Hi everyone its Lee and welcome to the Tesla economist
MODEL Y I know it seems all Tesla want to build right
now is Model Y factories, which you can't blame them for, as they are so incredibly
popular and so incredibly profitable. So Tesla are going to keep doubling down on that model,
until it finds it's place in the market. This would also include RWD LFP versions too. Tesla
are just not close to producing enough of these vehicles to meet the market. And then
once they are, well they can lower the price, or offer lower cost variants, or software
limit the specs, and then demand will rise again and Tesla will have to produce even
more. Rinse and repeat until Tesla do find the optimal number produced at the correct
market clearing price.
MODEL 3 But one day we might actually see a new Model
3 factory. At a guess the next one will be Berlin or Texas. But this Model 3 will have
front and rear castings, a structural battery pack with 4680 cells, and who knows what else.
It will be an outstanding car. It will be phenomenal, I mean the fact Tesla are capable
of producing a car now, that is that much better than my current Model 3 Performance,
which is pretty much 5 year old technology now, is all possible. Tesla are more than
capable of producing such a car now.
DEMAND But like I say, all other products have taken
a back seat, because Tesla hit a gold mine, no, a diamond mine, with the Model Y. I don't
think even Elon came close to estimating how popular this vehicle would be, how popular
Teslas, or electric cars would even be. That's why Tesla thought they might have to release,
get this... a $25,000 Tesla, doesn't that sound ridiculously cheap now. No, instead
they raised the price of the Model Y to $66,000. A car that used to cost under $50,000. Except
that was also using 5 year old technology too. And now we have a new Model Y with 4680
cells using 0 years old technology, brand new state of the art technology never before
seen, or barely imagined.
And this new Model Y, is going to have various software upgrades, and features and specs
that we are not even aware of yet, as it's all being kept under wraps. Well obviously
that will only further increase demand more. And perhaps thats one of the reasons as to
not spill the beans on the car just yet, it might disrupt demand too much, which Tesla
are already struggling with enough as it is, particularly when you factor in inflation.
Oh yea, and then on top of that a crazy $7,500 tax credit. So everything is taking a back
seat, and Tesla are just going to milk this highly profitable vehicle for sometime. I
am pretty sure the next location will be north east US. They may even surprise us with an
Indonesia location soon too.
AV But if the demand for electric cars, or Teslas
is this insane right now. Well it's also soon about to get twice as bad, or as good, depending
on how you look at it. Because they are soon entering a new market segment, called autonomous
vehicles. Which is a total lifestyle vehicle for so many people. Elderly people who no
longer have a drivers license opens up a new life for them. Many wont even need to live
in a rest home as a result, oh right yea, and just in time for all the baby boomers
to retire. And that's just one fraction of utility for that. Not to mention Robotaxis.
And even if it does take 2 or 3 years to get through regulation or whatever, well Tesla
have plenty of demand just selling EVs, but when they can sell AVs, then it's going to
jump again. Perhaps this will still be the Model Y supporting all this demand. Maybe
Model Y demand is eventually 5 to 10 million a year or something, and sure the starting
price may well come down to under $40,000 or something, and still have a huge margin.
But if that customer also purchases FSD, then it's probably an instant extra $30,000 profit
anyway. Wow, that is so much profit. So much profit, and so much demand. It's mind blowing.
NEW 3 Anyway, I digressed somewhat there. Now back
to this new Model 3. If you recall, Tesla actually managed to sell the Model 3 for $35,000
at one stage, it was the standard version, not standard plus, and that is the reason
the standard plus has the plus extension in its name. Tesla advertised this price on the
Model 3 reveal, and Elon honored it, but eventually realized it was just silly and not good business,
and they didn't need the demand that badly, although demand was nothing like it was today,
back then. But there was still a gross profit on that low cost car, and even back then.
And this car actually used 2170 cells, not LFP cells. The car was also not even in volume
production, yet still profitable.
So I ask you now, what if Tesla made a new Model 3, in a new custom built factory, yea
the old Model 3 was also produced in the inefficient, high cost Fremont site on top of everything
else, an old retro-fitted inefficient factory, and in California, and before all the other
advances like octovalve, radar being removed and other various parts and process. Of course
giga press and structural packs. And imagine if Tesla had their own LFP cells or LMFP in-house
too. I would say that the cost of goods sold per Model 3 has got to be possible to get
it below $20,000 per vehicle.
$25,000 Tesla could make electric cars for under $20,000.
And obviously not just any electric car, a Tesla Robot smart digital car, and its a full
sedan not a 2 door compact. Now hear me out, but what if Tesla really
did sell it for $25,000, and made $5,000 gross profit per vehicle, which would still be enough
to generate an overall net profit for the company, even if that was all they sold, especially
if you consider how much demand that vehicle would have. Yes, we are going to go hypothetical
here. Ok, the cost of materials and labor have increased somewhat since too, but so
would have wages, at least eventually when the economy works itself out. So let's just
keep it relative back when Tesla actually did announce the $25,000 vehicle.
Do you see though, through any type of market, or economy, these vehicles will still sell
for as fast as Tesla can make them, they can just control demand with price.
