Model 3 Would Result In Losses For Tesla, Unless Consumers Get $6,000 Worth Of Upgrades
Despite initial reservations from analysts and the automotive market in general, Tesla appears to be gearing up for the mass-production of the Model 3 well within schedule. With deliveries for the EV seemingly set to begin by the end of the year, details about the upcoming vehicle have started to emerge in a steady stream. Interestingly, however, a recent report from analysts have concluded that Tesla might be taking a loss with each Model 3 that is sold, unless consumers equip their car with at least $6,000 worth of upgrades.
According to a report from The Drive, analysts from UBS Global Automobiles have inferred that Tesla would be losing around $2,800 for every base Model 3 that it sells. Considering that the Model 3 is expected to be sold at a rather affordable $35,000 before incentives, the $2,800 loss appears to make sense. The car, after all, still boasts numerous groundbreaking technologies for its target price point, including full Autopilot features and a stunning design that does not look anywhere near a conventional $35,000 EV.
Considering that the carmaker would likely take a loss for every base Model 3 that is sold, UBS’ analysts have stated that buyers of the car would need to spend around $6,000 in upgrades to the vehicle for Tesla to break even. Tesla CEO Elon Musk has already stated that the Model 3 would come with numerous add-on options. Thus, there is a pretty huge chance that the upcoming electric vehicle would come with a wide variety of available upgrades. After all, if the UBS analysts prove accurate, it would be through these add-ons that the carmaker would make a profit.
The UBS study was able to reach its conclusions by studying the components of the Model 3’s rival, the Chevy Bolt, GM’s long-range, budget-friendly electric vehicle, according to a Clean Technica report. Considering the components utilized by the GM vehicle, the UBS team stated that the veteran carmaker could be taking a net loss of $7,400 for each Bolt that is sold, and that is before government incentives are applied to the price of the vehicle. Considering the similarities between the Bolt and the Model 3, there is a good chance that Tesla would be hit with similar losses as the veteran automobile firm.
Nevertheless, Tesla CEO Elon Musk has previously predicted that the Model 3 would generate around $20 billion in revenue, with 25 percent gross margin. Musk’s predictions, while extremely optimistic, are also plausible. For this to happen, however, the average sales of the Model 3 would have to be somewhere in the $51,000 range. Considering that the Model 3 would need to sell at $41,000 for Tesla to even break even, it definitely appears that the EV-maker would be putting a lot of its cards on consumers opting in for additional features on their vehicles.
These forecasts, however, have reached a very interesting conclusion. If Tesla is really going for a 25 percent profit margin for the Model 3, the EV would need to sell at a bit more than $51,000. That price is just around $17,000 less than the flagship Tesla Model S, a vehicle that is far more advanced than the Model 3.
Of course, the add-ons for the Model 3 would not be the only means for Tesla to achieve Musk’s target profit margins, as the carmaker could also gain revenue through royalties from services such as the Tesla Network or the use of Superchargers across the nation. Whether or not Tesla would be able to make the Model 3 profitable remains to be seen, but from what could be determined from reports about the vehicle, it appears the EV-maker is set on shaking the automobile industry with its newest vehicle once more.
[Featured Image by Tesla]