At the battery day event, Elon Musk promised a $25,000 Tesla in three years. But we are highly skeptical of this announcement. Elon Musk is known to overpromise. However, we expect that Tesla would officially unveil a $25,000 car within a few years but would not start production until 2025.
It leads to the question, why Tesla is planning to make a $25,000 car?
On various occasions, Elon Musk said he understands the Tesla vehicles are expensive but can’t sell cars at lower prices. Because if they do, Tesla will go bankrupt. So, the next question is why Tesla cars are costly?
In 2006, Elon Musk published a blog post — The Secret Tesla Motors Master Plan (just between you and me).
In short, Elon Musk’s master plan was-
- Build a sports car.
- Use that money to build an affordable car.
- Use that money to build an even more affordable car.
- While doing the above, also provide zero-emission electric power generation options.
Elon delivered on his master plan. This master plan has the hidden answer to our question.
Tesla cars are expensive because of the high cost of lithium-ion batteries, the high import tax on various countries, advanced hardware and software in their vehicles such as self-driving hardware, sentry mode, dashcam, etc. Tesla is also investing a lot of money to build and maintain Supercharger networks, their advanced infotainment systems that include arcade games, Google Maps, Browsers, streaming services such as Hulu, DisneyPlus, Netflix, YouTube, Spotify, etc. Moreover, Tesla is doing a lot of R&D, and they are investing a lot in their company growth.
Let’s elaborate.
The high cost of battery:
The primary reason why Tesla cars are expensive is the high cost of lithium-ion batteries. Though the battery technology is continually evolving and improving, the price is not low yet. Not only Tesla, but every other electric vehicle on the market is expensive because of this high battery price.
Sometimes you may see a lower-priced electric vehicle on the market, but those vehicles have severe compromises. Either in range or performance. There are no other electric vehicles on the market that have the range and efficiency of a Tesla.
Import Tax:
Unlike other car manufacturers, Tesla only has two factories. One in the US and another one in China. But the China factory makes only Model 3 and Model Y for the Chinese market. So, Tesla ships all their vehicle from the US. Various countries have a varied percentage of import tax. For example, in Germany, the total import tax is 29%; in India, this rate is 100%. So, this import tax makes the Teslas even more expensive.
Every Tesla has the worlds most advanced Technology:
Elon Musk describes Tesla as a computer on wheels, and he is right. These cars feature the most advanced computer on the market. Every Tesla has a computer, and they design their processor, GPU, and neural net processing hardware.
Tesla also designs and makes its AC motors and battery pack. On the other hand, other car manufacturers outsource these parts to 3rd party.
Tesla has an extensive network of Superchargers:
Tesla has built a network of superchargers worldwide. No other company has an extensive charging network similar to Tesla. You can make a cross country road trip in an electric vehicle only if you have a Tesla.
Moreover, the charging cost at these superchargers is low. Tesla is selling electricity at these locations at the purchase price. On multiple occasions, Elon Musk said that these superchargers would never be a profit center for Tesla.
Electrify America is an alternative electric charging network to Supercharger. However, this network is not widespread and is very costly compared to Tesla. Moreover, Electrify America is not available outside of the US.
As the Tesla fleet grows, Tesla also needs to install more charging locations. It requires hundreds of millions of dollars in investment. Moreover, the operating cost of these superchargers is also not cheap.
Tesla also has partnered with 3rd party business owners to install destination chargers at their business locations. These places include hotels, restaurants, shopping malls, garages, etc.
superchargers would never be a profit center for Tesla – Elon Musk
Tesla is in Growth Mode:
Do you know that Amazon (AMZN) has never posted a profit in the last two decades? It’s because they are in growth mode. They invest all their profit in expanding their business. That’s why Amazon is so dominant in the online business. Moreover, due to Amazon, retail brick and mortar stores are suffering throughout the US.
Tesla is also in growth mode. Elon Musk is not only obsessed with making cars; he is also obsessed with building the most advanced car factories. Building factories requires billions of dollars in investment. So, every car Tesla sells must have to have a significant profit margin. Otherwise, they will not be able to expand their factories, and they will cease to exist. It is another reason why Tesla cars are expensive.
For the last decade, Tesla was continually researching and developing (R & D) for the next generation battery cell. The 4680 battery is the result of this research. As they continue their research, Tesla will ramp up this newly designed cell production in the next decade. All these need a lot of investment.
