The company’s cars have always been expensive, but some new headwinds might push prices higher.
Tesla (TSLA) – Get Tesla Inc Report CEO Elon Musk may want to save the world by making electric vehicles and solar power more prevalent, but his cars have always been for, if not the wealthy, the pretty well off. Musk may support populist ideas, but his products have decidedly for the elite.
“Tesla’s electric cars have base price ranges between $43,990-$129,990 in 2022 depending on the model,” according to EnergySage.com. “Customization like paint changes, interior upgrades, and self-driving capabilities can tack on up to $19,000 more to your costs.”
There are, of course, tax incentives that could bring the cost of buying a Tesla down for these lofty numbers. Whether they apply to you depends upon where you live and your individual tax situation.
Yes, the Model 3 made the company’s cars more affordable, but the so-called $35,000 Tesla has never actually been sold for $35,000. Some current supply chain headwinds suggest that it won’t anytime soon.
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Tesla Faces Supply Chain Problems
At about one million cars per year, with plans to get to 1.5 million in 2022, Tesla makes a lot of cars for an electric vehicle (EV) company. Its production volume, however, sits well below the traditional automakers, and that, along with the company’s general inventiveness kept it from feeling a major impact from the chip shortage in 2021.
CFO Zach Kirkhorn said that the company was not immune from supply chain problems and noted that its Austin and Berlin factories have operated below optimal capacity because of them. He said he expects those locations to ramp up “once limitations ease,” in his remarks during the company’s fourth-quarter earnings call.
“This will result in higher fixed and semi-variable costs in the near term, in addition to the usual inefficiencies as we ramp a new factory,” he said. “We are also seeing inflation and rising commodity prices, which we expect to continue to put pressure on our costs.”
The CFO expressly pointed out that ongoing and past problems could have an impact on pricing.
“But please keep in mind that due to backlogs, changes in pricing will generally impact our financials in future quarters,” he said. “Supply chain challenges and port congestion resulted in a significant increase in our expedite costs in Q4.”
Kirkhorn, however, sees these issues as temporary. He’s bullish on Tesla’s ability to both bring down its costs and find new sources of revenue.
“Over a longer-term horizon, we are quite optimistic about the expansion of margins, though,” he said. “From the hardware side, we are aggressively driving manufacturing innovations and operational efficiency to reduce cost. And with the rapid development of FSD, software-based profits will ultimately become a strong addition to the profits generated by selling hardware.”
Elon Musk Says not to Expect a $25,000 Tesla
While Tesla has added the lower-end Model 3, don’t expect the company to launch a competitor to the Toyota (TOYOF) Corolla or any other mid-range sedan.
“Well, we’re not currently working on the — on a $25,000 car. We — you know, at some point, we will, but we have enough on our plate right now, too much on our plate, frankly,” Musk said in response to a question during the call. “So, you know, at some point, there will be. I think that’s sort of a question that — it’s sort of the wrong question, really.”
The CEO/serial entrepreneur does, however, believe that there’s a path to a lower-priced Tesla.
“It’s — really the thing that overwhelmingly matters is when is the car autonomous? I think, at the point in which it is autonomous, the cost of transport drops by, I don’t know, a factor of four or five,” he said.
