Tesla has been gradually lowering the price of its automobiles over the last few years as their manufacturing and battery efficiency improves. They even just revealed intentions to release a $25,000 EV in a few years. Despite this, Tesla only intends to sell consumer vehicles for the next 5 to 10 years before exiting the market, and here’s why.
Elon Musk’s Thought about Tesla Cars
To begin, Elon Musk believes that the value of those driving is far greater than the $10,000 they are now charging for the development version. In reality, it is reasonable to expect that full autonomy software with regulatory approval will cost considerably over $100,000. But why is this so? What caused the sudden price to increase?
Tesla has already made enormous gains toward self-driving technology, and there is no doubt in the talent of development today, so it is unlikely to cause them to fail nine times. More to come as work progresses.
Of course, regulatory permission and a refined part are valuable in and of themselves, but they do not offer nine times the value for the average client. That being said, the price rise is more about accounting for opportunity cost than it is about recouping development expenditures.
Sure, the average customer is unlikely to receive an additional $90,000 in value once full self-driving is completed and licensed, but Tesla and business owners will, once regulatory certification is received.
Tesla’s Future Planning for Robo Taxi
Tesla aims to launch a Robo taxi service, which, as the name implies, is just taxis that drive themselves. Though the concept is simple, unlike Uber and Lyft, the Tesla Robotaxi business will likely be very successful because they do not have to pay for a driver. Indeed, Elon Musk revealed a few years ago that they expect each Robotaxi to earn a gross profit of $30,000 per year while traveling 90,000 miles per year. Given that they expect their autos to endure 1,000,000 miles, this gives him around ten years. Profit from each Robotaxi over the course of a decade. Each Robotaxi is expected to generate approximately $300,000 in gross profit.
As you can see, there are signals of potential ranging from $30,001 to $50,000,000. It makes no sense to drive a car. Instead of selling you the card, they may incorporate it into their Robo taxi network and profit in less than two years. Aside from that, full self-driving technology may not be worth more than $100,000 to the typical person.
Costing for Tesla Cars
This price is a deal for many firms. For retail businesses like Walmart and Sam’s Club, as well as logistics companies like UPS and FedEx, $100,000 is not a bad investment because full self-driving only costs a few years of driver salary but gives several years of driver value. Not to mention them not having to deal with their drivers hiring to sleep, eat, or do any other physiological functions.
Apart from charging, these cars can just keep moving. Considering this long-term aim. Why is Tesla bothered with a budget at all? Our previously reduced rates could be explained by delivering their cars to more customers and collecting more data in order to develop full self-driving technology more effectively.
However, Tesla has already collected billions of kilometers of data. In fact, they passed 3 billion driven miles in April and are currently rising at a rate of billions of miles each year. As a result, that low-cost vehicle is not meant to significantly speed up a force of driving development or anything of the sort.
Reason Behind Tesla is proceeding with the Super affordable car
There are two primary reasons why Tesla is proceeding with the Super affordable car, the first of which is proof of concept. Tesla’s mission is to accelerate the world’s transition to sustainable energy, and proving that a practical budget EV is mass-producible is critical to moving that transition forward. By successfully producing such a car, Tesla would show other car manufacturers such as GM, Toyota, and Honda that it is not only possible but that there is more than enough demand for such a vehicle.
The second major goal with the budget EV is to increase production. In order to really make a dent in the market with Robo taxis, Tesla will have to produce millions of cars per year, and scaling up to such numbers privately is extremely difficult. Though Robo taxis will be very profitable, that will be over several years initially, and Tesla will have to front the cost of all of the cars they produce.
Tesla’s Current Profit Margin
Presently, Tesla’s gross profit margin on their vehicles is 27.7%. Elon Musk is a billionaire. Has declared it his mission to increase this number to 30%, and based on the trajectory over the last few quarters, it appears that they will succeed. But there is one thing we must remember. The sale of their high margin automobiles, such as the Model S and Model X, boost their overall gross profit margin for their vehicles.
