Why Tesla’s Next Generation Car Won’t Be $30,000
Below, I explain why there will be a next-generation Tesla many cheaper than expected and how can Tesla do it. We know that Tesla sells the Model 3 in China today for under $40,000, and that it has a project codenamed Highland to further reduce Model 3 costs next year. That would put the Model 3 under $35,000, which is $27,500 after the tax credit.
As my friend Warren Redlich pointed out at the 1 minute mark above, Elon made it clear during Tesla’s Q3 2022 Earnings Call a few months ago that they were working on a smaller next-generation car that would be about half the cost of the Model 3. Model Y platform. Current estimates for the Model 3 now cost $36,000 to produce (probably more in the US, less in China). Elon scores a 2-on-1 target and half the effort and half the floor space multiple times (at about the 2-minute mark of the video above). Warren notes that the cheapest Model 3 costs about $32,000 to build (my research above suggests $36,000), but I would expect the Highland project to fetch at least $4,000. Half of $32,000 is $16,000.
If Tesla sells that car for $20,000, it makes a 20% margin, which is fine (Warren says 25%, but my math says 4/20 20%). Warren has many ideas on how to lower the price. Most of his ideas are what Tesla already does with the Model 3 and Model Y. I have more radical ideas to get there.
- 3 years ago, Sandy Munro stated that the Tesla Cybertruck would be a huge savings because it wouldn’t need a half billion dollar paint shop. Tesla specifically said that they will use what they learned in developing the Cybertruck in their next generation of vehicles.
- Sandy recently spoke at Teslacon in Florida about how fore and aft castings make manufacturing easier (and thus lower costs) because they reduce variability in the manufacturing process.
- Tesla will introduce two major improvements to the wiring of the next-generation Tesla:
- The wires will be stiffer so they can be installed by robots. This 2019 article mentions that traditional wiring is not round and rigid, which makes it difficult to automate wiring in a car.
- Reducing the length of wires from 1500 meters to 100 meters. Tesla had hoped to implement this innovation in the Model Y, but instead of delaying it to add many new features as Tesla did with the Model X, Tesla engineers abandoned Elon in order to release the Model Y early. different wiring to the back of the car for brake lights, taillights, backup lights, left turn signal and right turn signal, what if you just had one wire for all of that and then you had a smart tail light that used 12V or even 48V (reducing wire size) or a high frequency signal on that single wire, or to ground based on a wireless signal to tell the car when to display the taillights, brake lights, turn signals, and backup lights. Watch the video below:
- Wheels and tires. Warren talks about smaller wheels and tires about 9 minutes into his video. Researching wheels on Amazon showed that you can get a 13-inch wheel for about half the price ($132) of an 18-inch wheel ($132), and it weighs about half as much (16 pounds to 30 pounds). A similar saving is revealed when looking at tires. This tire (I bought one for my Model 3 a year ago) has a 70,000 mile warranty for $165, this one (I bought a similar one for about $20 for a 1991 Toyota Tercel) has a 75,000 mile warranty for $80.
- As I wrote in my article on reducing the cost of tires two years ago, retreading is a proven and effective way to reduce tire costs and has huge environmental benefits as it greatly reduces the oil needed to manufacture tires and also solves the problem of tire disposal. When you read about retreading tires, note that nearly every manufacturer claims about half of new prices for comparable tread life.
- Arguably, Tesla needs to switch to sodium-ion batteries, at least in the entry-level model. Not only is this a cost savings of up to 30%; A big advantage for Tesla is that it doesn’t have a shortage of sodium like lithium. I think we will have a lot of lithium in 10 years, many people are worried that we won’t have enough mining and processing capacity in the medium term (maybe 2025-2028) because both the electric car markets and the energy storage markets are growing faster than before. will grow. expected.
- A cheaper audio system with 8 speakers instead of 21.
- The machine will be 30% smaller, which will reduce material costs. Could be narrower so it’s only a 4 passenger car. I don’t think it will be as small as the ~$4000 Wuling Mini EV, but it will be similar in size to the BYD Dolphin.
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Wuling Mini EV. Image courtesy of Wuling HongGuang.
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BYD Dolphin. Image courtesy of BYD.
The result
Let’s start with Warren’s starting cost of $32,000 and see if the innovations discussed above can reduce costs enough to make a difference. I found this 4 year old CleanTechnica Eric Kosak’s article is very helpful in doing this. That means the cost of materials for a Tesla Model 3 is about $16,500. Just by making the car 30% smaller, we can cut costs by $5,000. It would use the same battery technology and reduce the 54kWh pack (with 51kWh usable power) to 38kWh (about 36kWh usable). If the small car can increase the Model 3’s kWh by 30% to about 7 mpg, the next generation (base model) will have a reasonable range of 252 miles. Eric estimated that the battery cost about $6,800 (80 times 85 kWh), and this 30% reduction reduces the cost of the battery by $2,000 (we can’t add this to the $5,000 savings above because it’s a fraction of the $5,000). Switching from a nickel-based battery to a sodium-ion LFP should reduce volume costs by another 30%, or $1,500. So I think we can get a material savings of $6,500, or $10,000 by adding the $5,000 from the 30% size reduction and the $1,500 from using sodium-ion batteries.
Now let’s move on to labor costs. He estimates a high-volume Model 3 has $3,500 in labor and capital depreciation. If the model doesn’t need a paint shop and uses castings to drastically reduce the number of parts, this will of course be more than halved. It could be down $1,500, $2,000. So it cost us about $12,000 to build the car versus our $16,000 forecast. I think the difference is that 4 years of inflation has increased both labor and material costs by up to 30%.
Regardless of how Tesla gets there, a compact EV that it can build in Mexico or the U.S. for $16,000 and sell in the U.S. for $20,000 — and people get a full $7,500 tax credit (either the buyer or the leasing company. benefit to the buyer) — gas will make it very difficult for anyone to sell cars as economy cars. Among the 20 best-selling models in the US, the only inexpensive cars are the Toyota Corolla (starting at $21,650) and the Honda Civic ($24,650). If you go to the least expensive car in the US, the Mitsubishi Mirage ($16,245), it has been discontinued in Japan and may not even go on sale until 2024. The Nissan Versa is similarly priced and sells about 12,000 vehicles. a year. Obviously, they will be crushed by a car that is cheaper to buy, cheaper to fuel, cheaper to maintain and better to drive. If you’re reading this in 2023, that’s not too far off, it’s expected next year.
Disclosure: I am a Tesla shareholder [TSLA]BYD [BYDDY]Nio [NIO]XPeng [XPEV]and Hertz [HTZ]. But I am not giving any investment advice here.
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