The original UBS report on Tesla economics

bwilson4web

bwilson4web

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Source: https://gas2.org/2017/05/20/ubs-electric-car-price-parity-2018-tesla-make-money-model-3/

Analysts for UBS have torn apart a perfectly good Chevy Bolt to see how it is put together. What they found led them to make this rather startling announcement: the “total cost of consumer ownership [of electric cars] can reach parity with combustion engines from 2018.” Notice that doesn’t mean an electric car and a conventional car will cost the same to buy new. It means they will cost the same to own, figuring in maintenance, cost of fuel, insurance, and all the other factors that are part of the total cost of ownership.
. . .
The same analysts say they expect Tesla to lose $2,800 on entry-level versions of its soon to be introduced Model 3 but think customers will opt for extra cost options that will raise the average selling price to $41,000 — $6,000 more than the base price. Tesla will be able to break even at that price, they believe.
. . .​

Bob Wilson
 
I've noticed a lot of fuzzy articles, some contradicting others, about Tesla Model 3 profitability. In all cases, credit is given to a UBS report or analyst note but no direct quotes or a link. But these articles about the report also mentioned teardown analysis of a Bolt and some referenced a BMW i3. Just the report remains "off stage" so I began to wonder where this all came from:
We also know Sandy Munro also did a teardown analysis of the Model 3:
This mysterious UBS report appears to be the same kind of 'for a fee' report made by Sandy Munro. Only this time a different set of 'analysts' versus Munro's engineers. My understanding is Munro sells their reports for high $10,000s of dollars. We won't get the UBS report for free. So we are stuck with second hand articles that sad to say appear to be imprecise.

Munro has already reported the Tesla Model 3 should return a 30% profit. For a $50,000, long range Model 3, that would be $35,000 of direct cost. Reduce the size of the battery, and that should be the profit margin for the standard, Model 3.

Bob Wilson
 
bwilson4web said:
I've noticed a lot of fuzzy articles, some contradicting others, about Tesla Model 3 profitability. In all cases, credit is given to a UBS report or analyst note but no direct quotes or a link. But these articles about the report also mentioned teardown analysis of a Bolt and some referenced a BMW i3. Just the report remains "off stage" so I began to wonder where this all came from:
We also know Sandy Munro also did a teardown analysis of the Model 3:
This mysterious UBS report appears to be the same kind of 'for a fee' report made by Sandy Munro. Only this time a different set of 'analysts' versus Munro's engineers. My understanding is Munro sells their reports for high $10,000s of dollars. We won't get the UBS report for free. So we are stuck with second hand articles that sad to say appear to be imprecise.

Munro has already reported the Tesla Model 3 should return a 30% profit. For a $50,000, long range Model 3, that would be $35,000 of direct cost. Reduce the size of the battery, and that should be the profit margin for the standard, Model 3.

Bob Wilson
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Bob, I have read the UBS report which is using data provided by Munro, I think their conclusions are sound, and until Telsa proves otherwise, they are the best to go off of.... BTW, why has the Model 3 line been shutting down early every day last week, and was completely shut down yesterday? No Line upgrades as the contractor parking lot was also empty... I sense news coming soon, Demand problems? Recall for back bumper falling off? Something strange is going on, that is for sure. But I made 20% on my TSLA short in 10 days, so whatever it is, I like it.
 
Since there is a gap between the UBS analysis and the Munro report, it would make sense for UBS to try and sue Munro into silence:
https://bleisure-travel.net/sandy-munro-sued-tesla-model-3-teardown

. . .
Talking to Autoline, an industry media, Munro initially criticised the Model 3 for poor craftmanship and shoddy build quality. Later he warmed up to the vehicle as he found the electronics and battery to be far beyond what other cars offer on the market. Most recently Munro & Associates published their conclusion that the Tesla Model 3 can be built profitably. Perhaps even at the $35,000 price originally advertised.

