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Tesla Model 3 gross margin could be as high as 39% in China - Benchmark study

Following this message on twitter on Tesla Model 3 gross margin, I thought it would be interesting to benchmark Tesla production cost vs. other vehicles made in China.

First such level of Gross Margin would be supported by electric vehicle being currently exempt of sale taxes.

But, let’s have a look to the cost assumption of $26,653 in more details.

On such vehicle, main cost would come from raw material & purchased parts, divided in 3 major blocs:

  • Vehicle / Drive train / Battery.

    • Based on C / D sedan cost benchmarks; vehicle-based components should not exceed $9k. Biggest costs generally being seats & dashboard well executed on Model 3 combined with simple exterior to compensate higher “connectivity” costs of Tesla (computer, sensors…).

    • Based on other electric vehicle benchmark, drive trains + electronics should not exceed $4k.

    • With a cost close to $130/kw at pack level, a 60kw battery would be $8k

Now regarding production costs including inbound logistic, labor + processing costs, I would not expect more than $2,5k, considering Shanghai is a major auto manufacturing center, the factory is new and its proximity to main infrastructure.

It then remains $2,5k for distribution costs, which looks reasonable considering direct distribution, low marketing expenses and generally low logistic cost in China.

I would then not be surprised Tesla can already achieve a 40% marginal profit on Model 3 China, especially considering their vertical integration.

Such marginal profit level is in fact common for best vehicles of mainstream OEMs (SUV, D sedans, pick up). The issue is that they are compensating high marginal profit with dealer margin and high sales & marketing expenses… which is not the case for Tesla.

With the upcoming local battery production from CATL and production volume increasing, the cost will further decrease. This will help absorbing end of taxes exemption and could perhaps even support a combination of higher margin and reduced price to further boost volume.

Franck Mourge

About the author: Franck Mourge is Co Founder at Comutiq. Comutiq was formed as a consulting network of experts in their domain, with significant operational experience gained at senior levels in the automotive industry and commerce.

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