By on August 24, 2018

tesla model 3

Not without a profitable company, anyway. And Tesla, despite its promise to end the year in a cash-positive state, is not that company. Not yet.

After rolling out a dual-motor Model 3 and its Performance sibling in July, the average retail price of Tesla’s “most affordable” electric car is only going up, frustrating would-be owners waiting for the $35,000 base model. That stripped-down trim won’t appear until the beginning of next year.

When it does, however, Tesla stands to lose nearly $6,000 per vehicle, one investment bank claims.

According to Consumer Affairs (via Jalopnik), a UBS tear-down of a Model 3 yielded serious quality issues, mirroring what some owners have complained about on internet forums. The bank also stated that each Model 3 Tesla sells will only cost it money.

Tesla CEO Elon Musk stated in the past that production of big-bucks Model 3 variants is essential for the preservation of the company. Without those models, his vision of an EV for the masses becomes a pipe dream. UBS estimates that each $35,000 Model 3 costs the company $5,9000 more than it costs a buyer to purchase.

While this shouldn’t come as a surprise (most EVs remain unprofitable with current production costs and volumes), it’s the quality concerns that proved the most glaring.

In a note to clients, UBS analyst Colin Langan said, “The car scored ‘below average’ on the fit & finish quality audit which looked at >1, 500 gap measurements,” adding, “The team also found the body/wind noise was ‘borderline acceptable.’”

Wonky panel fitting, sketchy tolerances, and uneven spot welds turned up during the tear-down. This bolsters citics’ claims that Tesla remains more concerned with hitting production targets than producing a quality car. “The results confirm media reports of quality issues & are disappointing for a $49k car,” UBS wrote.

While Tesla is to be commended for building a technologically complex car with fewer parts than a traditional automobile, UBS said, accessibility of those parts poses a problem.

“Many aspects of the vehicle are inaccessible to even experienced mechanics and the containment of the battery pack makes fixes complex and expensive.”

Interestingly, the report comes on the same day that Tesla announced a doubling of its mobile repair fleet. Some 80 percent of repairs can be accomplished by its repair teams, the automaker claims, saving owners a trip to the service center.

[Image: Tesla]

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37 Comments on “You Can’t Have an EV for the Masses That Loses Money...”

  • avatar

    Confusing as this goes against Sandy Munro’s analysis

    Would be good to see what a normal $35K car looks like in such a teardown.

    • 0 avatar

      Its been reported that Tesla plans on going to a new redesigned battery pack for the $35,000 car. The UBS report has also been debunked.

      Kind of telling that the Monro report was pretty much skipped on TTAC but this report because it’s negative was reported. None of the criticizms of the UBS report we’re mentioned either.

      • 0 avatar

        @mcs, please elaborate on any new redesign of the battery pack. I haven’t seen that anywhere.

      • 0 avatar

        mcs – do you have a link for the “debunked” report? I read the report. Some things were noted that Tesla did extremely well such as the battery pack and the integrated control module for the car’s operation. The negatives included variable fit/finish, excessive use of joint sealant, so-so ergonomics, and excessive weight of the body. Frankly, it basically says that Tesla excels at the electrification but fails at building an actual car body/structure. No surprise really. The big problem for Tesla is that legacy automakers are likely to catch up to Tesla’s electrics faster than Tesla can gain knowledge on efficiently building a car body. All that adds up to problems for Tesla’s long range future…

    • 0 avatar

      Yeah. Munro said almost the exact opposite as far as build cost… with roughly $6000 profit per vehicle at base.

    • 0 avatar

      Is the actual “report” available anywhere? Based on the flurry of sites that are basically repeating the same thing over and over, it’s pretty obvious some choice details were leaked by interested parties knowing full well the blogosphere would eat it up without asking many questions.

      • 0 avatar

        Several weeks ago, the report was actually linked on a Seeking Alpha dot com article discussing the results (followed by a lot of commentary essentially calling the report a lie.) Would probably take a bit to find the headline but if you can, it should be pretty obvious once you do.

    • 0 avatar

      No it’s not. It’s in line with Munro.

      They said the same thing.
      1. Build quality is utter crap and failed their test.
      2. Electronics are good.