However, now it seems that Sandy Munro is in hot water over the Tesla Model 3 teardown. According to a statement from Autoline, Sandy Munro is no longer available to comment on the Tesla Model 3 as he is facing legal charges over the work. Currently it is unknown who sued the small consultancy providing insight to the products of the massive auto industry.​

Good news, Sandy had already revealed the key technical data. Enough to have a basis of estimate for Model 3 costs and profitability.

Bob Wilson
 
There is a lot more nuances then you think. For example Tesla will manufacture most of their batteries and may be sell batteries in the powerwall or to others. This will reduce the costs due to the volumes. There are economies of scale as they manufacture more cars and get along the learning curve. There are economies of scope as they introduce new products. Then there is the monetization of information. As people use autopilot, so much information is gathered about the individual, so you could have Tesla maps instead of Google Maps. It is not black and white. There are more ways then one for the company to make money and lower costs of production.

The question here is margins on the car. There will be less margins (as a proportion of the price) on a $35,000 car and hence they have to learn to make and sell more, which is going to be the challenge. They have to transit from a low volume high margin manufacturer to a multi-product manufacturer with differing margins and volumes (high and low). Others do it. For example, not all GM cars sell in the same volumes. Tesla has to grow up as a company, which is the evolution path that all companies aspiring to become bigger have to follow. .
 
bwilson4web said:
Since there is a gap between the UBS analysis and the Munro report, it would make sense for UBS to try and sue Munro into silence:
https://bleisure-travel.net/sandy-munro-sued-tesla-model-3-teardown
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I feel like I'm missing something here. Why would UBS selling a Model 3 teardown analysis give them standing to sue Munro for offering a competing analysis? Wouldn't that be like Coca-Cola suing Pepsi for "daring" to offer a competing product in the marketplace?

Can it be that UBS is claiming that Munro took some data from UBS's analysis and is selling it as Munro's own? That's presuming that UBS is the one filing the suit. Has that been established, or is that just speculation/ rumor?
​
 
interestedinEV said:
There is a lot more nuances then you think. For example Tesla will manufacture most of their batteries and may be sell batteries in the powerwall or to others. This will reduce the costs due to the volumes. There are economies of scale as they manufacture more cars and get along the learning curve.
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I've pointed out the same thing. Even Tesla can't know exactly how much it's going to cost to make the average Model 3 six months or a year from now; how could any third party make an accurate estimate? Munro can make an educated guess based on what other auto makers have done in the past, but it's still going to be just a guess. We know Munro can't possibly be 100% accurate. The real question, I guess, is just how accurate it's reasonable to expect Munro's estimate to be. What's the margin of error on that claim of "30% average gross profit margin"? That's an unanswerable question.
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The UBS involvement is speculation on my part because they are both in the same business yet reached different conclusions. There was one article about the UBS report that claimed the UBS analysts were paired with Munro. But we really need to find out if there is a public filing which would reveal who is suing.

FYI, Jalopnik did a nice write-up on the Model 3:
https://jalopnik.com/engineering-firm-that-said-tesla-model-3-quality-was-li-1827632866

FYI, I searched Michigan and Federal court cases for open cases "Munro" and "Munro & Associates" with no luck. This may be a threatened case or a way to dodge showing up for the show.

Bob Wilson
 
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bwilson4web said:
The UBS involvement is speculation on my part because they are both in the same business yet reached different conclusions.
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You're not the only one suggesting that. It was also suggested in several comments posted to the InsideEVs news article on the subject.

bwilson4web said:
FYI, I searched Michigan and Federal court cases for open cases "Munro" and "Munro & Associates" with no luck. This may be a threatened case or a way to dodge showing up for the show.
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Yeah, that's often the case with an early report about a lawsuit. It may be that party A has contacted party B threatening a lawsuit, and perhaps they even have papers drawn up by their lawyers, but until the suit is actually filed in a court, it's all just threats. Party A may well hope for a quick out of court settlement, which may mean that the suit never actually gets filed.

