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Tesla is Quietly Reducing the Cost to Own One

Tesla is Quietly Reducing the Cost to Own One

Don't look now, but the price of owning a Tesla is steadily declining beyond the announced price reductions. I think it's because Tesla/Panasonic are making significant progress in reducing battery costs.

To wit, I ordered a Tesla MX 90D in June 2017, purchase occurred on 9/8/2017. This was the the agreement

Tesla Model X 90D $93,500
All-Wheel Drive Included
Deep Blue Metallic Paint $1,000
20" Silver Wheels Included
Black/Light Headliner $3,300
Black Leather Seats Included
Figured Ash Wood Décor Included
Front Console Included
Light Alcantara Headliner Included
Enhanced Autopilot $5,000
Smart Air Suspension Included
Premium Sound $2,500
MPA Range 257 miles
Subtotal $105,300

Now look at what it costs to buy a similar MX today:
Tesla Model X $78,950
Deep Blue Metallic Paint $1,500
20" Silver Wheels Included
Black Interior with Dark Headliner Included
Figured Ash Wood Décor Included
Imitation Leather Seats Included
HEPA Air Filter Included
Self Presenting Front Doors Included
Premium Sound Included
Five Seat Interior Included
Autopilot $5,000
MPA Range 270 miles
Subtotal $94,500

If I had added the full premium package for the 90D that also included the HEPA air filtration and self presenting doors, it would have been an additional $2,500 that would have moved the price up to $107,800.

That is a difference of $13,300. But wait, there's more. The new base MX comes with a 100 kWh battery pack where the range is software limited. To unlock the extra range you pay Tesla another $8,000 at any time and the extra range is unlocked taking the MPA rated range up to the full 295 miles. If you were to unlock the extra range of a new MX it would raise the price to $102,500, which is still cheaper than the MX 90D I purchased, and much cheaper than the ~$114,000 it would have cost to buy a similar MX 100D in the summer of 2017.

Yet...
Sales are still growing for the MX, it is now outselling the MS by a little (probably due to cannibalization of the MS by the M3).
Tesla has not added a new assembly line for the MX, in fact recently announcing it was cutting the MS/MX line back to 2 shifts per day instead of 3.
Profit margins per vehicle for both the MS/MX are steady.
Whether the customer ever chooses to turn on the extra range or not, the batteries are included in the car when they take delivery.

Bottom Line: You can purchase an MX today that is better equipped with 13 miles more range, all the goodies that cost extra back then, for $13,300 less.

How can this be?
1. Tesla has gotten better at manufacturing the MX at lower cost.
2. The price of the battery packs is declining.
3. Tesla has not moved to the new 2170 battery used in the M3, instead it is still using the older 1870 (?) batteries in the MX/MS with no plans to shift to the new ones any time soon.

On June 8 2018, Elon Musk met with shareholders. In response to a question about battery costs, he said:

“We think at the cell level probably we can do better than $100/kWh maybe later this year … depending upon [stable] commodity prices…. [W]ith further improvements to the cell chemistry, the production process, and more vertical integration on the cell side, for example, integrating the production of cathode and anode materials at the Gigafactory, and improved design of the module and pack, we think long-term we can get below $100/kWh at the pack level. Which is really the key figure of merit for a car. But long-term meaning definitely less than 2 years.”

1. Independent analysts consistently predict the cost to produce an EV will reach parity with producing a like ICE vehicle by 2022.
2. The cost of Lion batteries have been dropping around 15% per year for the industry as a whole.
3. Tesla is widely recognized as having the lowest cost for batteries due to vertical integration with batteries produced @ Gigafactory 1 by Tesla/Panasonic.
4. Last summer, Musk admitted that problems in the gigafactory producing enough batteries played a role with production woes for the M3 in the first half of 2018.
5. Last fall, Musk said many of the problems associated with producing battery packs at the gigafactory had been addressed.

Conclusion: Yep, part of the reason MX/MS sales prices are falling is due to simply getting better at actually making the cars. I strongly suspect the more substantial reason is Tesla is making great strides in reducing its cost to make battery packs.

