how tesla's battery strategy could drive strong margins on model 3 - 18650 battery cell
Tesla launched the mass market Model 3 sedan at the end of July, providing employees with the first models.
At the company's second-quarter earnings call earlier this month, the company said the sedan could get a gross profit margin of up to 25% sometime next year.
Considering that the profit margins of Tesla's luxury Model S and X are at a similar level, this is impressive, with the profit margins of less than 15% for most mainstream automakers such as GM and Ford.
So how exactly does Tesla predict such a huge profit on this product?
Below we provide some possible explanations.
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The battery cost of Model 3 may be the lowest in the industry, the price per kilowatthour (kWh)
The price of lithium-ion batteries has dropped from an average of around $400 in 2012 to less than $150 at the moment.
For example, GM said it paid about $145 per kilowatt hour for the battery that bought the Chevrolet Bolt from LG Chem.
Thanks to Tesla's ongoing efforts to improve battery technology and supply chain, the cost of the battery for Model 3 may still be low.
Together with Panasonic, Tesla has designed a new battery called "2170" that will replace the smaller "18650" battery that has been in use for decades.
The new battery provides a higher energy density (
This means they can store more energy for a given size)
Automated process manufacturing that helps reduce costs will also be used.
In addition, these batteries will be manufactured at Tesla's gigabit plant in Nevada, which can reduce logistics costs compared to X and S-type batteries imported from Japan.
The larger unit size also means that the number of units per module will be less, and the number of overall modules per vehicle will be less (
There are only 3 modules in the Model 3 battery pack, and there are only 16 modules on the Model S).
An extended range model focused on higher prices will help MarginsTesla provide Model 3 in both versions, which vary depending on the range, and this strategy may be critical to improving overall profit margins
The standard model costs $35,000 and 220-
The range of miles, while the extended range model provides 310-
Miles, $44,000.
If we assume that the cost of the battery is about $130 per kilowatt hour, then the cost of the basic model is about $50 KW for the battery at about 6,500 hours.
On the extended range model ~ The 75 kWh battery will cost about $9,750, converted to an incremental cost of about $3250.
Since the extended range model is priced at an additional $9,000, it can get a healthier gross profit of about $5750 (
No other increments are consideredbattery costs). As the long-
The range model may remain more popular in both (
This is also the only option for early customers)
This could significantly increase Tesla's profit margin.
Tesla also offers several additional features
Ons such as value package (
$5,000 extra)
Enhanced Autopilot ($5,000)and full self-
Driving ability ($3,000)
-These are probably very high-
Margin products that can increase the average selling price and profit of Model 3.
Tesla is trying to scale up and reduce complexity. The company has set an ambitious goal of producing up to 10 k cars per week next year.
Although we still doubt whether it can achieve these goals considering its past records, it is undeniable that the public
Compared to a more niche luxury car Model, the market nature of Model 3 should provide a significant economies of scale for the company.
Tesla also simplified the design of Model 3 to simplify production and learn from the mistakes of Model S and X.
The company intends to initially offer only 100 arranged cars, compared to more than 1,500 arranged models S, which will make production and inventory management easier.
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