If the sophisticated technology and amazing capabilities of Tesla vehicles don’t make your jaw drop, the sticker price certainly might.

It’s no secret that Tesla cars and SUVs are expensive. They’ve become a sign of wealth across the world and stack up with brands like Mercedes and BMW in terms of status and performance. But why is a vehicle with fewer moving parts so much more expensive than a conventional car?

The primary reason Tesla vehicles are so expensive is because they’re made with the best materials and the most sophisticated technology. Tesla components are designed in-house, and the development costs billions. Also, unique materials like batteries are costly to design and produce.

Tesla’s supply chains and manufacturing processes are extremely complex. Much of it must be done in countries like the United States due to quality and security concerns, which naturally drives up the price of the end product. Considering the enormous cost required to produce these vehicles, it’s remarkable that they’re not more expensive.

We sourced the information used in this article from reputable automotive news organizations, industry analysts, and from Tesla itself when available.

Why Is Tesla So Expensive?

TABLE OF CONTENTS

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Is Tesla a Luxury Car Brand?

Tesla sells cars at luxury prices; there’s no arguing that. However, the company announced several times that it intends to break into the affordable car market. The Model 3 was the first vehicle targeting the mid-range sector, and it’s been a massive success.

Tesla has always included sophisticated technology in all of its offerings. Many features, such as self-driving and advanced infotainment, are commonly reserved for luxury cars. This is an indication that any Tesla on the market today falls into the luxury car category.

With the exception of the Model 3 and perhaps the Model Y, Tesla is primarily a premium car brand. However, the upcoming introduction of a $25,000 hatchback (commonly known as the Model 2) seeks to change this. It’s likely that Tesla will eventually be a more rounded automaker that produces both high-end and affordable electric cars.

Why Tesla Cars Cost So Much

There’s a myriad of reasons why Tesla vehicles are so expensive. Upon further inspection, it’s remarkable that Tesla cars and SUVs don’t cost more than they do.

The primary reasons why Tesla vehicles cost so much is due to strict in-house research and development, the way the company operates, along with the types and quality of materials necessary to build electric cars.

Here’s a breakdown of white Tesla cars and SUVs cost so much and why the price may actually be a lot more reasonable than it seems.

Cutting-Edge Design

Tesla vehicles feature an astonishing amount of advanced proprietary technologies. After all, each new Tesla comes with all the sensors it needs to completely drive itself—less than two decades after cassette players came standard in luxury cars.

All of this advanced technology cost billions to develop. Hundreds of thousands of man-hours are required just to create it, and hundreds of thousands more to test it before selling it to the public.

Plus, Tesla is the first totally new major car company to grow independently in the United States in more than 50 years. The scale of building a successful and advanced car company without prior auto-making experience is simply monumental.

Sure, much of this rapid expansion was funded by venture capital and investors. However, Tesla dumps an enormous amount of its profits and revenue into research and development so it can continue to produce vehicles with cutting-edge technology.

Material Quality

Tesla produces some of the safest and highest quality cars ever offered to any market. With a life expectancy of over 500,000 miles and impressive build quality across all model lines, it’s clear that parts quality is of the utmost importance to Tesla.

They say you get what you pay for, and that is certainly true with Tesla. Anyone who’s ever compared a Tesla to an equivalently priced domestic car can attribute to the vast difference in quality. Even the door is shut more securely.

But high-quality goes beyond fit and finish. Tesla engineers simply can’t cut corners on some crucial (and expensive) components. Batteries, for example, must be extremely well-made because lithium-ion cells have an inconvenient tendency to explode if manufactured incorrectly.

Additionally, Tesla wants to make the best electric cars in the world. As a result, they need the quietest and most powerful electric motors, the most careful design, and the strongest materials to maintain their stellar safety record.

In-House Research and Development (R&D)

You can still find components in new Toyota vehicles that were used in the 1990s because they work, and the research and development have already been paid off. Not the case with Tesla.

Tesla doesn’t have stockpiles of old parts like window motors, door hinges, and drivetrain components to roll over into the next model year. As a result, the company needs to design every tiny component for each vehicle, and it can’t spread the cost out over decades.

Additionally, cashless technologies are so advanced that they simply can’t be outsourced to places where they’re cheaper to manufacture. Plus, much of this technology is patent protected and too important to risk in collaboration with other companies.

Picky Supply Chains

The vast majority of parts used by domestic automakers could, in theory, be sourced domestically. At one time, Ford produced vehicles in a massive factory where iron ore and silica sand went in on one side, and completed cars came out on the other. This manufacturing model is now obsolete, so the majority of automakers source parts from numerous countries.

Tesla, on the other hand, produces a surprising number of parts in the same country where the cars are sold. Chiefly, the United States. This is because Tesla vehicles use vast quantities of specialized parts and materials that are not easy to procure in acceptable quality or quantity.

Additionally, many of the raw materials used to make Tesla vehicles, chiefly lithium for batteries, are most widely available in tumultuous parts of the world where prices and production are not reliable. Tesla keeps a tight grip on its supply chains, as they are highly competitive and the company demands the highest quality raw materials.

Tesla is the new Gigafactory Nevada will soon produce batteries domestically, which is a drastic move by a company that almost exclusively sourced batteries overseas. Tesla is attempting to increase the reliability of its supply chains by building factories in the United States, which understandably drives up prices.

However, this move is reasonable despite high initial costs. Advanced automation and increased production could eventually make the cost of domestically-produced batteries lower while maintaining tests as high quality standards. In other words, you pay the price now, but it’s worth it in the long run.

Company Size

Another reason why Tesla vehicles are expensive is that the company simply isn’t big or old enough to cut costs the way the traditional automakers can. For example, when General Motors releases a new sedan, they can use a huge amount of parts from previous models that they already have on hand.

Most other automakers have been around for almost a century, and they have enormous stockpiles of parts, machine tooling, and more than enough resources to stretch them as long as they possibly can. This is why GM can sell a car for less than $20,000, while it’s taking Tesla around a decade just to crack into the affordable car market.

Are Tesla Vehicles Subsidized?

Indeed, Tesla and many more of Elon Musk’s futuristic projects are subsidized for various reasons. Electric cars from other companies, along with other alternative-fuel vehicles, have been subsidized for many years.

Government to justify subsidizing electrical companies based on environmental impacts. The theory was that if electric cars were more affordable, people would buy fewer gas and diesel-powered cars, thus reducing carbon emissions.

Some questions, such as the environmental impact of lithium mining and battery disposal, are still debated. If the primary goal is to reduce carbon emissions, electric cars can certainly pave the way towards cleaner air if they become cost-competitive with conventional automobiles.

In recent months, Elon Musk has expressed interest in decoupling Tesla from government subsidies, though only time will tell what will happen. And contrary to popular belief, Tesla would be profitable with or without subsidies. Though if they were discontinued, the average Tesla would probably cost consumers more.

Will the Price of Tesla Cars Go Down?

Inflation aside, it’s highly likely that the cost of new and used Tesla vehicles will go down over time. This phenomenon is already evident, as a new Model 3 now costs about the same as a mid-level sedan.

The Cybertruck, which will be Tesla‘s most advanced offering to date, will be priced in line with the average new pickup truck sold in America. Electric cars are more affordable now than ever before, and they’re finally cost-competitive with relatively attainable vehicles like the Mercedes C-Class and the Toyota Avalon.

About THE AUTHOR

Charles Redding

Charles Redding

I've spent many years selling cars, working with auto detailers, mechanics, dealership service teams, quoting and researching car insurance, modding my own cars, and much more.

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