Why Tesla’s Subsequent-Technology Automobile Received’t Be $30,000
Beneath, I clarify why the subsequent era Tesla can be a lot cheaper than anticipated and the way Tesla can do that. We all know Tesla sells the Mannequin 3 for beneath $40,000 in China at the moment, and it has a challenge code named Highland to scale back Mannequin 3 prices additional subsequent yr. It will get the Mannequin 3 beneath $35,000, which is $27,500 after the tax credit score.
As my buddy Warren Redlich mentions above on the 1 minute mark, Elon clearly acknowledged a pair months in the past throughout the Q3 2022 Tesla Earnings Name that they’re engaged on a smaller next-generation car which can be about half the price of the Mannequin 3/Mannequin Y platform. Current estimates of the Mannequin 3 are that it prices $36,000 to make now (most likely extra within the US and fewer in China). Elon mentions a 2-for-1 goal and half the trouble and half the ground house many occasions (at concerning the 2 minute stamp of the above video). Warren mentions it prices about $32,000 to make the most cost effective Mannequin 3 (my analysis above suggests $36,000), however I will surely count on the Highland challenge to take out at the very least $4,000. Half of $32,000 is $16,000.
If Tesla sells that automotive at $20,000, it makes a 20% margin, which is okay (Warren says 25%, however my math says 4/20 is 20%). Warren has a bunch of concepts on how they get the worth down. Most of his concepts are issues Tesla is already doing with the Mannequin 3 and Mannequin Y. I’ve some extra radical concepts to get there.
- 3 years in the past, Sandy Munro acknowledged that the Tesla Cybertruck will notice huge financial savings as a result of it gained’t want a half a billion-dollar paint store. Tesla particularly stated they’ll use what they discovered making the Cybertruck on their subsequent era car.
- Sandy spoke not too long ago at Teslacon Florida about how having entrance and rear castings will make manufacturing a lot simpler (and thus will drive down prices) as a result of they cut back variability within the manufacturing course of.
- Tesla will introduce two main enhancements to the wiring of the next-generation Tesla:
- The wiring can be a lot stiffer in order that it may be put in by robots. This text from 2019 discusses how conventional wiring is spherical and never inflexible, which makes it troublesome to automate the set up of the wiring within the automotive.
- Decreasing the size of the wiring from 1500 meters to 100 meters. Tesla had hoped to implement this innovation within the Mannequin Y, however Tesla engineers talked Elon out of it with a view to get the Mannequin Y out early as an alternative of delaying it so as to add many new options like Tesla did with the Mannequin X. As an alternative of sending a special wire to the again of the automotive for the brake lights, taillights, backup lights, left flip sign, and proper flip sign, what in the event you simply had one wire for all of these after which had a sensible taillight that used the 12V and even 48V (that cut back wire measurement) to floor primarily based on both a excessive frequency sign in that single wire or a wi-fi sign to inform the automotive when to point out the taillights, brake lights, flip alerts, and backup lights. See the video beneath:
- Tires and wheels. Warren mentions smaller wheels and tires at about 9 minutes in his video. Researching wheels on Amazon confirmed that you would be able to get a 13 inch wheel for about half the worth ($63) of an 18 inch wheel ($132), and it’s about half the burden (16 kilos vs. 30 kilos). Trying on the tires reveals the same financial savings. This tire (which I purchased a yr in the past for my Mannequin 3) is warranted for 70,000 miles for $165, whereas this tire (I purchased the same tire for my Toyota Tercel in 1991 for about $20) is warranted for 75,000 miles for $80.
- As I wrote two years in the past in my article about decreasing tire prices, retreading tires is a confirmed and efficient method to cut back tire prices and has nice environmental advantages because it tremendously reduces the oil wanted to make tires and in addition solves the issue of tire disposal. As you examine retreading tires, notice that just about each producer claims to have costs about half of latest costs for comparable tread life.
