t make older production technology obsolete.
It’s been around for a few years. For example, from 2021:
According to a recent Bloomberg article, Diess spoke to a group of workers at a German plant this week. At the nearby Gruenheide factory outside of Berlin, Tesla is currently trucking along and set to achieve the goal of making an electric vehicle in under 10 hours. At this time, Volkswagen’s main Zwickau plant requires 30 hours per vehicle. Diess hopes to reduce that to 20 hours per vehicle by next year.
Telsa also has another advantage related to batteries. That is that their motors are more efficient than all* other EV manufacturers. That means that the model 3 can get 350+ miles out of an 82kWh battery. Other manufacturers, all* with less efficient motors, will require MORE battery (more $$$) to get that kind of range. This is also why most manufacturers choose to sell lower range vehicles, because otherwise they would be too expensive due to the high cost of batteries.
* Lucid has comparable motors, but they don’t play in the mass market, they only do high-end luxury in lower volumes.
This is from 2020. We can reasonably expect that the drive train for the EV has dropped significantly since that time and the costs for the ICE has risen across the board. In other words, Tesla must beat all of the ICE manufacturing efficiencies to make up for the handy cap of having a drive train that cost 51 percent of the car vs a drive train that costs 18 percent of the car.
Please note: My working assumption is that the cost to manufacture batteries drops about 50 percent every 3 years or
so. This does not mean that the cost to the consumer drops by that much.
I saw somewhere that the estimate is that about 30 percent of the cost of an EV is the battery itself. Please remember I am
making a lot of assumptions and jumping to conclusions here (About the only exercise I get lately) IF that 30 percent number is accurately reflected in the 51 percent number, then all of the cost difference between drive trains is in the batteries.
Now, there is a lot of room for drive train cost comparison as the energy density of batteries increases and the cost per kilowatt decreases.
Just a straight line estimate that battery cost drops by half from 2020, would mean that the drive train for a new 2023 EV would not be 51 percent any longer but 35 percent. If course there is no way for me tell where I got the 30 percent from or what year that the estimate was made.
But I point out the math to show that EV’s have a drive train cost handy cap that is being reduced a lot every 3 years.
But wait! There’s more.
Electric cars are heavy, this is because batteries are heavy. As the energy density of batteries increases the weight of the car decreases. As the weight of the car decreases the usefulness of quad motors and massive power decreases. As such the cost of the drive train ex batteries can decrease also.
In other words, while it might appear that drive train cost handy cap of EV’s will always remain, that is not a given. Moreover, as the weight and cost penalty for EV drive trains diminishes, the rest of the manufacturing system can relax a bit on weight management and those costs can be reduced.
But is that start to finish assemble time? Or it is labor time per car?
Two assembly plants could both have a car drive out every minute. That tells us almost nothing about how efficient the plant is in terms of labor costs per car.
That’s pretty insightful. However, ICEs are not BEVs. The difference is similar to that between classic vacuum tube televisions compared to those new-fangled electronic ones.
The large majority of cars currently being produced by nonChinese legacy automakers are ICEs. ICEs are cheaper to build at the moment because they don’t need a giant battery and all these rare earth materials currently in short supply. So when you compare the production costs of Tesla with legacy companies using numbers for the latter that are primarily from ICE production, well that is apple, meet orange.
Tesla’s production costs are not secret. In 2017, Tesla production costs was $84K/vehicle. In five years (by 2022) that cost was reduced to $36K/vehicle. Assuming the average price for a Model 3 in 2022 was about $45K, one gets about a 25% gross margin for the cheapest model Tesla. Whether a cost reduction from $84K to $36K is striking or not is in the eye of the beholder I guess.
The question for you is what are the production costs for the BEVs from the legacy automakers? Companies tend to be secretive about such things. One data point is from GM who projects that its all-electric vehicles will eventually become profitable in 2025.