Full Self Driving Technology:
Every car that Tesla ships have all the required full self-driving hardware. Though Tesla has not achieved full autonomy yet, its self-driving software is the most advanced in the industry. They improve the self-driving software regularly and push over the air updates to their cars. All these hardware and software development costs a lot of money.
No other car manufacturer ships any hardware related to full self-driving Technology.
To learn more about Tesla’s full self-driving features, please visit this support page — https://www.tesla.com/support/autopilot
Free Supercharging:
Depending on models, Tesla gives free unlimited supercharging for their car.
We already know Tesla vehicles are efficient. Their car can go up to 4 miles per 1 kWh electrical energy. So, let’s calculate. If we drive a Tesla car for 150,000 miles in its lifetime, we need 150,000 / 4 = 37,500 kWh electricity. According to Tesla, on average, they charge $0.28 per kWh electricity at their superchargers. Therefore, to drive 150,000 miles, we need 37,500 x $0.28 = $10,500 worth of electricity.
In reality, Tesla is not giving us this $10,500 worth of electricity for free. This cost is already baked into the price of a Tesla vehicle. It is another reason why Tesla cars are expensive.
Tesla’s has next-generation Software:
Tesla cars have the world’s most advanced software than any other vehicle. A few of the software features are described below.
Every Tesla has built-in Google Maps, Caraoke(Karaoke for cars), web browser.
Arcade Games:
Every Tesla has the following built-in arcade games.
- Cuphead.
- Super Breakout.
- Centipede.
- Missile Command.
- Lunar Lander.
- Beach Buggy Racing 2.
- Fallout Shelter.
- Asteroids.
- Tempest.
360 Dashcam:
Tesla has more than eight cameras on their vehicle. These cameras work as a 360-degree dash camera. You can’t even buy a dash camera system that records 360 degrees around your car, let alone other car manufacturers.
Sentry Mode:
Tesla vehicles are awake all the time. It always observes its surroundings through its camera system, even when parked and you are not inside the car. If the Tesla observes any threat, it will record the event using its camera and notify the owner through the Tesla mobile app.
Entertainment Apps:
Tesla car software has built-in Spotify, YouTube, Disney+, Netflix, Hulu, and other various apps.
Extra Hardware Features:
Every Tesla has a glass roof:
Suppose you go to any traditional car dealer to buy an internal combustion engine (ICE) vehicle, and you want a moonroof in your car. In that case, they will charge you an extra minimum of $2,000 for a tiny moonroof or solar roof. On the contrary, every Tesla comes with a tinted full glass roof with infrared and ultraviolet protections.
Heated seats:
Every Tesla comes with heated front and passenger seats. Even the center seat on the rear is heated.
Every Tesla comes with heated and power-folding side mirrors. Tesla also comes with a heated steering wheel, washer nozzle heaters, and wiper blade defrosters depending on models.
Teslas are the worlds safest cars:
Tesla’s are one of the safest cars you can buy today. Every Tesla vehicle has 5-star safety ratings from multiple government agencies globally, including the US, Europe, Australia, and China. These are better-engineered cars. To make a safe car, Tesla invests a lot of money into its R&D.
Tesla Service Centers:
Tesla is different than traditional car companies such as Ford, GM, Toyota, etc. These companies do not sell their cars directly to consumers. Instead, they sell their vehicles to dealers, and dealers sell to consumers. Moreover, these dealers also handle all maintenance for these vehicles. These car manufacturers never deal with the real consumer like us.
On the other hand, Tesla does not have any dealers. They sell their vehicle directly to consumers through their website Tesla.com. Moreover, Tesla does not allow the consumer to repair their Tesla. According to Tesla Terms and Conditions (T&C), only Tesla service centers can work on these vehicles.
Every Tesla comes with an extensive battery, powertrain, MCU, and motor warranty. So, if a problem arises, Tesla fixes these issues without charging the customers. At the same time, they give the owner either a loaner vehicle or Uber credit. Thus, To operate and maintain these service centers, Tesla needs a lot of money. Hence, whenever Tesla sells a car, they need a significant profit margin. It is another reason why Tesla vehicles are expensive.
Tesla has a higher value for money:
Elon Musk knows that even if they charge a premium on each vehicle, people would still lineup to buy a Tesla. It’s because no other car manufacturer sells a car that is as technologically advanced as Tesla.
Conclusion:
In short, Tesla cars are expensive, not because Tesla is greedy. It’s because these cars are the most advanced vehicle on the market right now, and Tesla is investing billions of dollars to make it.
