Tesla reveals how much a Model Y or Model 3 cost to make, reports envious profit margins
Tesla reported blockbuster quarterly and annual earnings last week, notching its single largest net profit number of US$2.32 billion for Q4 and US$5.5 billion annual profit on $53.8 billion of revenue for 2021. That's a bit over 10% net income for the year, but the actual margin on building electric vehicles is much higher. Tucked in the latest Tesla earnings report is the tidbit that its cost of goods sold (COGS) directly attributable to the production of an electric vehicle in the second half of 2021 was US$36,000. That's how much the average Tesla car costs in parts and assembly. Needless to say, a Model S Plaid or Model Y will cost more to build than the humble Model 3 that starts from a US$45,000 MSRP, but the reported gross margin on all vehicles across Tesla's portfolio is very healthy, tipped the electric carmaker's CFO:
For Q4, specifically, automotive gross margin, excluding credits, increased to 29.2%, which is our highest yet. We do expect to continue to see stronger operating margins as we grow our volumes and improve operating leverage. Over a longer term horizon, we are quite optimistic about the expansion of margins. From the hardware side, we are aggressively driving manufacturing innovations and operational efficiency to reduce cost.
Nearly 30% gross profit margin from your immediate operations and the potential for further increases should be music to the ears of any Tesla investor. Granted, it's not Apple's 42% gross margin, but it's still a significant achievement for a company making electric cars that many others are now striving to do profitably. As per Tesla's Q4 report:
While EVs were often deemed structurally unprofitable due to expensive batteries, we were convinced that manufacturing innovation, purpose-built vehicles and factories would solve cost concerns. In Q3-2021 (the last widely reported quarter), Tesla achieved the highest operating margin across all volume OEMs. Cost (COGS) per vehicle dropped to ~$36,000 in both Q3 and Q4 2021. We believe our current projects, including large castings, structural battery pack, 4680 cells and many others, should help us continue to minimize our product cost.
Still, the highest ever Tesla profit margins seem to have been priced in, and its shares sank after the earnings report. Apart from the general stock market malaise, the 12% post-earnings drop in the price of Tesla shares may have been due to CEO Elon Musk reporting another delay in the Cybertruck electric pickup release, as well as his revelation that Tesla doesn't currently have the resources to work on the promised US$25,000 EV that analysts were waiting on to boost Tesla's sales significantly.