I don’t think they’re talking about labor time. For example, this article: https://axleaddict.com/auto-industry/How-Long-Do-You-Think-It-Takes-To-Make-a-Car So, we’ve cheated a bit by only counting the time it takes for the final assembly. It would be impossible to track the production time on every screw, nut, and bolt…What is amazing is the speed at which high production cars and trucks can be turned out. Toyota releases a substantial amount of information about their production procedures and figures. They estimate that a well-appointed car, truck, or SUV takes about 17 to 18 hours to assemble. Other manufacturers have similar numbers. Some lesser appointed vehicles can be assembled as quickly as 11 hours.
Count me among those who don’t think it’s particularly striking. Most of that “cost reduction” is due entirely to changes in the mix of units they sell - perhaps even all of that reduction.
In 2017, Tesla had barely started making the Model 3 - even limited production and delivery didn’t start until the middle of the year. Almost all their production was S and X - their large luxury sedan and large luxury SUV. Of about 100K cars they made that year, only a tiny fraction were Model 3’s (around 3K).
Flash forward, and that’s entirely reversed. Almost none of Tesla’s current production mix are the more expensive S and X cars - 90%+ of their sales are the much cheaper 3 and Y. We don’t have breakouts of production costs, of course - but the Model X is today a $120,000 car, and the Model S is about $100K. Those vehicles are basically double the price of the Y and 3.
So when you switch from almost entirely making $100K cars to almost entirely making $45-55K cars, of course your average production costs are going to be lower. That doesn’t mean you’ve reduced your production costs for any given vehicle, of course. In fact, given the magnitude of the change in unit composition of Tesla’s sales, it’s theoretically possible to have that reduction in average costs and have it be the case that Tesla can’t produce Model 3’s any more cheaply today than they could in 2017, though I suspect that’s not the case.
But I would think that the overwhelming majority of that reduction is just the result of change in unit mix…which isn’t especially striking, IMHO.
I’m sorry, but that article is a big nothingburger. It’s just about the percentages of the total cost. It is not a comparison of absolute costs. So a BEV has a larger percent of cost associated with the drive train. That doesn’t tell you anything about the total cost of the vehicles.
If anything, I’d surmise that the cost of the interior, exterior, and chassis should be similar between BEV and ICE. Those have little or nothing to do with the power train of the vehicle. (Chassis on a BEV might be a bit more expensive due to the additional weight of the BEV, but maybe not.) So if the power train is a larger percentage of the total cost, that implies that the whole BEV is going to cost more to make than a comparable ICE.
I’m trying to get away from assumptions and deal with actual, measurable facts.
My point is that most people don’t really care about ICE vs. BEV. They simply want something to transport them from here to there at a cost affordable to them. ICE, BEV, bus, walking - all get you from here to there. And all have their tradeoffs.
But that IS part of my point. Let’s back up.
The claim in the first post in this thread is that “Giga factories that obsolete the old ways of making cars.” I’m looking for evidence to support that claim.
So how does this Giga factory make the old way of making cars obsolete?
Does it improve the quality of cars? Improved quality of production means less rework, fewer customer complaints, and a better initial ownership experience. These are good things to have.
Cars today are generally quite well built. At least for cars sold generally world wide. I’m sure there’s niche cars built for certain markets that don’t have great quality. But that’s not really the point. Automakers in general can produce high quality cars from old factory technology. A Giga factory cannot obsolete that - the best they can do in incrementally improve quality. (And frankly, from most reports, Tesla isn’t making the highest quality cars. They’re average at best.)
So that’s not it.
Cost is the other big thing that comes to mind. Does a Giga factory produce cars at a dramatically lower cost, such that the old factories are obsolete? I don’t see evidence for that in the numbers I ran. It’s competitive, for sure. But again, nothing that would make existing factories obsolete.
So how is it that this claim will be met?
OK. So they got their costs down to something close to the industry average. That’s good, of course. But it’s just what they need to do to be competitive. It does not give any evidence that a Giga factory will make the old way of making cars obsolete.
Why is that important? Once again, the claim is that “Giga factories that obsolete the old ways of making cars.” If it’s not happening through quality and it’s not happening through costs, how is it going to happen? I’m not the one making this claim. Captainccs is making the claim. I’m just looking for evidence that the claim is true, but I’m not finding it.
Does that even make any sense?