Though these models account for a small fraction of their sales, they are likely responsible for a considerably bigger portion of their profitability. As a result, Tesla’s overall gross profit is unlikely to increase. Will carry over to their budget model as well, but will give them the benefit of the doubt in order to truly demonstrate how expensive it will be to implement Robo taxis.
Even if Tesla is able to maintain a gross profit margin of more than 30% on their budget. To deploy just one million Robo taxis, each car will cost about $17,500 to produce, which is a fairly tiny sum in the great scheme of things. Given this, Tesla will need to invest $17.5 billion. Tesla will have to return tens of billions, if not hundreds of billions, of dollars in order to get the Robotaxi network up and operating.
Having said that, they would like to cut as many expenditures as possible elsewhere. One of these costs is, of course, the construction of factories and the improvement of their efficiency. Each Giga factory cost Tesla approximately $5 billion to construct, with the Berlin Gigafactory costing €4 billion and the Shanghai Gigafactory costing $5 billion. Assume that four Giga factories are being funded.
Tesla Production Strength
The Fremont facility, Giga Shanghai, and the planned factories in Berlin and Austin are already completed. If each of these facilities can create 500,000 vehicles per year, as they claim, and those factories combined can produce 2 million vehicles per year, Tesla would certainly seek to scale up to 10 million cars per year, which is how much Toyota and Volkswagen both produced annually.
To achieve such figures, Tesla will need to raise its production capacity by another 8 million. Alternatively, create another 16 Giga factories at a cost of $5 billion. That’s an additional $80 billion in up-front fees. As you can see, that’s a significant bill, and a great way to subsidize it is to offer low-cost cars that appeal to a broad audience. So the $25,000 automobile serves two purposes: one, to verify the concept and demand, and two, to scale up manufacturing capacity and enhance efficiency.
Furthermore, the inexpensive automobile may suddenly be an ideal candidate for use in the Robo taxi. Work and continuing to sell it while constructing the network could turn out to be a wonderful revenue source to really support the Robo Taxi network, which is why Tesla wants to stop selling vehicles but is still moving forward with the budget model. But, more importantly, when can we anticipate this transformation to occur?
After getting regulatory approval, Tesla may proceed to launch a few 100,000 or possibly a few million Robo taxis within a few years.
Nevertheless, The transition away from selling consumer cars is unlikely to occur until they reach full scale, which is estimated to be around 10 million cars per year. Currently, they are constructing approximately two Giga factories each year, with plans to increase this to three or four. However, to be conservative, they only had two factories per year. At that rate, Tesla should have 20 Giga factories by 2028 or 2029, or by the end of the decade, which gives us plenty of time. To genuinely complete the development of the driving force and obtain approval. As a result, we plan for the shift to begin around 2030.
Once the transition occurs, will declare that all gross earnings from the sale of their vehicles will be invested in the Robotaxi network. To be conservative, we will suppose that the average selling price of Tesla’s cars is $30,000, as sales will likely be biassed towards the budget model as we move forward with that 30% gross profit margin, which means that Tesla will be able to fund one Robo taxi car for every 2.33 cars sold. In other words, if Tesla produces 10 million vehicles each year, it can afford to have up to three million of these vehicles be Robo taxis.
Throughout the second year, However, with three million Robo taxis generating a gross profit of $30,000 each year, each Tesla will generate a gigantic gross profit of $90 billion, which is enough to fund 4.2 million additional Robo taxis annually.
If Tesla is extremely proactive in its transformation, it will most likely be able to finish it in three years. However, if they want a more gradual shift, three to five years look more reasonable.
So, if Tesla is able to gain approval and scalp earlier, this might be as early as 2028 to 2030, but the most likely cause is in the 2030s nonetheless. Tesla’s profitability will be able to skyrocket following this transformation.
Prior to the shift, selling 10 million automobiles at a 30% profit growth rate would have resulted in a one-time profit of $90 billion. Injecting 10 million automobiles into the Robo taxi industry, on the other hand, is expected to generate $300 billion in profit per year for the next decade. It’s easy to see why Tesla would prefer the latter, but in the meanwhile, there’s still plenty of time to buy Tesla. Will you buy a Tesla before they begin this transition? Please leave a comment below.