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

Steph Willems
by Steph Willems
you cant have an ev for the masses that loses money

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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  • 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.

  • Jim Bonham Full EVs are not for everyone, they cannot meet all needs. Hybrids do a much better job of providing the benefits of EVs without most of the drawbacks. I have a hybrid sedan with plenty of room, plus all the bells and whistles. It has 360 hp, AWD, does 0-60 in just over 5 sec.(the instant torque is a real benefit), and I get 29 mpg, average. NOT driven lightly. I bought it used for $25k.Sure, it's a little heavier because of the battery, motor, etc., but not nearly as much as a full EV. The battery is smaller/lighter/cheaper and both the alternator and starter motor are eliminated since the motor assumes those functions. It's cool to watch the charge guage show I'm getting energy back when coasting and/or braking. It's even cooler to drive around part of the time on battery only. It really comes in handy in traffic since the engine turns off and you don't waste fuel idling. With the adaptive cruise control you just let the car slowly inch along by itself.I only wish it were a Plug-in Hybrid (PHEV). Then, I'd have A LOT more EV-only range, along with even more of that instant torque. The battery would be bigger, but still a fraction of the size of a full EV. I could easily go weeks without using much, if any gas (depending upon my commute) IF I plug it in every night. But I don't have to. The gas engine will charge the battery whenever it's needed.It's just not as efficient a way to do it.Electric companies offer special rates for both EVs and PHEVs which lower your operating cost compared to gasoline. They'll even give you a rebate to offset the cost of installing a home charger. You can still get federal (up to $7,500, plus some state) tax credits for PHEVs.What's not to like? My next daily driver will be a PHEV of some kind. Probably a performance-oriented one like the new Dodge Hornet or one of the German Hybrid SUVs. All the benefits, sound, feel, etc., of a gas vehicle along with some electric assist to improve fuel economy, performance, and drivability. None of the inherent EV issues of cost, range anxiety, long charging times, poor charger availability, grid capacity issues, etc. I think most people will eventually catch on to this and go PHEV instead of going full EV. Synthetic, carbon-neutral eFuels, hydrogen engines, and other things will also prevent full EVs from being 100% of the fleet, regardless of what the politicians say. PHEVs can be as "clean" (overall) as full EVs with the right fuels. They're also cheaper, and far more practical, for most people. They can do it all, EVs can't.
  • Ron rufo there is in WaSHINGTON STATE
  • ToolGuy @Chris, your photography rocks.
  • ToolGuy No War for Oli.If you have not ever held a piece of structural honeycomb (composite sandwich) in your own hands, try it.
  • ToolGuy You make them sound like criminals.
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