cbfeac9803aaec25cd376696b077cb19--lawyer-humor-legal-humor.jpg
 
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Source: UBS Rips Apart Tesla's Model 3 and Finds Some Areas Seriously Lacking - TheStreet

Top 7 Model 3 Build Issues Via UBS
  1. Inconsistent gaps and flushness throughout the vehicle.
  2. Missing bolts in certain parts of the vehicle (ex. driver side fender).
  3. Usage of zip ties likely as a result of failed manufacturing processes.
  4. Usage of multiple different bolts on the same system, driving potential assembly issues.
  5. Loose tolerances on overall assembly (ex. glass rattles when doors are closed).
  6. Excessive force required to close doors/trunks.
  7. Lack of manual rear door handle.
We are approaching the end of August when many "short" positions have to be resolved. So I suspect we're about to see a lot of 'leakage' of trash-talking Tesla. Here is a 'leak' from the UBS tear-down analysis.

Bob Wilson
 
Well of course I don't know exactly what's going on, but it seems rather suspicious that UBS and Munro have such sharply different conclusions following their teardown analyses. It's also at least strange, if not also suspicious, that Munro changed so many of his conclusions 180° between his/their first and second video describing the teardown. I can only assume that at least one, if not both, have put some rather strong bias for or against Tesla in their reports.

My guess, and this is only a guess, is that both Munro and UBS are looking at what their potential customers want to hear. Given that most of the customers will be Tesla's competitors, perhaps it's not surprising that one or both of them biased their reports towards what legacy auto makers want to hear; that Tesla's cars are crud and pose no threat to them in the marketplace.

If that's true, then that leaves unanswered the question of why Munro made such a sharp about-face between the first and second video.
​
 
Not a basher of any company but this article in Forbes seems to imply that there is some unhappiness among recent purchasers of Model 3. Again, I am going guess between "everything is rosy and critics are morons" to " a disaster sooner rather than later" stories, the truth is somewhere in between.
https://www.forbes.com/sites/samabu...killed-elon-musks-private-dream/#6b67bd6a46c6


How Tesla's Suppliers May Have Killed Elon Musk's Private Dream
 
interestedinEV said:
Not a basher of any company but this article in Forbes seems to imply that there is some unhappiness among recent purchasers of Model 3. Again, I am going guess between "everything is rosy and critics are morons" to " a disaster sooner rather than later" stories, the truth is somewhere in between.
https://www.forbes.com/sites/samabu...killed-elon-musks-private-dream/#6b67bd6a46c6


How Tesla's Suppliers May Have Killed Elon Musk's Private Dream
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Great post... and Great article... The truth is always somewhere in between... I drove Model 3P and was impressed with the drive. I would buy that car in a second over the BMW M3, unfortunately I am older now, and looking for something larger, and with higher levels of capability and refinement.
 
interestedinEV said:
. . . this article in Forbes seems to imply . . .
https://www.forbes.com/sites/samabu...killed-elon-musks-private-dream/#6b67bd6a46c6
. . .
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For an engineer, the author lefts out a lot of details that could have included metrics. Instead there was speculation and personal opinion:
  • ". . .I have some thoughts and it involves suppliers wanting to get paid." - no sources, even anonymous, were cited.
  • ". . . Elon Musk is too much of a liability . . ." - because of ??
  • ". . . has no fundamental technological advantage that can’t be replicated . . ." - but hasn't been because of ??
  • ". . . the products [Tesla is producing rjw] are not compelling to competitors . . ." - yet the Tesla consumers are happy as evident in the YouTube videos and backlog of orders.
  • ". . . In Tesla’s case, I believe it’s because they simply want to cast the most positive light possible on its finances. . . ." - not like every other company that rejoices in the opposite behavior, Captain Obvious. It might improve his journalism.
  • ". . . ambien hallucinations . . ." - given Elon Musk success, I want some of those 'hallucinations' (as should the author.)
  • . . .
Out of six paragraphs, six unsupported claims that even junior journalists would know requires some hard facts and data. I don't read supermarket tabloids because they write with the same abandonment of basic journalism practices. Of course others are free to choose this style . . .

