When you're going into sticker shock at the car dealer lot, do you question how much it takes to make this metal box on 4 wheels?
You're not alone.
Auto makers are careful to keep that information close to the vest — as most companies do with product margins. However, as a general rule of thumb, manufacturing larger vehicles like trucks and SUVs, as well as large production lines, cost less on average than creating a small collector's line of sports cars or coupes.
There's a lot of different expenses when it comes to manufacturing a car. Each unique model will have its own production price, and it's impossible to track down the wholesale price of every piece that makes these magnificent machines.
Fixed Costs vs. Variable Costs
Manufacturing cars involves two types of costs: fixed and variable costs.
Fixed costs are expenses like maintaining facilities, finding suppliers, testing prototypes, and employee salaries. These costs are the same no matter if you make one unique car or a million of the same model. However, with a second generation model, fixed costs are usually lower because much of the technology needed was acquired during the first model's testing process.
Variable costs, on the other hand, include the cost of labor, raw materials, and other related things. These will change based on how many cars are made. The more cars you manufacture, the higher the variable costs will be per model.
Here's a breakdown of some of the most basic manufacturing costs:
Raw materials and auto parts: This is easily the biggest driver behind the bulk of the price of a new car. The rubber tires, engine block, doors, and more add up to about 57% of the vehicle's price.
Research and development: Mandatory safety research and product development must be done before any new model is manufactured. While it's less flashy than racing stripes, it's super important for brands to stay on the road year after year, passing on the additional 16% to drivers.
Direct labor and advertising charges: While machines have mostly taken over automotive assembly lines, you still need humans to make cars. The cost of labor will always be a part of the final price tag.
Sales tax: To make a profit, manufacturers have to include the necessary sales tax to the cost of production. And that's before the dealership markup, too!
Why Do Cars Cost So Much?
Cars are expensive for a reason. The lower the price tag, the less quality materials are used and fewer luxury elements make the final cut. And when you're talking luxury vehicles and add-ons, everything from touchscreen dashboards to high-quality leather interior is going to drive up the manufacturing costs.
As the saying goes, you get what you pay for!
Here's how much it costs to make some of the most well-known models and makes:
Toyota
Toyota is one of the most popular car brands on the planet. As of just last year, the Toyota Corolla is still the best-selling car globally — and that's no accident. When it comes to many of the Japanese car manufacturers, the companies rely on huge production volumes to lower their costs. For a car that sells for about $15,000, the manufacturer can make about $2,500 in profits, leaving the cost of manufacturing at about $12,500.
Porsche
Most Porsche cars sell for between $50,000 and $150,000. In 2017, Bloomberg found that the luxury car dealer makes about $17,250 for every sports car sold. This makes the cost of manufacturing a Porsche about $33,000 to $133,000 — depending on the model.
Ford
For a base-model F-150, Ford makes about $13,000 from the $40,000 price tag. The iconic Ford Mustang, however, makes the popular American car manufacturer almost nothing — about $2,500 for a $27,000 sports car.
Tesla
The leader in electric vehicles allegedly spends about $28,000 on every Tesla Model 3. That leaves a mere $9,000 in profit for the EV manufacturer's low end model.
One of the extra costs Tesla faces is the more powerful battery. Luckily, the battery costs have decreased from $230 per kilowatt-hour in 2016 to $127 in 2019. In fact, Tesla's battery costs are about 20% lower than the industry average because of their high-volume manufacturing.
Ferrari
These luxury Italian sports cars can cost a whopping $300,000. However, a 2018 German study showed that Ferrari makes about $80,000 per car sold — enough to buy a whole new car! This is allegedly one of the highest profits in the car industry, too.
In the same German study, luxury automakers Audi, BM
W, and Mercedes-Benz make about $10,500 for every car they sell, and Maserati closes the luxury car group with just $5,800.
Just as with Ferrari, other high-end cars such as McLaren and Lamborghini cost a lot to produce. While their price tags may be $200,000, the manufacturing costs are almost as high.
Save on New Car Costs without Haggling
Manufacturers need to make profits to continue building your favorite cars! That doesn't mean you can't save on the final price with your own LLC.
Contact us today and skip the sales tax on your next new car, boat, or even a plane!