You Can't Have an EV for the Masses That Loses Money

Steph Willems
by Steph Willems

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]

Steph Willems
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  • DC Bruce DC Bruce on Aug 25, 2018

    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.

    • Scoutdude Scoutdude on Aug 26, 2018

      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.

  • Brandloyalty Brandloyalty on Aug 25, 2018

    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.)

    • HotPotato HotPotato on Aug 25, 2018

      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.

  • Alan Well the manufacturers are catching up with stocks. This means shortages of parts is reducing. Stocks are building around the world even Australia and last year had the most vehicles ever sold here.
  • Larry You neglected to mention that the 2024 Atlas has a US Government 5-Star Safety Rating.
  • Alan Why is it that Toyota and Nissan beat their large SUVs (Patrol/300 Series) with an ugly stick and say they are upmarket? Whilst they are beating the vehicles with an ugly stick they reduce the off road ability rather than improve it.As I've stated in previous comments you are far better off waiting for the Patrol to arrive than buy an overpriced vehicle.
  • Alan How many people do you see with a 4x4 running mud tyres? How many people do you see with a 4x4 running massive rims and low profile tyres? How many people have oversize mirrors for towing once in a blue moon? How many 4x4s do you see lifted? How many people care what tyres they run to save fuel? The most comfortable tyres are more or less the most economical.
  • Alan These are not very good off road vehicles. This price for this Jeep means it should of been an exceptional off roader. I watched a comparison between this Jeep a Patrol and a 300 Series. One part of the test has the vehicle in an off road situation which arises often, that is only 3 wheels have contact with the ground and one is suspended and another only has minimal weight (contact). This leaves two wheels diagonally opposite bearing the weight. A test the reviewer call the "Door Test" was carried out. Both the Nissan and Toyota could open and close all doors and tailgate. The Jeep couldn't. The twist in the chassis shows how poor the engineering was done. A monocoque constructed vehicle should be easy to make rigid. Jeep managed to produce a rigid vehicle in the XJ decades ago.Don't buy this vehicle for any off road work, it sucks.