Electric Car will have lower cost of ownership than gas cars starting in 2018 with Tesla 3 and the Tesla 3 with add-ons will be profitable

UBS analysts tore down the Chevy Bolt, the world’s first mass-market electric vehicle (EV) with a range well above 200 miles. They gained key insights to understanding the content and profitability of EVs, especially Tesla’s upcoming Model 3. Their findings expand beyond the autos industry to include technology, capital goods, chemicals and commodities.

Tesla to lose $2,800 on entry-level versions of its soon to be introduced Model 3 but think customers will opt for extra cost options that will raise the average selling price to $41,000 — $6,000 more than the base price. Tesla will be able to break even at that price, they believe.

$4.6k cheaper than we thought – EVs to be profitable sooner, incl. Model 3

UBS found that the EV powertrain is $4.6k cheaper to produce than they thought and there is more cost reduction potential left. Consumer cost of ownership (TCO) parity vis-à-vis combustion engine (ICE) cars can be reached from 2018 (first in EU), creating an inflection point for demand. They raise our 2025E EV sales by ~50% to 14.2m, or 14% of global car sales. UBS estimates GM loses $7.4k (EBIT) with every Bolt sold today, mainly due to the lack of scale. Because of many similarities between the Bolt and Tesla’s long-awaited Model 3, UBS estimate Tesla incurs an EBIT loss of $2.8k per vehicle in its base version, but will break even at an ASP of $41k – a level most likely to be exceeded. They generally expect the profitability of premium EVs to be higher than in the mass segment. Once TCO parity is reached, mass-brand EVs should also turn profitable.

Widespread impact on auto sector, technology, chemicals, cap goods and more

For OEMs, earlier cost parity means earlier and more visible returns on the current high R and D. Furthermore, the contribution of EVs to CO2 fleet targets, particularly in Europe, will remove a key cost burden. For our tier-1 supplier coverage, the teardown delivered two takeaways: (1) LG, a new entrant in automotive, has ~56% content in the Chevy Bolt, whereas “traditional” tier-1 suppliers only exist outside the electric powertrain. (2) Our detailed analysis of moving and wearing parts has shown that the highly lucrative spare parts business should shrink by ~60% in the end-game of a 100%-EV world, which is decades away. EVs are an opportunity for tech companies because the electronics content in the Bolt is $4k higher than in an ICE car, excluding the battery. Commodities-wise, we detected the highest deviation in weight shares between the Bolt and ICE car in copper, aluminium, battery active materials and rare earths.