There is a trend in the auto world that drives me a bit nuts. When a company comes out with a new model, it takes time — well, a certain number of sales, which take time to achieve — before all the costs that went into designing, developing, and producing the car get paid off. I’ll use some simple numbers to demonstrate the point. Say that a new model accounted for $1 billion of R&D. Say that the automaker makes $10,000 of profit on each unit it sells — just subtracting the cost of parts/materials, labor, and other marginal costs associated with producing one unit, not subtracting those R&D costs or company overhead or anything. Assuming all of that profit goes into paying off those initial R&D costs (and assuming 0% interest for the sake of simplicity here), the automaker would need to produce and sell 100,000 units of that new model in order to pay off the R&D costs and start making an actual profit on the model.
The problem in the auto world — or at least automotive and business media — is that people dramatize this and fear-monger by writing headlines like “EV Makers Losing Hundreds of Thousands of Dollars On Every Car.” That’s a headline from a major auto mag republished on yahoo!life. Years ago, this kind of line was used repeatedly with regards to Tesla. That’s when we started digging in and highlighting how illogical and misleading such headlines are. Such “shocking discoveries” have also been pushed about the Chevy Bolt EV, Lucid’s EVs, XPeng’s EVs, and other EVs. I don’t see this kind of headline concerning anything but EVs, but maybe I just miss those other stories.
If automakers were losing hundreds of thousands of dollars (or even thousands of dollars) on every electric car they sold, they’d obviously just stop selling electric cars, or raise prices. Why would someone spend $300,000 to make a car and then sell it for $30,000? Digging into the claim for one moment reveals how stupid it is. Yet, these stories continue to go out. They continue to convince people passing by that electric vehicles are money losers and a bad business idea. They continue to imply that electric vehicles can’t be the future — stupid hippies. The negative connotation is clear on another round of “surprising” revelations about clean electric cars.
In short, can we cut this out please? As much as this tactic was used with Tesla and hyped up to an extreme degree when Tesla was struggling through Model 3 “production hell,” Tesla is now a massively profitable company with some of the best gross margins in the automotive market. All of that superficial fear-mongering scared away plenty of Tesla buyers (and TSLA buyers), but who wants to now remind people of their articles about how much money Tesla was “losing” per car?
The article does highlight that EV companies are going through some tough times financially, but let’s keep it to that rather than the clickbait but false claim that automakers lose money each time they sell an EV. The key bits Jalopnik/yahoo!life highlighted from a Reuters article were as follows:
“Lucid’s cost of revenue surged to $492.5 million in the July-September quarter from $3.3 million a year earlier, and its losses widened as customers canceled orders fearing long wait times.
“Canoo Inc (GOEV.O) said in May it had “substantial doubt” about remaining a going concern. At the end of September, it had $6.8 million in cash and equivalents, down sharply from $415 million a year earlier.
“Rivian, backed by Amazon.com (AMZN.O) and Ford Motor (F.N), had $13.8 billion cash on hand at the end of September. It also has a contract to supply 100,000 electric delivery vans to Amazon. But its cost of goods sold was about $220,000 per car versus an average selling price of $81,000 in the quarter, CFRA estimated.”
Adding onto the Reuters piece, Jalopnik writes, “According to Rivian’s most recent SEC filings, the company’s third-quarter costs jumped from $83 million in 2021 to nearly $1.5 billion in 2022. That’s an absurd jump in costs, but not an unbelievable one — lithium prices have blown up like an earthbound asteroid.”
Yes, lithium prices are up, but they are not leading to that jump. This is an accounting issue related to win companies have to log certain costs. So, while the article was going in a good direction after the headline, it again took a misleading turn there. No, electric car producers are not spending 4 times more building electric cars than they are selling them for. And, seriously, CleanTechnica shouldn’t be the site that has to say that.
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