Tesla reduced the price in China – How little does electricity cost?

Tesla has cut prices again! The cheapest Model 3 rear-wheel drive version has dropped to 229,900 yuan, a drop of 36,000 yuan, and other models of various levels have also dropped to varying degrees, with a maximum drop of 48,000 yuan.

This price cut can be said to be against the trend: China’s new energy vehicle subsidies will be canceled from January 1 this year, and domestic new energy car companies have announced price increases, while Tesla suddenly announced a substantial price cut, How embarrassing is this for domestic new energy vehicle companies?

Tesla reduced the price in China

The price cut also triggered “rights defense” by some domestic Tesla owners, saying that Tesla’s price cuts have infringed on their interests and made them spend more money on cars. In this regard, I want to say to them: Don’t be ashamed, how about a little contract spirit! Don’t let the Yankees laugh at us. You are buying a car, not a capital-guaranteed wealth management product. Which law stipulates that the price of a car can only be increased but not lowered? Think about it in another way, if Tesla’s price increases, can you still make up for the price difference?

Tesla reduced the price in China - How little does electricity cost.webp
Tesla reduced the price in China – How little does electricity cost.webp

Next, let’s analyze why Tesla dares to cut prices, while domestic new energy car companies are all raising prices.

How little does electricity cost?

Let’s first take a look at how much it costs to make a Tesla-level medium-sized pure electric vehicle hardware. The three major parts of electric vehicles are the battery, motor, and electronic control. Among them, the cost of the battery is the highest.

According to the current market situation, it is about 1,000 yuan per kilowatt-hour. For example, if the battery is equipped with 60 kilowatt-hours, the cost of the battery is about 60,000 yuan, and the purchase price of the motor accelerator assembly Generally, does not exceed 10,000 yuan; the manufacturing cost of the body-in-white generally does not exceed 20,000 yuan; other suspension systems, body accessories, interior decoration, electrical systems, etc., total no more than 30,000 yuan. In other words, for a medium-sized pure electric vehicle, the maximum hardware cost will not exceed 120,000 yuan.

Tesla reduced the price in China - How little does electricity cost.webp
Tesla reduced the price in China – How little does electricity cost.webp

If various taxes, labor costs, enterprise management expenses, etc. are added, the total manufacturing cost of a medium-sized pure electric vehicle will not exceed 150,000 yuan at most. If it is a medium and large SUV, the cost will be slightly higher; if it is a model below the compact class, the cost will be slightly lower. In addition, different car companies have different costs due to different purchase channels, as well as differences in management systems and car manufacturing processes. This depends on the cost management capabilities of car companies.

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But the selling price of a car is not as simple as the manufacturing cost plus the profit of the car company. The car company also has research and development costs, as well as channel costs and marketing costs. The research and development costs are very high, and this cost will be shared equally among each car. The higher the sales volume, the lower the R&D expenses allocated to each vehicle. For example, the R&D cost of a certain car model is 5 billion yuan.

If 100,000 vehicles are produced, the R&D cost allocated to each vehicle is 50,000 yuan; The research and development cost is only 5,000 yuan; if the sales volume is higher, or the product reaches the end stage, the research and development cost allocated to each car can be ignored. It can be said that selling one car makes money. Therefore, car companies will pursue sales volume, and just want to share the research and development costs, so as to reduce the cost of cars.

Tesla reduced the price in China - How little does electricity cost.webp
How little does electricity cost

So how much does Tesla cost? Without specific data, it’s hard to say. However, we can see some clues from some published data: Tesla’s revenue in the third quarter of 2022 will be nearly US$21.5 billion, its operating profit will be US$3.7 billion, and the profit per vehicle will be about US$9,570 (RMB 69,300). In addition, in September 2022, Tesla disclosed at a technical conference that the average cost of producing each car in 2017 was 84,000 US dollars, but in recent quarters, it has dropped to 36,000 US dollars.

In the automotive industry, this is a very scary profit margin. In the field of fuel-efficient vehicles, Toyota has the most outstanding profit performance. The net profit per vehicle is about 1,200 US dollars, which is only one-eighth of Tesla’s 9,570 US dollars. Among new energy vehicle companies, BYD’s profit margin is relatively high. The profit per bicycle is about 1,466 US dollars, which is equivalent to RMB 10,000; as for other new energy car companies, not to mention, most of them are losing money.

Why can Tesla’s costs be made so low? Some people say it is a reduction. This is really not the case. Among the models of the same level, except for the interior, Tesla can be said to use the best materials, and the safety is also the best; in terms of driving control,

Tesla reduced the price in China - How little does electricity cost.webp
How little does electricity cost

Tesla can also be said to be far superior to competitors of the same level. Some people complained about Tesla’s interior, saying that this is a rough house, so the cost is low, so do you think the price of a house is determined by whether the decoration is luxurious or not? In fact, no matter how luxurious the interior is, a new energy vehicle will not cost 5,000 yuan more than Tesla in this regard. Therefore, Tesla’s low cost is really not due to the reduction of allocation.

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The main reason for Tesla’s low manufacturing cost is that it has many unique features in management and design, such as numerous engineering innovations in vehicle integration design, production line design, supply chain management, and process management. It can reduce many invalid operations and improve operational efficiency. For example,

Tesla’s integrated cast body not only has high strength and good performance but also costs far less than the body-in-white welded with steel plates. In addition, the localization rate of Tesla’s domestically produced models exceeds 90%, and almost all parts are purchased domestically, which also reduces logistics costs.

In addition, Tesla’s marketing expenses are relatively low. Tesla Tesla insists on not advertising, and there are almost no strange marketing activities. Instead, it invests more than 95% of its resources in research and development, and production. It would also lower Tesla’s costs. But this has not affected Tesla’s sales. Even in the case of extremely poor public opinion, Tesla’s sales are still remarkable, and its word-of-mouth marketing has a good response among car owners.

Because of the above factors, Tesla’s car manufacturing cost is indeed relatively low, and this low cost gives Tesla more free pricing power. And Tesla’s pricing is cost-oriented. When costs increase, prices will also increase, and when costs decrease, prices will also decrease.

This can also be seen in Tesla’s previous price adjustments. Therefore, it is not ruled out that Tesla will continue to lower the price in the future. Of course, this kind of price adjustment will put huge pressure on domestic new energy car companies, and it depends on how these car companies respond.

Tesla reduced the price in China - How little does electricity cost.webp
How little does electricity cost

There is another question, which is, why are the manufacturing costs of these new energy vehicle companies in China so high? Even if the selling price is as high as 400,000 to 500,000 yuan, it is still a loss.

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This is mainly because these new forces do not have scale advantages in making cars, and R&D costs cannot be shared; due to the small amount used, it is difficult to lower the prices of parts suppliers; there are also various management and process problems. In addition, these new energy car companies have extremely high marketing expenses, advertising is flying all over the sky, and all kinds of dazzling marketing activities will also increase the cost of car manufacturing.

What’s more, among these new car-making groups, some car companies do not aim at building cars, but for capital operations, and new energy vehicles are just a vest for them. If you don’t make money on cars, you can make it back in the capital market. These car companies will retreat in time after the capital ebbs, leaving behind a lot of feathers. People who buy these cars are just waiting to suffer!

At the beginning of 2023, Tesla will give these new energy car companies a head-on blow. In the following days, with the decline of subsidies and the fact that some cities no longer give green cards to plug-in electric vehicles with extended range, some car companies’ lives will be very sad, and some car companies may even go bankrupt directly. Therefore, when we buy new energy vehicles, we must be cautious, cautious, and cautious!

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