When referring to EVs, Tesla is often the first point of reference, with the American EV manufacturer seen as the industry leader by most. In terms of pricing, while the average EV costs $61,488, a Tesla Model X Plaid starts at $107,490. Accordingly, Tesla’s profit margins in Q3 2022 stood at $9,574 compared to Toyota and Volkswagen’s $1,197 and $973 respectively. With higher-than-average price tags, how can Tesla seamlessly lower its retail prices but not other EV manufacturers? From the company’s market positioning to the battery technology and from the scale of production to the software it uses, how have Tesla’s predispositions allowed the EV giant to lower its prices?
Market Positioning
In 2022, Tesla’s Model X Plaid started at $120,440, reaching almost $150,000 when fully equipped. As of 2023, the new entry price stood at $107,490, corresponding to a significant 12% drop. However, despite the new price, the Model X Plaid is still positioned as expensive, even in terms of luxury SUV standards. As a result, the higher profit margins from these premium models give Tesla more room to manoeuvre when it comes to pricing, all while still making profits. Similarly, Tesla’s Model 3 Long Range’s old entry price was $46,990, compared to the new $43,990, representing a 6.4% reduction. In comparison, the previous entry price for a Ford Mustang Mach-E RWD Standard Range was $46,900 and is now $46,000, representing a 1.9% reduction and showing the vast difference between Tesla and other entry models.
Battery Technology
In EVs, the battery is the most important component in terms of cost as it makes up for around 40% of the price of an EV. To try and reduce this, Tesla has and continues to heavily invest in battery technology and manufacturing. So far, the American EV giant has spent billions of dollars to set up 7 Gigafactories with the aim of developing and producing their own battery cells. Tesla is also planning on spending $3.6 billion more to expand the Nevada Gigafactory. Indeed, Tesla and Elon Musk were the first ones to understand how critical the battery is for EVs and how it is important to control the full supply chain including the actual battery and its system technology. These in-house battery centers allow Tesla to continuously improve their battery efficiency, energy density, and production techniques. Furthermore, these advancements can lead to cost reductions through improved battery performance, reduced material usage, and more efficient manufacturing processes. As a result, Tesla has more leeway when it comes to reducing the retail prices of its EVs and is able to produce them at a larger scale.
Scaling Up
Gigafactories are designed to produce batteries at a large scale. By manufacturing batteries in high volumes, this allows Tesla to take advantage of economies of scale, with the cost per unit decreasing as the production volume increases. Indeed, since opening in 2014, Gigafactory Nevada alone has produced 7.3 billion battery cells (37 GWh+ annually) and 1.5 million battery packs. This amount of batteries produced allows Tesla to produce at scale with Q1 of 2023 seeing 440,808 EVs made, an all-time high, compared to 305,407 in Q1 2022. In comparison, GM produced 19,700 Chevrolet Bolt in Q1 2023. As such, the higher the volume of vehicles produced, the more economies of scale can be realized, leading to cost reductions in production and making it easier for Tesla to cut their EV prices.
While Tesla and Elon Musk were pioneers in terms of making their batteries in-house, many automakers have since followed suit: BMW has a joint venture with Samsung SDI called BMW Brilliance Automotive, GM established its battery manufacturing division, Ultium Cells, and Volkswagen with Swedish battery manufacturer Northvolt, called Northvolt Zwei among others.
Software and Efficiency
In addition to the battery technology and producing EVs at scale, Tesla is known for its advanced software and technology integration. Indeed, Tesla’s sophisticated Battery Management System (BMS) optimizes battery performance, efficiency, and longevity. This, by constantly monitoring and managing various aspects of the battery, including temperature, charging, and discharging patterns. By efficiently managing the battery, Tesla can extend the lifespan, reduce degradation, and maximize the range of the batteries, resulting in lower maintenance costs. Furthermore, by leveraging software updates, Tesla can improve their EVs’ performance, efficiency, and features over time from a distance, without requiring physical modifications.
Reducing Prices with Advanced 3D Technology
While Tesla is making waves in the EV industry by reducing their prices, can other EV makers also bring theirs down without taking a hit to their profits? With new battery and manufacturing technologies such as advanced battery structures, EV manufacturers can address this challenge. Indeed, the porous structure uses 50-60% less copper and aluminum. As copper is one of the most expensive components of the battery this leads to a significant cost reduction for automakers and battery makers. Therefore, by using less quantities of various materials, Addionics’ chemistry agnostic Smart 3D Current Collectors for the battery electrodes allow the cost of producing EV batteries to be reduced.
As a drop-in solution that’s compatible with all chemistries, existing and emerging, it allows the technology to be added to any production line without any additional manufacturing costs. Additionally, the technology features an AI structure optimization algorithm in which the software is integrated into the battery’s hardware to create a smart and complete solution. Consequently, this allows EV makers producing at scale to make important cost savings.
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