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Tesla’s Margins: Is there wiggle room for even more affordability?

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Earlier this week, a report was released that revealed Tesla’s margins for the Model Y crossover in Shanghai. Guosen Securities, a Shenzen-based financial firm, found that Tesla holds a nearly 30% marginal rate on every unit. As the Model Y just recently began production and has become available for Chinese citizens to order, Tesla is already winning in 2021 as demand for the all-electric crossover is expected to be higher than the already-popular Model 3.

Peeking at the margins, it was reminiscent of the astronomical margins Tesla held early on with the Model 3 in Shanghai: 39.37%.

Breaking down the math for you all, an article I wrote earlier this week on the topic describes the price for manufacturing the vehicle and then compares it to the Made-in-Shanghai Model Y price for consumers.

“According to the Shenzhen, China-based financial firm, Tesla’s China Model Y only costs ¥237,930 (USD 36,852) to produce. However, its selling point gives Tesla a 29.4% gross margin with a price of ¥339,900 (USD 52,646.25). Due to the current demand for the all-electric crossover that just started being produced at Giga Shanghai, Tesla has plenty of room to come down. The company will likely do this after the demand is sustained for several months because the automaker did the same thing with the Model 3 after its initial gross margin was also turning Tesla a tasty profit.”

Tesla’s China Model Y has 29.4% gross margin: report

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As a $TSLA investor, the margins made me feel great. Tesla is turning a sizeable profit on Model Y builds early on, and the margins are significantly higher than the automotive industry average, which sets around 8-10%. Holding 30% margins on any product, let alone a $52,000 car, is everything investors want. It means the company is pricing their vehicles to be competitive in a market where EVs are thriving, but it also means that Tesla is able to sell their car at a higher price while still being able to keep demand sustained.


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But it got me to thinking, does this mean that Tesla could technically drop the price of the Model Y in the future? The company would have the ability to still turn a profit and have a great margin that is higher than the auto industry average, but it would also create even more buzz for the car because it would be priced even lower than it already is. It is no secret that Tesla leads the industry in many ways, and a cheaper price tag for a Tesla EV would likely do a number of things that could be looked at positively: 1) Make a car more affordable, inching closer to price parity, and 2) Increase the number of vehicles on the road that dawn the Tesla T.

From an investor’s standpoint, it is tough to see an argument where lower margins are a good thing. We want competitive pricing, but why would we want it to be lower if the sales are there? Demand is healthy, there is no questioning that. Tesla showrooms in China were filled over the weekend with people looking to get a glimpse of the Model Y. Rumors have indicated that Tesla has already sold out of the car, showing that the vehicle was highly-anticipated and regardless of the price, people would buy.

Tesla showrooms get volunteer help amid Made-in-China Model Y launch

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So what’s the big deal? Why would anyone want to decrease the cost of the cars?

From a consumer standpoint, lower prices are always better. Of course, wherever we can stand to save a few hundred, or even a couple thousand dollars on a car, we are going to do it. Of course, Tesla did away with price negotiations for cars (which is by far the most stressful part of buying a vehicle), so it’s not like owners can save money by wiggling down salespeople.

But looking at it from this point of view, Tesla has room to come down, and they’ve done it before. The Model 3, at the time of its release in China last year, was giving Tesla a massive 39.37% margin, and the price of the car was decreased five times in 2020. Based on estimations, Tesla could have margins around 25% on the Model 3 now, a nearly 15% decrease compared to the earliest projections.

There was wiggle room: Tesla did it once to reach the price point for government incentives, and others because production costs had gone down due to vertical integration. Grace Tao says there are probably no more price reductions in the future on the Model 3, but who knows what could happen.

The Model Y is a highly appealing vehicle due to its body style. Crossovers are some of the most popular cars on the market, and Tesla knows that. Elon Musk once said that the Y would overcome the 3 and be Tesla’s biggest seller. After the company released the Standard Range RWD variant on Thursday night, it is a good possibility to happen this year.

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I think it is safe to assume that the Model Y will be a popular car in China just like the Model 3 has been. I think it is safe to assume that Tesla will really only battle with GM’s Wuling HongGuang Mini EV in that market this year. I also think it is safe to assume that Tesla isn’t going to adjust the price of the Model Y soon, considering the car just came out.

Moving forward, I think that consumers can assume that the Model Y will drop in price. Tesla will confirm that demand is healthy, and the company will continue to integrate parts of the car locally to save costs. This will bring the cost of the vehicle down anyway, so the price to the consumer will likely be adjusted accordingly.

There are advantages to keeping the margins high, especially with Tesla, because it is such a young company. Profitability will only increase, and Tesla will likely extend its consecutive quarter streak because of it. Tesla will make more money, sales will likely remain as demand is healthy, and shareholders will keep their smiles because the stock price will go up.

There are also advantages to cutting the cost: Tesla will move closer to parity with gas cars by adjusting the price, it will still have considerably higher margins than the auto industry average, and it will still make Tesla money, even if it is less.

I would love to hear your thoughts on the matter. I spoke to other investors, and they saw both sides as well, but of course, they felt the higher margins were more advantageous as their money is funneled into the company. I also feel that the high margins benefit me personally, but I would also like to see price decreases in the future to make the EVs more affordable.

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I use this newsletter to share my thoughts on what is going on in the Tesla world. If you want to talk to me directly, you can email me or reach me on Twitter. I don’t bite, be sure to reach out!