Bob Wilson
 
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bwilson4web said:
For an engineer, the author lefts out a lot of details that could have included metrics. Instead there was speculation and personal opinion:
  • ". . .I have some thoughts and it involves suppliers wanting to get paid." - no sources, even anonymous, were cited.
  • ". . . Elon Musk is too much of a liability . . ." - because of ??
  • ". . . has no fundamental technological advantage that can’t be replicated . . ." - but hasn't been because of ??
  • ". . . the products [Tesla is producing rjw] are not compelling to competitors . . ." - yet the Tesla consumers are happy as evident in the YouTube videos and backlog of orders.
  • ". . . In Tesla’s case, I believe it’s because they simply want to cast the most positive light possible on its finances. . . ." - not like every other company that rejoices in the opposite behavior, Captain Obvious.
  • ". . . ambien hallucinations . . ." - given Elon Musk success, I want some of those 'hallucinations' (as does the author.)
  • . . .
Out of six paragraphs, six unsupported claims that even junior journalists would know requires some hard facts and data. I don't read supermarket tabloids because they write with the same abandonment of basic journalism practices.

Bob Wilson
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Bob, do you think suppliers that are owed millions of dollars from Tesla are going to speak out to the Media? Some give Tesla past due tick on the credit report, others file liens, but none are going to come out publicly, at least not on the record... Look at the credit report and make your own assumption? You can also search courrt records for liens, or just follow shorts on twitter, they do the heavy lifting for you.

The rest of the stuff you know already. Any company can duplicate Tesla's batteries, heck, just buy Panasonic and take control of the whole thing.

On Tesla's buyer satisfaction, its a mixed bag... cars are cool, but quality problems are more then other OEM's.

Buyers are jumping to other makers daily. Every person I have talked to on the Jaguar forum that has ordered I-Pace was formerly a model 3 reservation holder.

Tesla's finances suck... Funds not secure!

Stay off the drugs, Elon... Its not good for you, and then you will not have to lie about your work hours.
 
interestedinEV said:
Not a basher of any company but this article in Forbes seems to imply that there is some unhappiness among recent purchasers of Model 3.
Click to expand...

It's always best to read any article at a financial site such as Forbes or Bloomberg with a healthy dose of skepticism. Those who write articles for financial sites are very seldom disinterested observers; they usually have a motive for either "pumping" or "dumping" a given company.

Not suggesting we shouldn't read articles at such sites, I'm just suggesting you keep in mind that they probably have either a pro or anti bias whenever they talk about a particular company, including Tesla.

I'm sure that you can find some anecdotes online from people who bought a Model 3 who are unhappy with their purchase, just as you can with literally any car you care to name.

But I think it's safe to say the majority of reports from Model 3 buyers which we've seen posted to InsideEVs, both to this forum and in comments to InsideEVs news articles, have been from those who are overall quite happy with their new car.
​
 
bwilson4web said:
Out of six paragraphs, six unsupported claims that even junior journalists would know requires some hard facts and data.
Click to expand...

Thank you very much for giving us some critical analysis!
:) :) :)

Very sadly, critical thinking and critical reading appear to be far too rare these days.
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Pushmi-Pullyu said:
Not suggesting we shouldn't read articles at such sites, I'm just suggesting you keep in mind that they probably have either a pro or anti bias whenever they talk about a particular company, including Tesla.I'm sure that you can find some anecdotes online from people who bought a Model 3 who are unhappy with their purchase, just as you can with literally any car you care to name.
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I know a couple of Model 3 owners, who have complaints and concerns, but I would not consider them a representative sample as the sample size is 3. Hence, I cannot draw any inferences from that. A new product having issues is not uncommon. I have read the gloom and doom articles about Tesla, I have also talked to people who trust and and are bullish on Tesla. As I mentioned before, I think that the truth is somewhere in between. There are problems but possibly solvable problems. I am keeping an open mind.