It has been reported that a new car comes off the assembly line every 40 seconds
source:
So if a car spends 10 hours in assembly that means that the assembly line contains 900 cars in flight at once. I’ve been in a couple of car plants, include the Tesla Fremont factory (back when it was the Toyota-GM NUMMI plant). 900 cars on the assembly line at once seems like a lot.
But, even if that is true…my point is that the time in the plant isn’t just waiting for paint to dry…it is labor time of people working on the cars. Tesla’s shorter time, at least compared to VW’s stated stats is a distinct advantage for them.
That’s not reality. All the major automakers are committed to shifting to EVs and spending billions to do so. The major car markets, from China, California, and most of Europe are planning to eliminate sales of ICE vehicles. At best, ICEs will be a niche market in the not too distant future. At this point in time it looks like the winners in the future auto market will be the companies that can make EVs most efficiently.
Tesla can make EVs at low enough production cost and high enough quality to consistently have gross margins in the mid 20% range. Tesla’s competitors can’t come close to that. Most cannot yet profitably mass produce a BEV, let alone get one with double figure profit margins. You probably disagree, but I think there is a lot of empirical evidence that Tesla can build BEVs at substantially lower cost than anyone else.
The gigafactory is designed for vertical integration. This is revolutionary in the auto industry where legacy car makers have outsourced most production, depending on a complex array of suppliers to provide parts that the legacy company then assembles. This horizontal integration works when the technology is mature, like internal combustion, and the need for innovation is modest. Musk/Tesla realized the EVs are different. High density batteries and AI-assisted driving are developing technologies that require continuous innovation and adaptation. This is best achieved by vertical integration where a company has complete control over the vehicle design and architecture. Tesla is not limited to what outside vendors are willing to provide.
This philosophy is exemplified by Tesla’s gigafactories, where the production of the major components of their vehicles, from batteries to motors to ECUs to software, is all under one roof. This makes it much easier to optimize vehicle architecture as well as production.
The gigafactories are also technologically innovative. The gigantic Giga Press die casting machine has similarities to 3-D printing. It can make a one-piece auto frame eliminating the need for a number of parts and fasteners. Single-piece casting is estimate to save 20% on labor costs and up to 40% on underbody production costs. To optimize these manufacturing techniques, Tesla is using alloy technology developed in conjunction with SpaceX. They have applied for a patent for a new steel alloy that can be rolled under cooler temperatures, thereby saving production costs.
Can other companies copy the Tesla method? Perhaps, but it will take time and a lot of resources. I think the production innovations introduced by Tesla are greater than those developed by Japanese automakers in the 1980s that overwhelmed U.S. automakers. It took a long time for American car makers to catch up.
In 2017 it wasn’t at all certain that Tesla could profitably mass produce a $50K car. By 2022, Tesla demonstrated that not only can they do so but they could also get the production cost down enough to create margins comparable to their $100K models. I find that impressive, particularly since all the legacy car companies after spending billions in development are still unable to mass produce a comparable BEV that is consistently profitable, let alone get 15% profit margins.
No. It is reality. Two-thirds of consumers still prefer ICE vehicles over electric.
It is automakers and governments that are pushing electric and other non-fossil fuel options.
For the record, I’m also part of that 1/3 that want an electric vehicle as soon as one that is affordable and fits my rather unique needs is available. I also think we need EVs and other options to combat AGW. So I’m not trying to demean EVs in any way. I just think I have a more realistic view of the transition to alternative fuel vehicles (that is, non-gasoline and non-diesel).
This is the statement I have problems with. I don’t disagree that Tesla has unusually high margins on their product. That is an irrefutable fact. My problem is the attribution to low cost rather than high sale prices.
As I noted above, a back of the envelope calculation shows that Tesla has a higher cost per vehicle than other legacy automakers. So I just don’t see evidence for the claim that they are a low cost producer. Rather, I see them as currently benefiting from high demand for their vehicles, which allows Tesla to get a higher than typical markup. A second order benefit is selling at retail rather than wholesale as virtually all other automakers do. So they are able to capture a bit of extra margin there.
