Tesla Raises Target-Price of its Future Affordable Car

By · May 29, 2013

Tesla Factory

Tesla will have to use some magical technology in its factory to produce an affordable and profitable 200-mile EV for $40,000—much less the $30,000 purchase price originally offered.

The long-term vision of Tesla Motors has always been to enter the mainstream auto market with high-volume electric cars. Its niche expensive models—the Roadster and Model S—were positioned as luxury stepping-stones, to build experience and brand awareness as it moves down market to affordability. Tesla CEO Elon Musk told Bloomberg last week that his company expects in three to four years to offer a car to compete against the Nissan LEAF—claiming that Tesla’s future affordable mass-market car will cost “below $40,000.”

Wait a second. I thought the bogey was $30,000. At least, that’s what Musk told Newsweek’s Fareed Zakaria in July 2008. “We think we could either directly or in partnership with a major auto company actually get to a car that is under $30,000 in four years,” he said. If taken at face value, that would mean a $30,000 car by, well, this year. (I realize that Musk said this prior to the financial crisis.)

But in repeated subsequent interviews, he reiterated that a $30,000 electric car would compete against a BMW 3-Series or Audi A4. In fact, Tesla head of design Franz von Holzhausen told Australia’s Drive.com.au, as recently as January 2013, that a new small Tesla would be aimed to be priced as low as $30,000 when it launches in 2017.

Time to Change the Talking Points

While the target price has apparently been elevated to $40,000—about $10,000 higher than the Nissan LEAF—Tesla has been more consistent (so far) with the target range. Mark these words: Musk said the new car will have a range of about 200 miles per charge, in last week’s television interview with Bloomberg.

That will be a clever trick, if Tesla can pull it off. The company killed the 40 kilowatt-hour option on the Model S, which was offered at $58,570. The 40-kWh Model S had a promised range of 160 miles—but a realistic real-world range of probably 130 miles.

To offer a 200-mile EV, even at $40,000, will require Tesla to move down the cost curves faster than its vehicles zip down the highway. Of course, I haven’t seen anybody question if the new $40,000 target is before or after a $7,500 tax credit. Regardless, 200 miles of range will require a battery pack of 40 to 50 kilowatt-hours. If you fudge the price numbers and say the new “affordable” smaller Tesla model will cost $47,500 (before incentives), and the range numbers to use estimated rather than real-world miles, it will still take transformative technology and accounting to get there in a profitable manner for Tesla.

For a point of comparison, the BMW i3—with its cutting-edge lightweight carbon fiber body and 22 kilowatt-hour battery pack—is expected to have a price tag approaching $50,000. Range will be around 100 miles. Let me understand: Tesla will double the i3’s range, offer it at a lower price, and still compete with a 3-series? I would love it if somebody from Tesla could walk me through how that is possible.

None of my questions diminish Tesla’s extraordinary achievements to date—or its track record of defying all expectations. But everybody cheering Tesla on with its heroic mission, and dizzying stock price, should also keep an ear open for promises that sound too good to be true.

Comments

· · 5 years ago

Brad, what numbers are you using for Teslas price for commodity cells now, and in 3 years?
Are you considering the likely cost reduction enabled by a 400W/kg chemistry?
(2x improvement = 1/2 price?)

I don't have any difficulty believing Tesla could source $100kWh batteries within 3 years.

Straubel is already on record as saying Model S batteries cost 1/2 that of the Roadster.

Battery supplies will only get better through chemistry as well as volume production, and we're near the J curve now.

· · 5 years ago

All they need to do is improve the efficiency of *the car*. The Illuminati Motor Works 'Seven' can go over 200 miles on a ~33kWh pack, and so can Dave Cloud's 'Dolphin'. The GM EV1 could also go 200+ miles with a similar sized battery pack. And several of the SIM-Drive cars can go over 200 miles with ~32-34kWh packs.

A 40kWh pack could do it with capacity to spare - if the chassis was low enough drag.

Neil

· · 5 years ago

I think Tesla is looking to do 150K a year of these cars allowing for the sort of economics of scale that make the price target achievable.

The number of battery cells needed for this sort of production literally runs in the billions which reduces cost and maybe Panasonic can be persuaded to get out of its commodity format comfort zone and do a cell that´s twice the diameter and twice the length. That reduces cell count by almost 90%, reducing pack assembly costs dramatically.

Goes to show that once Tesla has established itself as a reliable partner for large numbers it will get the sort of supplier deals that make a radically cheaper car feasible.

Of course this car will need to be one heck of a convincing deal to sell in the sort of numbers that no other EV offering so far has even remotely approached. Tesla does seem to know a thing or two about making EVs people actually want though.

Never under estimate Elon Musk Mr. Berman. Many (shorters) did and lost their shirt.

· · 5 years ago

@electric-car-insider,

I was going to say this, but you beat me to the punch. Not only will the higher-density 400W/kg batteries be cheaper, they will be much lighter for the same KWh. That should make the longer range EVs more efficient.

A big flaw in Brad's logic is in extrapolating the range per KWh from the Models S. It's a big, heavy and powerfull luxury car, which has a pretty low MPGe. I would assume the Gen III would have an MPGe closer to the LEAF or the i3.

· · 5 years ago

Maybe $30,000 in 2013 dollars = $40,000 in 2017 dollars.

· · 5 years ago

Jeez, I hope that's not the case Jose!

· · 5 years ago

I don't think $30,000 was ever realistic; more like a target, and a difficult one at that. Ultimately, I expect it to cost $40,000 to $50,000, which they will advertise as being $7500 less of course. And that would make it very similar in price with the BMW 3 series, which ranges from $32,550 up to $60,800, with most models being mid 30s to mid 40s.

· · 5 years ago

I insist. We can't say BMW and affordable in the same sentence. Tesla will continue to be a luxury brand. If we want to talk about a "people car", or "car for the masses", they will need to start talking about a Camry or Accord or Fusion competitor.

We need to understand how people that do not frequent websites like this think. They do not care about long term savings in fuel (very long term even at these current gas prices); if you can not give them 350 miles range AND 5 minutes refuel, you are asking them to sacrifice. If you ask for sacrifice, then you need to be cheaper to compete. This is the reason the new Leaf priced at under $19K after rebates is flying off the dealers.

· · 5 years ago

Tom, it would only take a 7.5% yearly inflation rate. Higher than in recent years, but not unheard of. The money base has already been increased substantially to make up for the de-leveraging that took place. The only thing missing is for the money multiplier to kick back in.

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