Ok, let's do some numbers and see if we can work out how this new variant of the Model
Y will work within the financials. It is obviously going to be a lower cost model,
so does that mean there will be less margin and profit, well this is what we need to work out.
We will try and see if we can estimate what price this model will be for sale.
The scarce element
in this process is the battery supply. Tesla have a limited amount of batteries,
and must carefully decide where they are best allocated. Predominantly, where do
we think these batteries should be allocated in order to make the most profit. To do this,
we can try and calculate the profit per kWh of battery. I hope that makes sense to you.
Put it this way, Tesla's manufacturing capacity outweighs their battery supply.
I am not sure how many people realize this, but it's important. Especially if you are
trying to evaluate Tesla's future growth. And yes, I am talking about when supply chains
are back to normal. Tesla only have so many GWh of batteries every year, therefore they
need to use their judgment as to what products said batteries are placed in.
On the other hand,
we also have the mission. What is best for the mission, is as many electric cars as possible.
Obviously the smaller the battery, then the more cars can be made,
and the faster the progress of the mission. Even if it means profits are somewhat sacrificed.
But we can work out
some actual numbers here anyway, and then draw our conclusions. I like letting numbers talk for me.
So what even are the numbers here? What numbers do you want to know? What do we work out? I would
like to compare Tesla making Long Range Model Ys in Texas over Tesla making Medium Range Model Ys,
and we will see where that takes us.
Now it would appear, that it is looking possible,
that Tesla are able to achieve this 279 mile range with potentially a 40 kWh battery.
Now some people did
make some good points, about how the EPA actually say the battery size is much larger. It shows 28
kWh/100 miles. Therefore if this car has 279 miles of range, then that's actually a 78 kWh battery.
And some people even thought that this would therefore mean that it's probably
LFP. A fair assumption. Except the EPA figures are generic. On closer inspection if you check
the Model Y LR, then it says 28 kWh/100 miles as well. Yet 330 miles of range,
well that would mean the Long Range has an over 92 kWh battery, when its closer
to 75. So I hope that clears that up. But I am glad people are keeping me on my toes.
Right well that's easy then if the
Long Range is 75 kWh and the medium is 40 kWh, then Tesla can make almost twice as many cars.
Except we are not comparing the correct opportunity cost. Those 75 kWh batteries are 2170,
whereas the medium range is 4680. Well what would we expect a battery pack
size for 4680s if it was long range then? [Battery day - slide 67 again]
Well we expect a 54% range increase don't we. Which is 49 kWh, so let's round it to 50,
as we did round the standard range to 40. Ok, perhaps not quite the discrepancy we expected.
This is not a linear equation by the way, these are all very indicative,
as there are other variables at play, such as weight.
For example, having 20% more battery, doesn't mean you can get 20% more range, as there is
the weight of the 20% additional batteries. Therefore I think 55 kWh might be more likely.
The same applies for the 40 kWh battery, this has to be indicative only, but I would expect
to be within 10%. It sure would be good to get some actual numbers on the 4680 batteries.
But for the purpose of the exercise we are going to run with a 40 kWh battery vs a 55 kWh battery.
That is a 38% larger battery. And that was the number we were trying to work out.
The actual battery sizes are moot for this exercise, as we just needed to calculate
how many additional vehicles the medium range would make instead of long range.
Let's say that Tesla have 100 GWh of batteries. The run rate we were lost told to expect at the
end of this year, I believe this is still the most current official target we have heard from Tesla.
This would produce 1.8 million long range Model Ys, or 2.5 million medium range,
a difference of 680,000, obviously still 38% more, as the battery pack was 38% smaller.
Now, this was not some video to spread my rhetoric of why it's so much better
to have a medium range than a long range, this is a video for us all to look at,
and see what data comes. So there will be 40% or so more vehicles, it's not twice or anything,
but it's still a noticeable difference. This will make the scarce batteries go a lot further.
But what about profits?
How much margin are we going to lose? Ok, well I think to do this we need to calculate
how much each vehicle might cost to build. Now these are obviously from the new factory with
the new processes. But these cars should be identical, with the exception of the battery.
Now the Tesla community seems to think that the 4680 can get as low as $56 a kWh. Of course
this was all before commodity prices changed everything, which makes it a bit more tricking.
But if a battery pack is now about $2,000 more due to nickel prices,
and these are likely for 75 kWh batteries. That would imply about an additional $27 per kWh.
Ouch! In addition to that, the mid $50 estimates, were also an eventual price estimation, over time,
when yields improved. On top of that the price of other commodities have also risen.
