While Tesla’s sales have fallen sharply in Europe, the manufacturer can still count on its high margins. These are made possible by very low production costs, which allow the manufacturer to further reduce the prices of its electric cars if it wishes.
If Tesla remains the world number 1 in electric cars, everything is not rosy either. Elon Musk’s firm is indeed suffering the full brunt of Chinese competition, to the point that BYD even temporarily overtook it at the end of 2023.
Very low production costs
But that’s not all, because the American manufacturer’s sales have also suffered a sharp fall in recent months in Europe. In question, the reduction in government aid in France such as the ecological bonus, to which the Model 3, for example, no longer has the right in France since January 1st. Not to mention competition from Chinese manufacturers, as sector specialists had predicted. This is particularly why the Texas-based firm multiplies price reductions since last year.
Enough to attract new customers, which also generated a big price war in which many brands are engaged. But Tesla doesn’t really seem to worry about the growing rivalry between manufacturers from the Middle Kingdom. This is what the very serious site explains Business Insider. The latter indicates that the American firm still has a big advantage: very low production cost of its electric cars. The latter would currently be one of the lowest on the market.
And for good reason, to produce a vehicle of the brand, Tesla would only spend $30,000 per car on raw materialsA cost which includes in particular all the components, such as the battery – which represents around 40% of the total price of a car – but also the tires and the glazing.
While this may still seem like a high amount, it is on average $17,000 below other electric vehicles. And overall, it is also $10,000 less than average of this industry.
This allows the company to regularly make price reductions without this having too big an impact on its profits. Especially since over the years, the latter has continued to bring down production costs, thanks in particular to a simplified design. However, Tesla would have finally drawn the line on one-piece Gigacasting, which would have made its cars even more affordable thanks to an even more economical production method.
Beware of Chinese competition!
With costs so low and controlled in this way, Tesla therefore has all the cards in hand to remain the leader in electric carssince it still has room to further reduce prices for customers. But this risks being done at the expense of margins, while its main rival BYD does not intend to let itself be pushed around. Because the firm based in Shenzhen, China, also has particularly low manufacturing costs. Indeed, producing a Seal would cost 15% less than a Model 3.
The increase in customs duties may well change the situation, since BYD will build its first factory in Europe, which could allow it to produce its cars here. And thus avoid particularly high taxes, while once again benefiting from the ecological bonus in France. For the record, the Model 3 is also subject to the same difficulties, due to its production in the Middle Kingdom. And for now, nothing has been said about manufactured in Europealongside the Model Y in Berlin.
In any case, Tesla would do well not to rest too much on its laurels, because competition is likely to become increasingly tough. Especially since the American firm is in the process of being overtaken by Dacia on margins, although this remains to be qualified because the low-cost manufacturer was not yet making money with its Spring at the end of last year. For the record, this is no longer eligible for the ecological bonus either, and could see its price rise due to the increase in customs duties for electric cars produced in China.
