Munro: Tesla Model Y Costs "Are Shocking"
For the past few months, engineering and manufacturing consulting firm Munro & Associates has been conducting a full teardown of the Tesla Model Y to analyze each component of the vehicle down to the nuts and bolts. Throughout the teardown, founder Sandy Munro has been very complimentary of the Model Y’s design. Though not without opportunities for improvement, Munro has been particularly impressed with Tesla’s ability to keep costs low on the vehicle.
In July of 2018, Munro completed a similar teardown of Tesla’s Model 3. At the time, the firm provided Tesla with more than a hundred different suggestions for improvements on the Model 3. Tesla CEO Elon Musk has been complimentary towards Munro’s work since receiving their feedback.
"Munro’s analysis of Tesla engineering is accurate, both pro & con. I think he will appreciate some elements of the Model Y body design." - Elon Musk, January 17, 2020
The teardown for the Model Y was recently completed, and Munro has now compiled a side-by-side comparison of the Model 3 and Model Y teardowns. The lengthy report is available for purchase from Munro, but Sandy Munro did share some bottom line results in a new video on the firm’s YouTube channel, Munro Live.
“The results are shocking. There’s a big, giant difference between the cost of the Model 3 [in 2018] and this Model Y in 2020, and the cost went down significantly!” - Sandy Munro
While Munro says there is a difference in cost between the Model 3 and the Model Y and implies a lower cost for the Model Y, it is likely that Tesla has significantly reduced costs on the Model 3 since Munro's teardown in 2018. Tesla has previously stated that costs to produce a Model Y should be close to the Model 3 despite the ~10% larger size of the Model Y.
“[For] a five-seater Model Y, we expect marginal costs of that car to be comparable to the Model 3 once we have reached, say, 10,000 or 20,000 units, or something like that...” - Elon Musk, Tesla's Q1-20 Earnings Call
If the Model Y does indeed cost about the same as the Model 3 to produce, or perhaps less, Tesla is positioned to capture 5%-10% higher margins on the vehicle due to the higher prices commanded by crossover SUVs. Tesla may choose to use this additional margin to lower prices of other products, potentially facilitating a lower entry-level price for the Model 3, expanding the addressable market.
Either way, it is encouraging for Tesla investors to see external validation of the cost improvements on the Model Y. Do you think Tesla will use the additional margin on the Model Y to boost profits and reinvest in expansion, or to lower prices and drive volume?
Disclosure: Rob Maurer is long TSLA stock and derivatives.