[dragontamer]

https://www.forbes.com/sites/alanohnsman/2019/02/28/tesla-fi...

Just a few weeks ago, Elon Musk claimed $35,000 cars will be available without any credits what so ever. This isn't some long-standing promise that slipped off the schedule, this is something Elon Musk has REPEATEDLY claimed to come, but has failed to deliver.

Its a message he's been hammering since 2016: $35,000, before tax credits. The idea was for the M3 to compete against low $20,000 ICE cars.

I recognize that the goalposts have shifted. Maybe it wasn't possible. But maybe... just maybe... Elon Musk shouldn't have set $35,000 before he knew if it were possible to do. He's done incalculable damage to the brand, and is no longer able to raise prices to make the company profitable.

If Tesla could raise prices to $40,000 base or even $45,000 base, they probably would be in a far better financial situation than where they are right now. They can't do that because of the multiple years of price anchoring at $35k.

[nicpottier]

I'm pretty sure there is a $35k model before tax credits, at least there was for a bit on the website. My understanding is this is a "special order" item now, as in, you have to call them to get it, but still available, just not on the website.

https://www.engadget.com/2019/04/12/tesla-35k-model-3-pulled...

[dragontamer]

Well, the general implication was that a $35k Model3 would be profitable for the company.

My issue is mostly with the financial situation of the company. Its clear that the $35k M3 has been relegated as a "loss leader", and there's no work on actually making the car profitable at that price.

Again, perhaps its impossible to make a M3 profitable at $35k, and I would rather have the company make money than lose money. Its just that the years of $35k price anchoring really weakens Tesla's ability to set prices from here on out.

[magnetic]

> My issue is mostly with the financial situation of the company. Its clear that the $35k M3 has been relegated as a "loss leader", and there's no work on actually making the car profitable at that price.

Doesn't it seem obvious that both processes and supply costs tend to improve over time? (this isn't Tesla specific actually)

A couple of simple examples:

- battery costs (they have been on a downwards trend for a while, and expected to keep falling)

- production/assembly line costs: initial hiccups are expected and costly, and as you fix them and learn to optimize your production, your costs also decrease. The rejection rate starts dropping, and rework costs also start dropping.

This is true of pretty much any production: you get better at it as you go, and generally your supply costs also decrease. As you get out of the ramp-up "hell" you start producing a lot more, which starts giving you economies of scale.

Lastly, innovation also offers improvements that can give you another knob. For example, the motors in the M3 are now being ported to Model S to improve the range. This gives an option to either offer a higher range, or keep the range the same but put in a smaller battery (where the savings are going to be). I expect incremental improvements in M3 to have a similar type of effect.

I consider all that "work". I imagine it will lower the production cost, given the same spec. That translates to profit, if the price point is kept the same.

[dragontamer]

The Model 3 has positive gross margins. Its an issue of volume, not an issue of margins.

There's a lot of things they did wrong to get to this point: changing the design of the M3 too much and too often, making it difficult to stock parts for repairs and all that... but ultimately, the vehicle is actually positive margin.

That doesn't make the company profitable. They spend $700 Million / quarter on their Supercharger network, their sales channels, salaries for employees, and other such "static costs". They need to get to the 5000 cars / week (or higher) point to become profitable.

That's all it come down to. They've got a positive gross margin car, its an issue of selling more of them. If there's a ton of customers waiting for a cheaper vehicle, well that was an error in Musk's marketing. Too many people are holding out waiting for a cheaper car. IMO anyway.

At ~$40,000, they make $8k per vehicle or so. If they raised average prices to $50,000 or so (assuming a base price of ~$45k), they'd only need to sell 1/2 as many vehicles to make a profit.

[dougmany]

I've read about battery cost improvements around 18% per year. If you consider that the battery is somewhere between 30% and 50% of the cost of the car, they should be able to reduce the price of the car by thousands of dollar a year.

Edit: This 2017 PDF illustrates this well. While the 18% looks accurate for 2010 thought 2016 they are projecting that rate slowing down. Page 8 has a good chart illustrating how EV cars will soon be cheaper then ICE cars.

https://data.bloomberglp.com/bnef/sites/14/2017/07/BNEF-Lith...