- It’s virtually a should that Tesla would wish to go to sodium-ion batteries, at the very least for the entry stage mannequin. It isn’t simply the associated fee financial savings of as much as 30%; the large benefit for Tesla is there isn’t any scarcity of sodium like there may be of lithium. Though I feel we could have loads of lithium in 10 years, many individuals are apprehensive we gained’t have sufficient mining and refining capability within the medium time period (possibly 2025 to 2028) as each electrical car markets and vitality storage markets develop extra rapidly than anticipated.
- Cheaper audio system with 8 audio system as an alternative of 21.
- The automotive can be 30% smaller, decreasing materials prices by that quantity. It may very well be narrower, in order that it is just a 4 passenger automotive. I don’t assume it is going to be as small because the ~$4,000 Wuling Mini EV, however it is going to be comparable in measurement to the BYD Dolphin.
Wuling Mini EV. Picture courtesy Wuling HongGuang.

BYD Dolphin. Picture courtesy of BYD.
Conclusion
Let’s begin with the $32,000 price that Warren began with and see if the type of improvements mentioned above cut back the associated fee sufficient to make a distinction. I discovered this 4-year-old CleanTechnica article by Eric Kosak very useful in doing this. It states that price of supplies for a Tesla Mannequin 3 was about $16,500. Simply by making the automotive 30% smaller, we may cut back prices by $5,000. That might be utilizing the identical battery know-how and decreasing the 54 kWh pack (with 51 kWh of usable capability) to 38 kWh (with about 36 kWh usable). If the smaller automotive can enhance on the Mannequin 3’s 5.3 miles per kWh by 30%, to about 7 miles per kWh, the next-generation (base mannequin) would have an appropriate 252 miles of vary. Eric figured about $6,800 in battery prices ($80 occasions 85 kWh), and decreasing that 30% cuts $2,000 of price out of the battery (we are able to’t add that to the $5,000 financial savings above since it’s a part of the $5,000). Transferring from nickel-based battery to LFP to sodium-ion ought to reduce prices at quantity one other 30% or $1,500. So, I feel we are able to add the $5,000 in materials price financial savings from decreasing measurement 30% and the $1,500 from utilizing sodium-ion batteries to provide you with $6,500 in materials financial savings or a fabric price of $10,000.
Now, let’s transfer to labor prices. He estimates there may be $3,500 in labor and depreciation of capital within the Mannequin 3 at excessive volumes. It will actually be decreased by greater than half if the mannequin doesn’t want a paint store and makes use of castings to dramatically cut back the half rely. This might go down $1,500, a discount of $2,000. So, we’re at about $12,000 in price to construct the automotive vs. our projection of $16,000. I feel the distinction is 4 years of inflation have elevated each labor and materials prices as much as 30%.
No matter how Tesla will get there, a compact EV that it could make in Mexico or the US for $16,000 and promote within the US for $20,000 — and other people obtain the complete $7,500 tax credit score (both the customer or the leasing firm, who can cross the profit to the customer) — will make if very troublesome for anybody to promote gasoline vehicles as financial system vehicles. The one low cost vehicles within the prime 20 promoting fashions within the US are the Toyota Corolla (which begins at $21,650) and the Honda Civic ($24,650). When you go all the best way to the most cost effective automotive within the US, the Mitsubishi Mirage ($16,245), it has simply been discontinued in Japan and should not even be accessible in 2024. The Nissan Versa has the same worth and in addition sells about 12,000 vehicles a yr. Clearly these can be crushed by a automotive that’s cheaper to purchase, cheaper to gas, cheaper to take care of, and higher to drive. In case you are studying this in 2023, this isn’t far into the long run, that is anticipated subsequent yr.
Disclosure: I’m a shareholder in Tesla [TSLA], BYD [BYDDY], Nio [NIO], XPeng [XPEV], and Hertz [HTZ]. However I supply no funding recommendation of any type right here.
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