Tesla Motors CEO Elon Musk’s master plan for the company seems to be on track, with full production of the Tesla Model S, expansion of the Tesla Supercharger network, and the upcoming Tesla Model X and Tesla Model E.
The idea was simple, start with low-volume high-profit vehicles, the Tesla Roadster and Tesla Model S, to get the company rolling. Roll over the profits from these vehicles and put that into streamlining production and developing future models. The Tesla Model X is expected sometime in 2015, which will most-likely fall into the same low-volume high-profit bracket as the Model S. Tesla Motors’ so-called “third generation,” rumored to be the Tesla Model E, is supposed to be the opposite, a high-volume low-profit vehicle.
Elon Musk says that the Tesla Model E, if that’s what it ends up being called, will be smaller than the Tesla Model S, have a 200-mile range, and will cost about $35,000. Currently, it is estimated that Tesla Motors makes about 45% profit on each Tesla Model S that it sells, and that the mass-market Tesla Model E will be sold at a more modest profit margin is just 15%. Still, can reducing the size of the battery and the vehicle itself, as well as most to mass-production, 300,000 units per year versus 30,000 units per year, make for a profitable mass-market electric vehicle?
One analyst on SeekingAlpha says this combination, ostensibly resulting in “a profitable $35,000 Tesla Model E, is a pipe dream.” He figures that the most-basic Tesla Model S 60 kWh costs about $59,559 to build, before upgrades. If the Tesla Model E is to be smaller, less-equipped, and mass-produced, could the price drop below the $35,000 selling point to make it profitable? SeekingAlpha analyst Mark B. Spiegel calculates that, even with the construction of the Tesla Gigafactory, expanding to 300,000 units per year, and making the Tesla Model E smaller and with less range, it will still cost Tesla Motors about $48,000 to build each one. Does Elon Musk have a trick up his sleeve, or is this really “a pipe dream,” as Spiegel asserts?