Tesla improved the cost of goods sold per vehicle to slightly above $36,000, continuing to improve on the metric with a sequential reduction in cost every quarter.
Tesla recorded the largest reduction in COGS in Q4 2023 from Q3 2023. This is based on figures it released for the metric, as its graphic displaying the sequential decrease starts in Q4 2022.
Cost of Goods Sold, which is also referred to as COGS, refers to the direct costs of producing the goods sold by a company, including the cost of materials and labor to create the product.
Tesla has used a variety of techniques to reduce its COGS, it said in its shareholder deck:
“Cost of goods sold per vehicle declined sequentially to slightly above $36,000. Even as we approach the natural limit of cost down of our existing vehicle lineup, our team continues to focus on further cost reductions across all points of production, from raw materials to final delivery.”
Tesla also noted:
“Our team remains focused on growing our output, investing in our future growth, and finding additional cost efficiencies in 2024.”
Executives for the company have detailed cost-reduction measures on several occasions, including during the Investor Day Tesla held early last year.
For example, Tesla CEO Elon Musk said, “We found that even small changes in price have a big impact on demand…very big.”
In order to continue growth in the automotive portion of its business, Musk said that its biggest barrier was “affordability.”
That’s where Tesla will lean on its next-generation platform. While it can refresh and overhaul vehicle designs, that will not ensure continuous growth through the next few years. Instead, Tesla needs to establish new vehicles on a new, more affordable platform. This will happen, but in order to keep margins strong and continue making money, Tesla will also need to find ways to be more cost-effective.
It said that its next-generation platform will likely contribute to a reduction in growth rate this year compared to 2023. However, the vehicle will likely help Tesla maintain its strong margins as the company said it will “revolutionize how vehicles are manufactured.”
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