I’m a numbers kind of guy. You make lots of marketing-type claims here. But what do the numbers say? Back up your claims with numbers. I’ve run some numbers that cast doubt - at least in my eyes - on the claims of low costs AND provide an alternative explanation for Tesla’s margins. So what did I get wrong? What other numbers can you provide to back your claims?
I agree that the Tesla brand has allowed them to maintain high prices (and thus high margins).
But, as I’ve been saying, they ALSO have more efficient factories.
Here is some (admittedly old) analysis
We could see the Model 3 assembled, from an empty body to a fully functional car in a bit more than 40 steps and 90 minutes, on a line about 1,000 feet long," Ferragu said in a note to clients. “Its simplicity is unbelievable.”
In contrast, “A comparable car by any traditional automaker could take anywhere from 130 to 200 steps, Ferragu says, easily setting the Model 3 apart. The findings are similar to what UBS’ Evidence Lab found when tearing down a Model 3 earlier this year, finding ‘next-gen, military grade’ tech below the finish.”
@DrBob2 tried to say the 10 hour assembly time meant 10 hours from car start to finish.
But we can see from the above link it has been well known to be about 90 minutes as far back as ~2018.
That was in the not-built-for-Tesla factory in Fremont. Probably some significant improvements were made in the built-from-scratch plants.
The primary BEV competition for the Model3 in the US is the Ford Mach-E, in Europe the VW ID4. All three sell for about $45K. Only the Model3 is consistently profitable. That indicates that Tesla can build Model3-level BEVs at significantly lower cost than it’s major competitors.
That was to describe how Tesla is building its cars differently from the legacy automakers. The gigafactories are significantly different in design from what traditional automakers are using.
This assertion about the unprofitability of legacy automakers’ offerings has been made from time to time over the years. But it’s incredibly unlikely to be true.
Leave aside the various Chinese legacy automakers (like BYD) that are obviously making profitable EV’s as they’ve converted to 100% EV production. Or the specific examples like the Ford Mach-E, discussed above, which Ford confirmed was profitable from the day they started selling it (and which is also likely to be true of the Lightning).
Legacy automakers’ sales volumes of EV’s are now just too high for this to be plausibly accurate (at least outside of the US Big 3). About 25% of all vehicles sold in Europe last year were EV’s, and nearly all of them were sold by legacy automakers. That’s just too high a volume for EV’s to be unprofitable and for it not to start showing up in the financial statements of those automakers.
If we look specifically at VW, 10% of VW’s global sales last year were EV’s. If they were actually unprofitable, the switch from profitable ICE’s to unprofitable EV’s across that large of their unit sales would have reduced their overall profits significantly. Yet VW had a decent year last year, continuing to post profits and profit margins in line with historic figures:
This necessarily doesn’t mean that EV’s are as profitable for legacy automakers as ICE cars - but it does mean that it’s implausible that EV’s as a category are unprofitable for them. It’s possible for their gross margins on EV’s to be, hypothetically, 14% instead of 18% (or what have you) and for their overall finances not to be materially affected. But not for their margins to be negative.
The automakers don’t typically break out profitability by vehicle, either formally or in discussions - so you don’t have the specific data that you have with an all-EV company like Tesla or BYD. But sales volumes of EV’s are just too high now for most non-US legacy automakers for it to be possible that they’re not earning a profit on at least some of their EV’s, at this point.
Ok. That’s getting closer. But you’re not backing the claim with numbers. How do you know this? How do we know that the Ford and VW are not profitable?
And is it fair to compare a new model in its first year or two to a mature model that’s been in production for a number of years?
2022 was an odd year. Because of the chip shortage, VW produced fewer cars in over a decade. Yet they still put up decent revenue and profit numbers. It looks like they shifted what supplies were available to their more profitable premium brands (Audi, Porsche, Bentley) whose production was much less negatively impacted than the mass market VW and Skoda brands. The shortage allowed VW to raise prices and direct customers to more available (and expensive) premium models. Zero profits from the electric vehicle sector probably didn’t move the needle much compared to these larger impacts.
Most Chinese BEV makers (like NIO) are losing money. BYD is profitable, but Tesla makes 8-fold higher profit per vehicle. Suggests that Tesla’s production costs are probably lower than BYD for equivalent cars.
