Tesla is burning through cash and having problems hitting production targets but it appears the Model 3 is pretty profitable for the company.
Speaking with engineers who tore down a handful of Model 3s for German automakers, WirtschaftsWoche reports the team discovered the car costs around $28,000 to build. This includes $10,000 in production costs as well as $18,000 in materials as well as other expenses.
Considering the $35,000 base model isn’t available yet, Tesla appears to be making a pretty hefty profit on every Model 3 they sell. WirtschaftsWoche says part of this profitability is due to the car’s advanced battery pack which uses significantly less cobalt than competitors. This is important as electric vehicle demand has reportedly caused the price of cobalt to triple in the last year and a half.
How this was achieved remains unclear but the publication says Tesla and Panasonic have figured out a way to use about two thirds less cobalt than traditional batteries. This significantly reduces costs and will help aid profitability.
One of the engineers echoed this sentiment as he told the magazine “If Tesla manages to build the planned 10,000 pieces a week, the Model 3 will deliver a significant positive contribution to earnings.”
While it appears the Model 3 is profitable, not everyone is convinced the margins are good enough. Quartz spoke to Erik Gordon, a professor at the University of Michigan’s Ross School of Business, who suggested Tesla isn’t actually making much money on the car when other expenses – such as dealership costs and planned factory expansions – are factored in. He contends if Tesla isn’t selling the Model 3 for at least $50,000 then “I don’t think it’s a good business.”