There is one fact stated in the article that cannot be ignored, and that is that competition is coming. One might call it Deja Vu, that Tesla has had to deal with the entry of the Bolt, Leaf, I3 etc and none of these have an impact on Tesla. Those cars were much smaller and with less cache. I believe that Jaguar, Audi and others are more serious about entering the market and have their sights on the Tesla S/X market and have competitive products. The very fact that Wyamo has an order for 20,000 I-Paces over the next 3-4 years, suggests that Jaguar has a captive market and base to build on.

There are now several possible scenarios on what could unfold in the next few months. The competition could take a bite out of the Tesla market share, resulting in a drop in X/S sales. Or due to more awareness, the whole market expands due to competition and so everyone grows. Or the competition falls flat on their face, unable to make a dent to Tesla's market share , either due to supply problems or due to lack of sustained demand. Or Tesla focuses more on $50K market rather than $80K market. Or... (there are many other scenarios).

I am not going to make any predictions on what will happen as I have no clue. Instead I will watch and let others make predicitons.
 
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interestedinEV said:
I know a couple of people of have Model 3 and have complaints and concerns, but that is not a representative sample and I cannot draw any inferences from that. A new product having issues is not uncommon. I have read the gloom and doom articles about Tesla, I have also talked to people who trust and bullish on Tesla. As I mentioned, I think the truth is somewhere in between. There are problems but possibly solvable problems. I am keeping an open mind.

There is one fact from the article that cannot be ignored, that competition is coming. One might say it is Deja Vu, that Tesla had to deal with the Bolt, Leaf, I3 etc and they have not had an impact on Tesla. Those cars were much smaller and with less cache. I believe that Jaguar, Audi and others are more serious about entering the market and have their sights on the Tesla S/X market and have competitive products. The very fact that Wyamo has an order for 20,000 I-Paces over the next 3-4 years, suggests that Jaguar has a captive market and base to build on.

There are now several possible scenarios on what could unfold in the next few months. The competition could take a bite out of the Tesla market share, resulting in a drop in X/S sales. Or due to more awareness, the whole market expands due to competition and so everyone grows. Or the competition falls flat on their face, unable to make a dent to Tesla's market share either due to supply problems or due to lack of sustained demand. Or Tesla focuses more on $50K market rather than $80K market. Or... (there are many other scenarios).

I am not going to make any predictions on what will happen as I have no clue. Instead I will watch.
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Totally agree with you, Tesla is about to be under pressure from outside forces for the first time. All of Tesla previous pressure was from the inside, but now, they are very exposed, short on cash, and here comes the competition. I-Pce already has caused severe model 3, and X cancellation just the ones I know of, and E-tron will have the same effect, as well as Taycan. Mercedes and BMW about 2021 will enter the mid CUV segment, but the dark horses are VW, and GM, I know they both have some tricks up their sleeve. Tesla's problems begin that they only have 1 mass market product, and I think Model 3 is nearly saturated in the USA (at least at the current pricing level) so they will have to start shipping overseas in Q4. Model S and X are both hanging in there, but have reached a worldwide saturation, and are a bit long in the tooth. Now the worst part is that Tesla is stuck with just the S,X,& 3 until at least 2022, when they guide to open a China factory. By that time the Y gets to the USA, Jaguar, Audi, Porsche, BMW and Mercedes will all have been in the market for some time, so that will face immediate resistance. I also do not think f people have options between say a I-pace interior, and Tesla interior sitting side by side, most are going with Jaguar. Ditto Audi, BMW, Porsche, etc. The other thing I expect is this crazy bull market is going to have a recession at some point... Is Tesla ready for that? GM is I know... Mary Barra recently started they could take a 40% reduction in sales and survive. Then you have Tesla as the first to lose the income tax credit... then you have Tesla with a charging network they have to pay to maintain and expand when the others get that for free. Like you, I have no idea what this al means, but Tesla's pace of growth has been stunted... They have no money to develop product and build factories, and lots of debt coming due this year and next. Its going to be interesting, get the popcorn...
 
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