Therefore, I am afraid to say,
that the cost of a 4680 battery may now be as high as $120 a kWh. This is still cheaper than
what Tesla were paying for 2170 batteries, but of course they will rise in price now
too. The good thing is, that 4680 are more energy dense, and thus fewer are required,
so the savings are exponential, along with the new lighter weight manufacturing processes.
For instance we are assuming 20 kWh less battery in the 4680 long range. This is
still a good cost saving. But this is starting to look like the reason for this new vehicle.
This ends up at a cost difference of $1800 in saving for a medium range 4680 compared to a
long range. Now that is not a major cost saving. Not relative to the price drops we are expecting.
Ok, well let's run some numbers. We will say that the Long Range with 4680 would have been
$62,000, which is how much the Model Y Long Range has just been raised to, and then we
will try and work out what a suitable price tag would be for the medium range from there.
I think that if Tesla were to make a long range 4680 at Texas, then it would still hit 40%
margin, especially with the price rise. I have run these models before,
but I would also like to add an additional $50 per kWh, then we initially suspected,
or $2,750 per vehicle. Taking the total cost to $40,000. There other cost increases too
like aluminum, but we are factoring these in, with this new price rise. Inflation is
just going to make things harder for us, but we will do our best. This would effectively
reduce the margin to 35% for the long range. Now if we remove the difference of $1800 for
the medium range battery pack, that takes the cost down to $38,000 for that variant.
Now obviously for Tesla to make the same amount of profit per vehicle for a medium range as
a standard range, they would have to drop the price by $1800, as that is the cost difference.
But, we are interested in total profit for the company,
not per vehicle, and we have 600,000 more of these we can sell, to make up some lost profit.
So let's see what this comes to.
Selling only long range, and approximately 1.8 million units would lead to a total gross profit
of $40 billion. Now what if Tesla dropped their margin to 30% for the medium range,
in order to get a low price point? Then Tesla would need to charge over $54,000
to produce the same gross profit.
Wow, we just uncovered it. Tesla can sell these new vehicles at $54,000
and it would result in the same total gross profit as if they made Long Range vehicles.
As far as net profit is concerned we shouldn't see any difference, as OPEX
should be about the same in both scenarios. Unfortunately, this isn’t as low as I hoped,
due to all the inflation, but it’s still $8,000 less than the Long Range, which is a big
difference. And I think it just goes to show how necessary this car is right now in the economy.
But also would Tesla really have
demand for 1.8 million Long Range $62,000 Model Ys in the US alone? Or would it be more likely Tesla
has demand for 2.5 million Model Ys at $54,000? $54,000, still sounds like a lot doesn't? It's
not as much as u think, this is the adjusted for inflation price remember, its a new world.
Everything else also just increased in price, and likely more so than the Tesla. Except in
this scenario, we actually haven't increased the prices, we are still at a $62,000 long range
Tesla. If anything Tesla have managed to reduce prices by bringing out this lower cost model.
Of course we hope that all this inflation will improve when supply chains are sorted,
and that prices will come further. And we also hope that everyone’s wages will increase too,
and that we are not in some sort of stagflation period.
Alright, it wouldn't be a true TE video without a bit more icing on the cake.
So what did we miss? Well we have these additional 600,000 or so vehicles obviously.
That's 600,000 or so more customers that Tesla can up sell to. With services like insurance,
but of course FSD. well that comes in at an extra $800m, not massive, but its still
something. I only have a 20% adoption an 50% deferred revenue though. And within time more
of these customers will likely adopt FSD as it eventually becomes complete, and then the 50%
deferred revenue should turn to 0%. And that would then be an additional $4 bllion a year.
But we know the big money is in the actual Robotaxis,
so this would also mean an additional 600,000 Robotaxis out on the road earning the big bucks.
But all these crazy
nickel prices, are sure starting to make LFP look good. Yes, there is lithium in LFP still,
but I think this is a much smaller relative cost, compared to nickel. The timing is a shame,
if these crazy prices hadn't occurred for just a couple more years, Tesla would have likely had
their LFP battery factories operational. I have a feeling that within time these
models will be replaced with Tesla's own LFP batteries, and Tesla will be able
to hit this level of range, I think that is when it will have it greatest impact.
Although even the LFP models didnt escape the price increases this time around.
Although it
may not mean a massive more amount of profit for the time being, I think it's good that Tesla are
potentially launching a more affordable model, and that there will be more Teslas out on the road. It
is best for the mission, but it would also appear its going to be best for the financials too.
A long range vehicle may become a thing of luxury, but medium range, is a sweet spot,
due to there being fewer batteries and reducing the weight that much further. This can be
further supported with a better charging infrastructure and faster charging speeds.