Tesla Model Y General Assembly at Giga Berlin. Photo: Tesla
Tesla applies continuous improvement in the production of its vehicles and has excelled in this endeavor. According to Tesla's VP of investor relations, the manufacturer has reduced the cost of producing its vehicles by 57% since 2017.
The cost of car production is one of manufacturer’s key indicators. The lower it is, the more Tesla will be able to earn on sales, which has a direct impact on the profitability of the company. Manufacturers experience the most difficult times at the start of production, as production processes are not yet optimized, which undoubtedly leads to higher production costs. As Tesla CEO Elon Musk has repeatedly stressed, prototyping a product is an easy task, but the real challenge begins when mass production is launched.
During the ramp-up phase, many companies are unable to cope with the complexity, and therefore fail, which is especially evident in the automotive industry. However, Tesla has gone from being a young start-up to a successful company with a market capitalization of nearly $1 trillion, clearly making it the most valuable automaker in history.
This became possible thanks to the constant work on the improvement of both production processes and their products. Martin Viecha, the vice president of investor relations at Tesla, shared Monday during a presentation at the Goldman Sachs tech conference in San Francisco, some of the company's important achievements in various fields. Among other things, he said that Tesla was able to significantly reduce the cost of producing cars.
According to Viecha, in 2017, the company spent an average of $84,000 to produce each vehicle. In 2017, Tesla faced a real production hell, seeking to bring Model 3, which later became the best-selling electric car in the world, to the mass market. Thanks to the dedicated work of the company's management, led by Musk and the excellent work of the production team, the company not only overcame the most difficult period in its development, but also learned the most valuable lessons that later led to success.
Having gone through all the difficulties of ramping up mass production, Musk was well aware that the key to the company's success would be the simplification and optimization of production processes, so the company's Gigafactories are not just factories, but giant machines for the production of machines. In addition, the design of its cars was improved to the maximum, which ultimately led to a dramatic reduction in the cost of production. Viecha reported that, at the moment, the production cost of a Tesla car is $36,000, which is a really strong figure achieved in just four years. It is worth bearing in mind that this was possible before the company introduced 4680 battery cells into the game.
In addition, along with the reduction in production costs, the quality of Tesla cars continues to grow steadily. The point is that the manufacturer's goal is not just to reduce the cost of production, but to improve the quality of its cars with technologies that will ultimately reduce production costs. This approach ensures the production of the most advanced vehicles in the industry, at the lowest possible cost. In this, the company has a significant advantage over competitors, and according to industry reports, is currently 3-6 years ahead of any automaker in the market.
© 2022, Eva Fox | Tesmanian. All rights reserved.
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About the Author
Eva Fox joined Tesmanian in 2019 to cover breaking news as an automotive journalist. The main topics that she covers are clean energy and electric vehicles. As a journalist, Eva is specialized in Tesla and topics related to the work and development of the company.