FINANCE Now at current finance rates of 4.5%, if you
were to finance a $25,000 Tesla over 6 years then the loan repayments are exactly an even
$400 a month. The average American spends about $200 a month on fuel, although that
is probably closer to $300 now. But let's stick with $200. The Average they spend a
month on insurance is $100. They spend $400 a year on servicing or $33 a month average.
Alright, a Tesla doesn't cost nothing to run, but it might cost about $40 a month to charge,
and if you are a good driver then insurance might only cost $40 with Tesla. And servicing
isn't a thing.
When we calculate all those numbers then we see that the savings of a Tesla come in at
around $250 a month. Yet it would only cost $400 a month for this brand new Tesla. i.e.
an additional $150 a month. And that excludes the entire cost of the ICE vehicle, which
is by far the largest cost. Also if it's an older ICE car then it would cost a lot more
to run in parts wearing out, and likely fuel efficiency. However, the average American
spends $27,000 on a used car anyway, which is more expensive than this hypothetical brand
new Tesla Model 3. And a lot of Americans actually buy new cars too, at an average of
$47,000, nearly twice the price of this Tesla.
10 YEARS And yes, we know that the biggest cost of
owning a car is not actually the fuel. But the depreciation. And after 5 years your lucky
if your car is worth half what you paid for it. Except we see 5 year old Model 3s for
sale for more than they cost 5 years ago, with 5 years of mileage on the clock. Teslas
don't depreciate, they are not a liability, they are an asset. But a typical finance company
wouldn't understand that, or want to risk it. However, Tesla would understand that.
So what if Tesla offered a 10 year finance plan instead.
Well if you finance a Tesla for 10 years at 4.5%, then the monthly payments come in at
$259. Pretty much exactly the same as the additional running costs of an average ICE
car. In other words a brand new Tesla could cost as much to own and run, as an average
ICE car just costs to run. The Tesla would be the equivalent of free. In other words
the only way for an ICE car to compete with the cost of ownership of this Tesla, is if
the ICE car cost nothing.
But it doesn't stop there of course, as after this 10 year period, well the payments stop,
and your running cost then drops to $90 a month. Compared to the ICE car which after
10 years, is probably a total write off anyway. Yet this Tesla would probably only be about
1/10 the way through its battery life before it degrades. Also they could end being used
for vehicle to grid as well, and perhaps save a further $50 or 100 on power for you home
each month.
Of course Tesla could up sell FSD on the vehicle too and make a massive profit. And all these
numbers are based on American cost of ownership, pretty much everything is cheaper in America.
Fuel prices in Europe are a lot higher, same with Australia and many other nations, and
insurance too.
INTRINSIC VALUE The other point we can make here, is this
could almost be seen at Tesla's intrinsic value. Perhaps $5,000 gross profit per vehicle.
But Tesla could sell 100 million of these vehicles a year. The cost of servicing, parts,
fuel and insurance, is not too dissimilar in any nation. This is affordable to the absolute
masses, and compared to their old Toyota Corollas this is a massive upgrade. Not to mention
all the really cool features you get in a Tesla compared to a 90s Corolla.
Drivers wouldn't want to wait until its time to buy their next car, if they can upgrade
to a Tesla tomorrow and save money. Hence the massive demand. And even at 100 million
vehicles a year, it would still take 2 decades to replace the global fleet, assuming no leverage
from the robotaxi network.
ANALYSIS This was totally hypothetical, but I use it
to help you try and see Tesla how I see it. Just what an incredible job they have done
in reducing the cost of ownership, but in addition to that, all the massive advances
they have also made in production, to get the costs down. And this probably doesn't
even factor in everything, like powering the factories with solar and batteries, and robots
on the production lines. Remember the actual cost of the factory itself, when fully ramped
up, well that cost of capital probably only factors in to about 1 or 2% cost of the vehicle.
And if there is minimal cost in labor and energy, then you are just down to the raw
materials, especially if there is so much vertical integration happening, like cathode
factories.
However, Tesla don't need to come close to $25,000. Well ok for 100 million demand perhaps
a $25,000 vehicle may be necessary, but it could actually be a compact too, which would
cost even less to build, maybe even a single cast mold or something. But even if they did
offer that, then it's not like they would only offer that, they can still have vehicles
that do sell for in excess of $100,000 too. And like I said there all the high profit
add-ons too like FSD.
There are just so many ways for this company to profit since they have just done such a
spectacular job on reducing so many costs in so many areas. Tesla can sell as many cars
as they want to make. Even if they wanted to make 100 million cars a year. There has
never in history been any company like this.
SUMMARY So basically, if Tesla can offer a brand new
car, for the cost of running an average ICE car for 10 years, then almost every current
car owner on the planet can afford one and will most likely want one. This is a product
and company to marvel. However, Tesla can't currently make enough of these cars to serve
such demand. Therefore the demand will be controlled by price. But if the economy was
ever that bad, then Tesla can reduce their prices to as low as the equivalent of free
to a typical ICE driver, and still make a profit. Therefore as long as Tesla can produce
cars, they can always remain profitable.