Tesla Model 3 to be Unprofitable per UBS

[G. David Felt]

G. David Felt
Staff Writer Alternative Energy - www.CheersandGears.com

 

Tesla Model 3 to be Unprofitable per UBS

 

 

Per the Street insider web site, UBS analyst, Colin Langan is stated as saying for the Tesla 3 to be break even they will need to sell at $50,000 each. Until Li-Ion chemistry costs drop and Tesla can get economy of scale in building auto's, the ability for Tesla to make a profit let alone break even on the Tesla 3 auto is going to be impossible.

 

This story is based on the UBA analyst hosting a call with Jon Bereisa, President and CEO of Auto Lectrification. Jon is a 35 year veteran of GM responsible for the VOLT program as well as the EV1 program that they killed off.

 

Interesting is Jon is a conservative individual and Tesla called in to defend and call Jon wrong as Jon says Tesla's cost per battery pack is about $260 per kWh and GM for the BOLT is $215 per kWh. This is in comparison to GM who says the BOLT will be $145 per kWh and Tesla who says their cost will be $190 per kWh.

 

Interesting is that the story goes on to say that the Analyst is very skeptical about Tesla's cost estimates after talking to MIT and others in the industry who say at the price Tesla is stating cannot include factory variables, engineering plus R&D, overhead, SG&A, etc.

 

Based on stated facts from auto makers around the world of needing 45-55% markup to break even, this would imply that the Tesla 3 would have to sell by some at $45-48k and others say $50k.

 

Street Insider Story

[balthazar]

This has been my concern from the get go.
If there's no profit after 110,000 $85K cars, how can there be ANY on cars half the price?

[Drew Dowdell]

 

 

Until Li-Ion chemistry costs drop and Tesla can get economy of scale in building auto's, the ability for Tesla to make a profit let alone break even on the Tesla 3 auto is going to be impossible.

 

 

Erm... that's exactly what Tesla is working on doing.  That's why they're building the biggest battery factory in the world. 

 

 

This has been my concern from the get go.

If there's no profit after 110,000 $85K cars, how can there be ANY on cars half the price?

 

There's been a ton of start up and R&D costs to get things running.   Even if you were trying to start up a gas powered car company on a single model, all of the R&D and initial investment would kill your profit for the first decade or so.   I doubt even GM or Toyota makes much in terms of profits on a car run lower than 50,000 vehicles, that's a big reason why Scion died... and they'd be negative if they weren't sharing parts and resources with other vehicles. 

[balthazar]

But scion DID die, due (I assume) to "negatives", IE: no profit… all the while being part of a 60-yr old mega conglomerate. Ironically; scion started up the same year as Tesla.

Of course- the start-up costs for Tesla were MUCH higher than at scion, but the bleeding cannot continue @ Tesla and the company still live.

 

The pre-order / order process that has everyone buzzing about interest has consistently overlooked the revenue stream it provides the company to keep going. While I have no inside information, the rate Tesla has been converting Mopdel X pre-orders into orders (IE: cashing the checks) is indicative of a serious concern in their accounting department.

[Drew Dowdell]

But scion DID die, due (I assume) to "negatives", IE: no profit… all the while being part of a 60-yr old mega conglomerate. Ironically; scion started up the same year as Tesla.

Of course- the start-up costs for Tesla were MUCH higher than at scion, but the bleeding cannot continue @ Tesla and the company still live.

 

The pre-order / order process that has everyone buzzing about interest has consistently overlooked the revenue stream it provides the company to keep going. While I have no inside information, the rate Tesla has been converting Mopdel X pre-orders into orders (IE: cashing the checks) is indicative of a serious concern in their accounting department.

 

No one is claiming that Telsa can lose money indefinitely, but likewise, no one should be surprised that they are still losing money today.   They're still in factory building mode which is about as capital intensive as you can get.  Compare that to GM's Lordstown plant which has been building cars since before I was born, the costs of building and multiple-retrofits of that plant have been amortized out ages ago.     

 

Scion died because with sales so low, it wasn't profitable to continue even the brand name....   but in that case we're talking low volume of $20,000 cars, not $80,000 cars. 

 

Even if the Model 3 is unprofitable, or just breaks even, it improves the overall financial health of Tesla. It's going to share a bunch of parts... particularly the expensive batteries and motors the Model S and Model X use... and make those vehicles more profitable. 

[El Kabong]

Economics of scale always make things better. The problem here is that instead of making a break-even proposition profitable, thus adding cash to the coffers, it only stops the cash from hemorraging out, and gives early buyers a bit longer to see when (if?) their deposits will be used to make cars or buy padlocks.

Also, no economics of scale will help recoup some of the design weirdness of the Model X, which by no coincidence is their most expensive vehicle.

[balthazar]

It's going to share a bunch of parts... particularly the expensive batteries and motors the Model S and Model X use... and make those vehicles more profitable. 

More profitable….. but will that actually mean PROFITABLE??

[Drew Dowdell]

 

It's going to share a bunch of parts... particularly the expensive batteries and motors the Model S and Model X use... and make those vehicles more profitable. 

More profitable….. but will that actually mean PROFITABLE??

 

 

Again, the entire development costs of the factory and everything is being put on the Model-S right now.  The cars themselves are likely profitable per unit after you take out the factory construction costs etc. That's the reason Tesla as a whole is unprofitable right now... they don't have high enough sales yet to spread the physical costs around.  

[balthazar]

OK, given that, at what production levels is that necessary?

And what pays the bills until that level is reached?

 

Tesla sold 52,580 vehicles in 2015. Musk said the factory will be at full production by the end of Q1 2016, or 22,500 units per quarter.
Actual Q1 sales were 14,820, or 34% behind that projection. Is there a huge storage backlog or are the production & sales numbers relatively close?

 

Of that, Model S sales were 12,420, for a projected annual total of 49680- down a bit from the 52,580 of last year (of which less than 500 were Model Xs).

Perhaps the Model X, finally up to projected weekly quantities, will improve the numbers. Still have not seen an X yet.

 

- - - - - 

I have been finding the unfolding business case of Tesla very interesting, in part because of the 'disconnect' between general public sentiment and the hard facts.
I realize that projections are carefully modulated marketing tactics... 

Edited April 29, 2016 by balthazar