What this means is the price for Tesla vehicles will continue to fall steadily. The cost of batteries is still a main factor holding back sales for EVs. Tesla is eliminating that problem which bodes well for the future. Before long, not only will they be cheaper to fuel, Tesla vehicles will be as cheap or cheaper to purchase than ICE vehicles. You'll get more bang for the buck. If anything, this foretells that Tesla's journey up the hockey stick will accelerate faster than most expect.

Or, as Bachman Turner Overdrive put it: The future's so bright I've gotta wear shades.

lilbean | February 7, 2019

Some Model 3 owners are whining about it on the 3 forum.

Mike83 | February 7, 2019

Agree and I add:

Automation cutting labor costs, in house products reducing supplier costs, AI chip developments and less borrowing costs should add to the bottom line. Semis are a comin along with Powerwall and Powerpacks.
Future is phenomenal.

reed_lewis | February 7, 2019

The 'Futures So Bright I gotta wear shades' was Timbuk 3!

https://www.youtube.com/watch?v=8qrriKcwvlY

Tesla-David | February 7, 2019

Tesla Rocks, and the future is indeed bright and promising. Saying this as a 6+ year owner (3 cars so far). Looking forward to the Semi, Y reveal, and pickup truck reveal. We have 8 months of experience with our two Powerwall-2 battery storage system, which is an incredible complement to solar system already in place.

RedShift | February 7, 2019

To all, please stop saying the future is bright until they add the grab handles. Then and only then, will Tesla be considered bonafide!

Earl and Nagin ... | February 7, 2019

Yay! Go Tesla!

avesraggiana | February 9, 2019

@RedShift. +1!

avesraggiana | February 9, 2019

@lilbean. It's funny, I can now look back, with some smugness I must admit, at today's ever growing crop of Model 3 owners, and remember how I/we all whined and complained about the very same things about our Model Ss and Model Xs, not that long ago.

Everything old is new again.

lilbean | February 9, 2019

@avesraggiana That is funny.
I think Tesla is the only product that people complain about when the price drops.

Tesla-David | February 9, 2019

@avesraggiana, totally agree. Waited three years for our first MS delivered on 1/2/13. I had my doubts about Tesla staying afloat and delivering our car. What a heady and exciting experience it has been to be on the Tesla bandwagon. It certainly has not been boring, and will continue to be worthwhile IMHO.

bp | February 10, 2019

We purchased our new Blue X 100D last June, fully configured with EAP/FSD and 7 seat interior for $117.5K. Removing FSD (not currently offered) reduces the price to $114.5K.

The same configuration lists for $107K - that's a $7.5K decrease in price.

If we were ordering the same configuration today, we would seriously consider the software limited standard battery configuration at $99K, because charging is usually done to 90% and we only charge to 100% before starting out in the morning for a long drive - and it may not be worth $8K to save a few minutes of charging or driving at higher speed for the first leg of a road trip a few times each year. For $99K we'd still regularly charge the battery pack to the same level for normal driving, since the software limitation covers the portion of the battery that you would normally not charge.

So this really means a new customer can purchase a similar X 100D for a $15.5K savings (15%) over what an X cost 9 months ago...

For a long time, Tesla was able to hold the Model S price at about the same level, while adding new functionality (until they released AP2). With new technology products, early products usually cost relatively high and then as the technology matures, prices drop. [You can buy 4K TV's today for hundreds of $$$.] So we shouldn't be surprised to see Tesla prices drop for S/X - plus Tesla's biggest long term advantage could be their lead in battery technology and the efficiency of having their own battery manufacturing, able to sell vehicles at lower prices and still have a profit.

Uncle Paul | February 10, 2019

This is similar to what Henry Ford did when he raised his workers pay to $5.00/hr and at the same time was constantly lowering the prices of his car by automation and cost reduction techniques.

Elon wants as many people as possible to buy his cars, but not all can afford them. By lowering his prices, more and more can afford them. Like with other electronics, early adopters pay more for them, but also by increasing volume make the products more available for the mainstreem buyer.

People may get upset as pricing comes down, but it is all for the better good.

milesbb | February 11, 2019

@Uncle Paul, I think you mean $5.00/day. That was in 1914.