The recent research by Colin Langan, analyst at UBS, suggests that Tesla’s (NASDAQ:TSLA) Model 3 would prove unprofitable. He thinks that the current cost of $35K would not be able to match the relative expenses and advance parameters that the company has incorporated in its production and for the revenues to stand equally as expenses, the company would need to set $50K ASP.
On the day of Model 3’s introduction, Tesla CEO, Elon Musk, stated in his tweet that the average selling price (ASP) would amount to about $42K net to the company.
In a meeting held by Langan, Jon Bereisa, President and CEO of Auto Lectrification LLC, provided a detailed breakdown of the factory variable cost (FVC) by comparing the FVC of Tesla with that of Chevrolet Bolt and mentioned a variable cost in Model 3 due to enhanced actuation system, aluminum content, added sensors and a high battery pack cost of $260/kWh. Jon further highlighted the slow improvements in li-ion battery sector as it still lags to be cost/weight efficient. He sees the battery pack cost of about $133-155/kWh in a span of 9 years.
Tesla contradicts the statements of Bereisa on Model 3 cost and battery. The head of American automotive giant’s investor relations, Jeff Evanson, called in to discourse with the pair.
Evanson translated that the car is partially composed of aluminum and not the whole of it. Additionally, he specified that “the Model S/X ‘all-in’ battery pack costs today are less than $190/kWh and Model 3 will have a base battery, sized smaller than 60 kWh”.
The analyst is now dubious about how much lesser will be Model 3 base battery size to outlay the estimates of 215 mile range as Tesla announced at the introduction ceremony of Model 3 and also has reservations on Tesla’s battery cost estimates.
Furthermore, Jon believes that even after the implication of Tesla’s inferences, manufacturer’s suggested retail price would exceed the fixed variable cost by nearly $4.5K, leaving all other operative costs including depreciation, engineering, Research and development overheads, etc. This implies an average selling price of $45k at least and $48k at most to achieve breakeven point, even at $190/kWh.