      What Munro didn’t say and is important when you estimate profitability is the assumed quantity and sale price they used to crunch the numbers. That’s important because you need to know how much NRE cost to distribute per car. And of course there’s supply costs that also depends on that as well. Most likely he assumed 5k/week for the fully loaded $50k-$65k models currently being sold. For example, the i3 he was specific and said at 20k sales per year it’s profitable.

      Assuming UBS numbers, $41k/car to build base model. Probably only adds another $2k to make the dual motor model. Use the $55k dual motor price and there’s your 30%-ish margin. But of course those costs would increase if they’re not making 5k cars/week. Just as an assumed example. So yes, UBS numbers are probably and inline with Munro given similar assumptions.

      One thing UBS mentioned is the problem of integrating. Part complexity increases (fyi, reliability decreases exponentially with parts in series) and cost to repair would be higher. I.e. Your no longer replacing just a broken gauge, your replacing a touch screen and all associated electronics.

      Also that mirror example he focused on and the media, you can read the page. The Model 3 motor is just a plain mirror. The i3 had electronics for garage door, compass, sensors, etc. That’s why it cost so much more. It has more features.

  • avatar

    “While Tesla is to be commended”

    No. Absolutely not. They build garbage and Musk is a fraud.

    Another Model S burned up after running an object over that a truck dropped and Tesla employees say that working for Musk the Fraud is a “sh*t show”.

    And those are just the stories that came out today.

    The company needs to go away. Their low quality products are dangerous and the Fraudster is a menace to society.

  • avatar

    Shoddy quality doesn’t provide confidence about the impressively integrated electronic components of the Model 3, because it would suggest a higher likelihood that when some switch or other peripheral component malfunctions it may shut the whole car down, and if the glitch is in the central control unit it will mean a very expensive (and difficult to access) replacement of the entire unit. Poor spot welds and missing bolts also suggests a real crap shoot regarding structural integrity in a collision. If Toyota can be successfully sued for a no-fault accident on a 14 year old car, I see successful class action lawsuits on the horizon against Tesla if any injuries or deaths occur to Model 3 passengers – assuming there is any Tesla to sue.

  • avatar

    So the mythical $35,000 Model 3 will come AFTER the tax credits have been used up, meaning anyone who waited for that model won’t get the full $7500 credit, and those who wait even further into 2019 won’t even get the half.

    So basically, in a middle-finger to those who waited, you would have been better off getting the $44K model at launch, and taking the $7.5K tax credit, and been just a fist full of Benjamins away from $35K with more equipment.


  • avatar
    FWD Donuts

    A cardboard compactor caught on fire at the plant yesterday afternoon. Burned it up along with a bunch of junk stacked around along with a tent. Not the production line one, though.

    Pretty sure the fanboys will put a positive spin on it. Wow, Tesla’s so hot now it’s ON FIRE. Either that or they’ll find out a Trabant factory in East Berlin went up in 1958 — then say “see, see, car factories catch on fire all the time.”

  • avatar
    Land Ark

    I’d be interested to know what it’s like elsewhere, but I live and work in Northern Virginia and I have been seeing an impressive number of Model 3s on the roads here. At least 1 per day while being on the road less than an hour per day.
    A guy I work with has been getting the run around for the last week about when he can pick up his. I am very excited to get behind the wheel of it when he does get it.
    While I get this will be a momentary thing, but lots of people are excited to see and experience his new car. It’s a level of excitement I’ve never seen for a car in this price range. So, whether they are profitable right now or not, this car has been a success at getting people excited about Tesla – much has the Model S and X before it.

  • avatar

    No plan to buy a Tesla any time, but:

    They are looking at panel gap and compare it to another $49K car? Seriously, you are not supposed to compare an EV to a V6 Lexus, that’s not what people care about.

    Inaccessible to a mechanic? Nobody should be more shamed for this than VW / Audi.

    It all boils down to the $ factor. You can’t blame a business with short supply to sell high end trim for more profit first, this is life. When they run out of demand they’ll start building base models.

    There’s nothing new under the sun. Next time try to compare it to Chevy bolt at least instead of a $49K “car”, ok?

    • 0 avatar

      “They are looking at panel gap and compare it to another $49K car? Seriously, you are not supposed to compare an EV to a V6 Lexus, that’s not what people care about.”

      why should caring about how well made a car is depend on its propulsion method?

      • 0 avatar

        Because they are buying a $25k car with $25k of battery, instead of a $49K car with no battery.

