Tesla Model 3 is 'military-grade tech years ahead of peers,' but the hyped $35,000 version will still lose money

Key Points
  • Tesla Model 3 has a powertrain that appears to be years ahead of competitors.
  • But the $35,000 base model the company originally planned to make is expected to lose money.
What is Elon Musk like at work?

Tesla's Model 3 sedan is blowing engineers away, but it might be a big headache for folks in finance.

Analysts at UBS pulled apart three different electric cars to compare their technology and production costs: a new Tesla Model 3, a 2014 BMW i3 and a 2017 Chevy Bolt.

The engineers hired by UBS to examine a $49,000 2018 Model 3 were "crazy" about the powertrain, "highlighting next-gen, military-grade tech that's years ahead of peers," said UBS analyst Colin Langan in a note dated Wednesday. But the costs were higher than expected, and the cars would lose about $6,000 each at Tesla's original plan to sell an entry model at $35,000, he said.

It is another sign Tesla may have trouble turning into the mass-market automaker it said it wants to become.

Plans to manufacture the lower-cost vehicle have been delayed since its announcement in 2016 as the electric car manufacturer struggled to meet demand. CEO Elon Musk said in May that manufacturing the Model 3 at that price "right away" would cause Tesla to "die."

The company had originally billed the Model 3 as a sleek electric vehicle for the masses, and the car that would turn Tesla from a smaller maker of expensive electric cars to a volume manufacturer.

Instead, Tesla focused on higher-cost versions that yield better margins. The profit margin on the $49,000 version UBS tore apart was about 18 percent, for example.

UBS hired the engineers for a breakdown of each car's powertrain and battery, electronic controls, frame and body as well as interior and safety features. They evaluated each part's design, ease of manufacturing and cost.

Tesla beat its two competitors in cost, but the Model 3 didn't have has big a lead over the other automakers as UBS had expected. UBS based its estimates on consultations with engineers and industry research.

Tesla, Chevrolet and BMW were not immediately available for comment.

However, some of the Model 3's technology seems to be far ahead of Chevrolet and BMW. In particular, Tesla's electric powertrain stood out as exceptionally simple and flexible.

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