Joey has been a journalist covering electric mobility at TESLARATI since August 2019. In his spare time, Joey is playing golf, watching MMA, or cheering on any of his favorite sports teams, including the Baltimore Ravens and Orioles, Miami Heat, Washington Capitals, and Penn State Nittany Lions. You can get in touch with joey at joey@teslarati.com. He is also on X @KlenderJoey. If you're looking for great Tesla accessories, check out shop.teslarati.com

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Tesla eyes two new states for Robotaxi

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Credit: @TerrapinTerpene/X

Tesla has officially shown that it is eyeing two new states for Robotaxi operation in the U.S., as it hopes to add the new areas to its ever-growing list of places where the suite is either active or in the testing phase.

Tesla first launched its Robotaxi suite in Austin, Texas, in late June. It expanded the suite to the San Francisco Bay Area just a month later. Since then, it has not launched any public rides in any other states, but it has gained several approvals for early testing.

Tesla officially launches Robotaxi service with no driver

In preparation for operation in new states, Tesla routinely lists job postings on its Careers website, which helps align potential employees with opportunities ahead of regulatory approvals. This is a strategy that allows Tesla to start operations immediately upon licensing for testing.

Tesla started hiring Vehicle Operators for Autopilot in Arizona and Nevada months before the company gained any sort of approvals from state governments for Robotaxi. However, those approvals eventually came in the form of testing licenses, which allow the company to perform validation ahead of its public launch.

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Tesla begins validating Robotaxi in a new area, hinting at expansion

Now, Tesla has posted job listings for Vehicle Operators for Autopilot in two new states: Colorado and Illinois. The Colorado job listing is located in Aurora, a suburb of Denver. Tesla is looking for Robotaxi operators in Chicago as well.

These postings hint toward Tesla’s continuing efforts to expand Robotaxi to new places. Earlier this year, CEO Elon Musk said the company would like to have Robotaxi available to at least half of the U.S. population.

It has expanded significantly since its initial launch in late June, but it is still a far way off from where Tesla would like it to be by year’s end.

So far, Tesla has job listings for Autopilot Vehicle Operators in Arizona, California, Texas, Florida, Colorado, Nevada, and Illinois.

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Tesla launched an ad for Elon Musk’s pay package on Paramount+

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Credit: Tesla

Tesla’s advertising strategy has taken a drastic turn as the company’s upcoming Shareholder Meeting will feature perhaps the most crucial vote in its history: the approval of CEO Elon Musk’s new pay package.

For years, the issue of Tesla’s advertising and marketing strategy has been a major point of conversation for investors in fans. It seems to be split right down the middle, with half wanting Tesla to set aside some money for advertising. The other half, just the opposite.

Tesla has been transparent that the money it would spend on advertising, marketing, and public relations is better set aside for the development of future products.

However, it has recently adopted a different tone in advertising, pushing some commercials on social media platforms like X and Instagram.

For the first time, an ad was seen on streaming services like Paramount+, but it wasn’t promoting Tesla’s products directly. Instead, it was more of a message for shareholders to vote on Musk’s pay package, something Tesla feels is a necessity:

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“The future of Tesla is in your hands,” the ad reads at the end. It seems as if Tesla is taking whatever steps it needs to accomplish the task of getting Musk a new pay package and retaining him as its CEO.

On September 5, Tesla officially outlined its plans for a CEO Performance Award for Musk. It would require him to lift Tesla’s market capitalization to about $8.5 trillion, up from the $1.36 trillion it sits at today.

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Elon Musk’s new pay plan ties trillionaire status to Tesla’s $8.5 trillion valuation

It is obvious that Tesla is really hoping to get the pay package passed and is willing to shift some of its budget to encourage shareholders to vote.

However, there are some interesting perspectives on the move, and it’s sort of strange to see Tesla not advertising its vehicles or products, but only its pay package that would get its CEO paid.

Some of those who saw the ad are questioning the strategy:

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Tesla Robotaxi testing in Arizona is ramping up quickly

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Credit: Tesla

Tesla is validating Robotaxi in a new area, and as the company has continued to gain some additional permissions to begin testing in new states, it seems its Full Self-Driving-based ride-hailing project is moving toward a larger footprint.

Two Robotaxi units with LiDAR validation equipment were spotted in Gilbert, Arizona, recently, showing that Tesla is aiming to launch its ride-hailing service in the state soon:

Another unit was spotted in Tempe, Arizona:

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These types of validation vehicles have been spotted in several areas ahead of their launch as a public ride-hailing service for passengers. Tesla first launched Robotaxi in Austin, Texas, back in late June, and since then, it has expanded to the Bay Area of California.

However, Tesla has continued to attempt to expand Robotaxi to other areas as well, including Nevada and Arizona. It has also been working toward approvals in other states based on job postings, as Tesla is hiring for Autopilot Vehicle Operators in New York and Florida, as well.

The expansion of the Robotaxi ride-hailing service has been an effort that Tesla has been spending a lot of time on over the past few months. CEO Elon Musk said the expansion aims to bring Robotaxi to at least half of the U.S. population by the end of the year, but there is still plenty of work to be done.

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Tesla Robotaxi heads to a new major Texas city for the first time

Tesla did make its Robotaxi app public in recent months, allowing more members of the public to experience the suite for themselves, as long as they could get to Austin or the Bay Area.

In the coming months, it seems more apparent that Tesla will take a broader focus on expanding Robotaxi, especially with the fact that these validation vehicles are being spotted throughout different parts of the United States.

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