        EV’s value (or in theory) is to save on gasoline with cheaper electricity (or free charging), and HOV lanes.

        People won’t cross shop a $49K gas car with a $49K EV.

    • 0 avatar

      ….Next time try to compare it to Chevy bolt at least instead of a $49K “car”, ok?…

      Because the Bolt doesn’t compete with an Audi A6, or a Lexus GS. The Model 3 does.

      If we want to compare against the Bolt I’ll bite, the Bolt has a longer range, costs less, and beat the Model 3 to market.

  • avatar
    SCE to AUX

    $6000 loss per car? That’s funny, because the haters will believe any number as long as it’s negative.

  • avatar

    Over-hyped, overpriced, trinkets.

  • avatar

    An electric car ALWAYS has fewer parts than an ICE vehicle. Tesla stupidly designed the car to be assembleable with robots and created a vehice that is next to impossible to fix. For example, an owner has a small portion of the fender wheelwell paint damaged – a 1 by 4 inch strip. It required the fender to be removed, which required the front end to be removed and parts at the rear as well. It required three man days of labor and cost $6800. Me? I would have gotten some touch up paint and spent $20. Another owner reported a 3 MPH collision that was created minor damage – repair bill : $13,000. I believe the insurance company refused to pay the full amount. This car was designed by idiots.

    • 0 avatar
      Bill Wade

      My neighbour backed into our Suburban at likely 3 mph. $9,000 later we got it back.

      I guess Suburbans are designed by idiots too.

      I loved this in the article: “Many aspects of the vehicle are inaccessible to even experienced mechanics.” I swear every time I work on new vehicles the same thought crosses my mind. Alternators under the engine between the frame requiring loosening the motor mounts. Radiator hoses you have to remove the water pump to replace. Who thinks up of this stuff?

  • avatar
    DC Bruce

    i’m sure (or at least I hope) that the UBS report is more financially rigorous than the reporting that is based on it. There are basically two ways to calculate “profit”: one accounts for all of the firm’s costs and allocates them to all the units produced; the other accounts for the incremental costs of producing the next unit. On a fully distributed cost basis, profit per unit will always increase with volume; because the fixed costs will be distributed over a greater number of units. On the other hand, on an incremental cost basis, volume will have no effect on “profit” calculated that way.

    it’s hard to imagine that Tesla is losing $6,000 per unit on an incremental cost basis. That would mean that the more cars Tesla produces, the more money the company loses. No one does that unless they’re selling “compliance cars” (that the government requires them to produce) and then they sell no more than what is required to comply with the relevant regulation. The losses from these cars are made up by per-unit profits from the sale of other vehicles. I believe Sergio said this was the case with EV Fiat 500s in California.

    More likely is that UBS calculated profit per car on a fully-distributed cost basis, which requires assuming a certain sales volume. The question then becomes whether that sales volume realistically is obtainable or not.

    One problem that Tesla will have is that it is competing with companies that produce both EVs and ICE-powered cars. So, those companies have the option of accepting less per-unit profit on their EVs and then making up the deficiency with profits from other popular vehicles, e.g. pickup trucks. Assuming, of course, that these companies have non-economic reasons for being in the EV business, which they may well have.

    • 0 avatar

      I also have to wonder if they are factoring in any sort of value the emissions credits that each Tesla generates. Fact is Tesla brings in a bunch of cash from selling those credits to other mfgs.

  • avatar

    There was a fairly big electric car show a week ago where I live. I scanned over a Model 3. The panel gaps were a dog’s breakfast. I’ve never seen such variances on a new car. More like a restored 50’s sedan. Well, maybe not that bad. And this was a car put on show.

    However, this does not necessarily translate into reliability and longevity problems. And despite that and questions about welds, Tesla’s crash ratings are ok, so far as I’ve heard.

    (There was a Cadillac CT6 PHEV at the show. Apparently made in China. I wasn’t aware such a thing existed. People were ignoring it. Since there were test drives offered, I took an Outlander PHEV out. Pretty nice, but for my use the lack of a spare tire and the clearance are problematic.)

    • 0 avatar

      Tesla’s crash ratings are more than ok—highest in the industry, no? Then again, Musk recently announced they’d be dropping 300 welds or something to save time and cost on the 3, so who knows if it’s still the tank it was at launch.

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