TSLA Advantages & Cost Reduction Opportunities

There seems to be some interest in Tesla on this board, so I thought I’d share. In a post last week (https://discussion.fool.com/Message.asp?mid=34097130), I wrote about my views on Tesla. In full disclosure, I’m long TSLA (about 2% of my portfolio).

Earlier this week, Tesla stock price dropped on the beginning of the phaseout of the $7K federal tax credit and Tesla’s corresponding $2K price reduction across its entire lineup. Dropping price is a big concern–especially when Tesla is working towards making a profitable $35K version of the Model 3 (M3). While this will impact margins in the near term, I still think the long-term profitability story is intact.

Back in July, Sandy Munro of Munro & Associates, Inc. conducted an extensive teardown analysis of M3. Prior to his analysis, he was quite negative on M3. After the analysis, he changed his tune based on the M3’s performance and design. He was also surprised by the expected margins ( > 30%). You can read the details here: https://www.teslarati.com/tesla-model-3-solidly-profitable-s…

On Thursday, Munro appeared on Autoline After Hours and discussed Tesla and M3 at length. You can see the interview here (https://www.youtube.com/watch?v=aVnRQRdePp4) in its entirety. It’s a long video (nearly 1 hour and 40 minutes), so I’ve summarized some of the points that I find interesting. I list the times of the relevant conversations, so you can quickly jump to them.

Tesla’s Current Advantages:
16:30 - M3’s electric motors, designed and made by Tesla are smaller, lighter, cheaper, and more powerful than all other EV motors. They geek out about magnets and technical details.
23:00 - The Tesla/Panasonic battery pack design is the best in the market.
24:30 - Best electronics & electronics design they’ve ever seen.
41:00 - Model 3 should currently be profitable with a ~30% GPM. Needs to visit the factory to confirm.
58:00 - Tesla’s vertical integration is an advantage (they make their own batteries, motors, body panels, etc). As a result, they pay no secondary markup to suppliers and sub-suppliers. This drives extra capital expense, but also reduces non-recurring engineering costs that must be paid to outsource.

Tesla’s Additional Opportunities for Improvement:
19:30 - Extra steel used in the body is overkill. The car’s battery structure already provides strength and rigidity. This is a cost savings opportunity in a potential M3 redesign or Model Y.
26:00: M3 body build is overdesigned. Too much aluminium is used, and reducing it will lower M3’s weight and cost. Aluminum isn’t meant for high volume ( > 70K per year) vehicles. Steel is more appropriate for high volume ( > 250K per year).
43:30 - Munro expects Tesla’s upcoming China factory will help to reduce costs and allow Tesla to compete with Chinese EV makers on cost. Munro expects Tesla could easily reduce costs by ~20% in China, even even without redesigning the body.
53:00 - As an example of innovative design, Munro discussed the “Super Bottle” which handles all of the car’s cooling. Munro believes this innovation could not have occurred in Detroit due their siloed design mentality.

Today, there isn’t much real competition in the EV space for Tesla. While that will certainly change in the near future, I’m not worried about the looming “Tesla Killers”. Tesla is quickly learning and gaining experience. From a cost perspective, I think (as Munro indicates) they will have many opportunities to drive efficiencies and increase profitability in both M3 and upcoming Model Y.




Thank you posting this summary. Some very interesting and independent perspective on Tesla’s technology & design leadership, low cost manufacturing and attention to detail. This most definitely only scratches the surface regarding the integrated businesses Tesla has created and is compounding daily in numerous sectors (auto, energy, etc).

Please keep the great data coming.


Well, I love the cars. The Model S and X drive like no other car I know, with the Model 3 not far behind.

But the stock price already has a lot of future success priced in. It could go much higher still of course, if Tesla does successfully overhauls the market in semis and trucks as well. But I’m not the gambling type to get in at these levels. I think the good returns on the TSLA stock have already been made.

I do keep rooting for them though. If only to keep a place to service my car :slight_smile: