Model Y price creeping back up as it costs Tesla less than US$40,000 to make

Despite the recent Tesla price cuts, it still maintains its industry-beating profit margin, according to a recent production costs breakdown by the team of the one and only Sandy Munro. His exhaustive part-by-part cost analysis returned that it takes Tesla US$39,393 to make a Model Y, all the while it sold for US$58,990 on average, and even after the generous price cuts it dropped to $52,990, still a whopping gross profit.

That same Model Y gross profits just rose to more than US$14,000 per vehicle as Tesla bumped its price back up to $53,490, as the cut brought demand back while forcing other EV makers into a price war that Tesla is likely to win, according to Mr Munro. His estimates say that due to the decreased production costs that Tesla says are behind its price cuts, as well as the manufacturing efficiencies stemming from the shift to newer Gigafactories or upgrades of existing ones, as well as added value services like the FSD subscriptions, Tesla can keep the unprecedented 40% margin even with the current lower prices.

A number of EV manufacturers like Lucid, NIO, or XPeng, already announced price cuts immediately after Tesla changed the tags of its bestselling Model 3 and Model Y, and the rest are likely to follow. The issue is that no automaker has Tesla's economies of scale and only the Chinese EV brands can compete in production costs due to the government's multi-year strategy to develop and maintain a lead in raw materials refinement and battery production there. The rest are likely to face significant financial troubles while trying to catch up to Tesla's margins and many could teeter on the verge of bankruptcy, says Munro.

In the meantime, Tesla officials are already on record saying that the company's top priority now is to expand into the mass vehicle market. Tesla may have even put performance projects like the Roadster 2 on the back burner in order to focus on "mass electrification." This likely means spearheading the development of the smaller and cheaper Model 2 which Elon Musk tipped is likely to hit half the production cost of a Model 3.

Given Sandy Munro's estimates that it cost Tesla about US$33,600 to make a Model 3 last year, the Model 2 could be priced close to US$25,000 and still bring Tesla the infamous US$10,000 average profit per vehicle, annihilating the competition in the process. Tesla will be reporting earnings tomorrow and analysts are expecting US$24.4 billion in revenue on 439,700 cars produced last quarter, or US$55,500 per vehicle whose average cost to produce is about US$36,000, a rather enviable margin. 

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