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Thread: High Gross Margin vs Affordable EV

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    High Gross Margin vs Affordable EV

    Everyone knows the short term goal is 25% gross margin on the Model S production. Musk recently also said that gross margin should achieve Porsche's margin which at one point was close to 50 percent. So i want to know how Musk can be telling his investors we are going to overcharge for his car while maintaining a goal of affordable cars for the masses? I am not saying Tesla needs to maintain 10% Gross like the GM's and Ford's in the world, but how much is too much? Am I missing something or is musk just raising the hype again?

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    At the shareholder meeting, someone asked about this and the question was if Tesla could match Porche's gross margin of 18%. Elon Musk said that they could approach that number over time (post-Gen III).

    My interpretation is that they can get 25% gross margin on Model S, but with Gen III their gross margin will be significantly lower (maybe 10-15%) and they will try to approach 15% gross margin with Gen III and together Model S at 25% gross margin would be near the 18% of Porsche. This would be several years after the intro of Gen III.

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    I heard Elon say (in a kind of mumble) "I'd rather sell Gen IIIs at lower margin and achieve high sales volume. We will have cost saving with high volume".

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    I for one am thrilled that Tesla made $25'000 profit from me (well, future averaged) which they'll use to invest into R&D to create our EV & Energy future. It makes me feel like I was able to contributed to something bigger than if I were to just buy a BMW M5.

    The fact that I felt that their profits goes to a cause which I am in great support of was actually very much a part of my purchase decision.

    (And I felt that way before TSLA soared and I made more than that back anyway ).
    VIN 4601 - Model S P85 - Pearl White - Black Leather - Gloss Obeche - Pano - Tech - Sound

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    Quote Originally Posted by pilotSteve View Post
    I heard Elon say (in a kind of mumble) "I'd rather sell Gen IIIs at lower margin and achieve high sales volume. We will have cost saving with high volume".
    Which is exactly why he started the company and I'm glad he actually said this. I'm invested in the company as well, but I'd rather see EVs take off for the masses than better earnings. This is exactly why he's not going to have an IPO for SpaceX.

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    Quote Originally Posted by constraint View Post
    Everyone knows the short term goal is 25% gross margin on the Model S production. Musk recently also said that gross margin should achieve Porsche's margin which at one point was close to 50 percent. So i want to know how Musk can be telling his investors we are going to overcharge for his car while maintaining a goal of affordable cars for the masses? I am not saying Tesla needs to maintain 10% Gross like the GM's and Ford's in the world, but how much is too much? Am I missing something or is musk just raising the hype again?
    The gross margins on the Model S are justified for a couple of reasons.

    First, the Model S is a bargain compared to it's competitors, even priced as it is. It's a better car, with a competitive price, and once you factor in TCO it is dramatically cheaper to own over the life of the vehicle.

    Second, Tesla must have a really high margins, because the volumes on the Model S will never be high enough to generate the kinds of profits necessary to finance Gen III. The only other route to self financing future development is a capital raise. And nobody is going to give Tesla a lot of money to develop a speculative product unless they can demonstrate high levels of profitability with the current one.

    Either way, Tesla needs high margins on the Model S, and once you get them you might as well finance Gen III without diluting the value of the company by raising capital.

    And as mentioned already, Elon expects to sell Gen III a much lower margins in order to stimulate high volumes. I have no problem with that strategy whatsoever.

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    TCO of a MS only works if you compare against a 7-series and you ignore the depreciation of the battery pack (I know Musk says he guarantee's resale value, but I think of that battery pack more like a computer when new and improved models come out). The MS is expensive and out of the reach for many people. Many of the people that are buying this car are stretching their budgets and have been rolling Honda civics until now. I completely agree for the short term high Gross is warranted considering it took 7 years for Tesla to get a profit. Longer term when Gen 3 comes out 15-18% is reasonable also considering Tesla doesn't have some of the legacy costs that GM and Ford have.

    Shortly after the investors meeting i read an article that was stating Porsche's 50% Gross figure and got concerned. One thing i have noticed following Tesla is how inaccurate "news" is lately.

    Past few Porsche luxury sports sedan’s gross profit margin has remained above 50%, compared to the first quarter of the Tesla electric car today gross margin was 17%.
    http://www.thestockmarketwatch.co/te...r-porsche.html

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    Quote Originally Posted by constraint View Post
    TCO of a MS only works if you compare against a 7-series and you ignore the depreciation of the battery pack (I know Musk says he guarantee's resale value, but I think of that battery pack more like a computer when new and improved models come out). The MS is expensive and out of the reach for many people. Many of the people that are buying this car are stretching their budgets and have been rolling Honda civics until now. I completely agree for the short term high Gross is warranted considering it took 7 years for Tesla to get a profit. Longer term when Gen 3 comes out 15-18% is reasonable also considering Tesla doesn't have some of the legacy costs that GM and Ford have.

    Shortly after the investors meeting i read an article that was stating Porsche's 50% Gross figure and got concerned. One thing i have noticed following Tesla is how inaccurate "news" is lately.

    Past few Porsche luxury sports sedan’s gross profit margin has remained above 50%, compared to the first quarter of the Tesla electric car today gross margin was 17%.
    http://www.thestockmarketwatch.co/te...r-porsche.html

    You write "I think of that battery pack more like a computer when new and improved models come out".

    The better analogy is that the car is like the iPhone that gets the new OS every year. This car in 8 years will likely have so much more functionality than when we bought them.

    Compare that to everything else from Ford, GM, Toyota, Daimler etc. Those cars age, and badly.

    Your concern about the battery is out of proportion to the risk.

    Everyone agrees that batteries are getting lighter, more energy dense and cheaper. In 8 years, a "rebuild" of your Tesla will make it almost like new.

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    The battery on the MS is half the cost of the car. In 5 years, I think it is safe to assume that battery pack cost could be half of what it is today. Used MS's value will decrease faster because it will be the only case where the new car is very possibly cheaper then what was paid in the past for the same functionality. Picture 5 years down the road with a MS with 265 mile range for 50 grand (when everyone paid 70 at the start), used cars will take a hit. You see examples of this with the Leaf when they dropped the prices this year where used leaf's with 10,000 miles are selling for 13,000 bucks.

    Yes software updates might be cool, but you are still dependent on the physical devices present on the car during the time of purchase. You will never get an update for self driving as the sensors to make that happen will not be installed on your car. You may get better navigation, system sleep functionality and so forth which will incrementally increase the value of used cars but there will always be certain features in the newer model that cant be supported in the old models. For instance Telsa is planning on implementing 4G (at least that's what i heard), but the hardware to make that happen doesnt exist in the early cars.

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    Adding the driving sensors is ALREADY happening in the EU deliveries. Check the teslamotors.com website.

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