Why Are Tesla Cars So Expensive?

When it comes to electric cars, the name Tesla is usually the first thing that comes to mind. Tesla was the first company that produced all-electric cars. Despite the increasing demands for their vehicles over the past decade, their high prices are still challenging. Why is that?

The main reason Tesla cars are expensive is the huge demand and expensive batteries. Plus, Tesla cars feature advanced software that enables autonomous driving and offer many safety and entertainment options. These features require hiring highly-paid developers, raising the overall price of Teslas.

Read on to learn more about why Tesla cars are so expensive. We’ll also elaborate on the more affordable alternatives to buying a Tesla car.

Huge Demand and Low Production

One of the main reasons for Tesla cars’ high price tag is that they’re hugely in demand. You’d think their steep prices would dampen the desire to get a Tesla, but apparently many people want to have a unique car with futuristic features.

What makes these high demands even more problematic is Tesla’s inability to respond. This large number of orders creates production bottlenecks, making Tesla unable to catch up.

In addition to huge demands, Tesla struggles with issues in the supply chain, making it difficult to deliver the pre-orders on time. It stands to reason -and basic economics- that these imbalances in supply and demand will lead to even higher prices.

Tesla has tried to expand its production lines by completing phase 1 of its Gigafactory in Nevada, increasing the demand for all Tesla models. Although these production constraints make demands go higher, they haven’t stopped Tesla from setting records in sales.

According to Tesla’s earnings call for the third quarter of 2021, their sales grew by over 70% compared to the same period last year.

Battery

Tesla batteries are one of the main features that set cars apart from other EVs in the market. Apart from being fully electric -and not hybrid- these cars offer impressively high mileages. They also have a different technology from other EV car manufacturers. That’s why you only see Tesla charging stands at homes and beside the roads.

All these features make batteries the most expensive components of the Tesla cars, adding to the car’s overall price. That’s because lithium-ion batteries used in Tesla cars are expensive, and thousands of them are used in each car.

Another thing to consider is that the lithium-ion battery is currently the best technology available. There will certainly be better technologies in the future. Still, right now, Tesla has to resort to this technology, reduce the range anxiety for customers, and refine its technology along the way. Until then, they have to market their products to a select group of people with enough cash to afford them.

And these advances are underway. Tesla has been working to reduce the cost of its batteries while striving to increase their ranges. According to the statistics, Tesla batteries constituted about 20% of the vehicle’s price in 2016, while it dropped to 15% in 2019.

The Best Self-Driving Technology

Another feature that places Tesla in the high-cost range is its revolutionary self-driving technology. It’s the exact feature that makes you feel like you’re driving a car from the future.

Tesla uses a wide range of AI technologies to help drivers steer their cars in different visibility and weather conditions. Neural networks gather data from cameras, sensors, and radar to get a comprehensive view of the car’s surroundings and provide optimum visibility to the driver.

Newer models feature 360-degree visualization made possible by eight cameras to provide a better view of up to 250 meters around the car. Here are the most important uses of Tesla’s self-driving technology:

Self-driving Features

Self-driving features are the driver-assist technologies that help drivers navigate roads more safely. They include:

Auto-steer. Along with traffic-aware cruise control, this feature helps drivers steer the car in marked lanes. Plus, it helps drivers develop good driving habits by making sure they’re attentive and have their hands on the steering wheel.

Navigate on Autopilot. It gives the driver the best route to reach the destination by suggesting lane changes, highway interchanges, and taking exits.

Smart Summon. The driver can use Tesla’s smartphone app to summon the car to their preferred location inside a parking lot. The car will navigate around different objects to reach the driver. This feature comes in handy when you’re carrying shopping bags and can’t walk to your car.

Other self-driving features include lane-change, summon, and traffic light and stop sign control.

Safety Features

The autopilot technology also ensures the utmost safety and comes standard on all Tesla cars.

Collision Warning. The car uses sensors and cameras to warn the driver when there’s a risk of collision with obstacles or cars overhead or alongside the vehicle.

Emergency Braking. The car brakes if it detects obstacles overhead and predicts upcoming accidents.

Blindspot Monitoring. When the driver decides to turn or change a lane, the car will warn them if it detects vehicles that the driver can’t see.

Other safety features include lane departure avoidance and obstacle-aware acceleration.

Free Supercharging

To relieve the range anxiety, Tesla has tried to introduce new ways to help drivers charge their cars conveniently. Supercharging stations are one of these solutions unique to Tesla – no EV manufacturer has its exclusive charging points. In addition, Tesla has Superchargers in different countries, including Mexico, Canada, and many European countries, creating a worldwide network.

However, these Superchargers aren’t a source of income for Tesla as they sell the electricity at the purchasing price. Some Tesla models, such as Model S, sold between 2012 and 2016, are exempt from paying for electricity for life. This offer was a marketing attempt to encourage buyers to purchase Models S at that time.

In 2019, Tesla brought back the free Supercharge plan for Model S and Model X to attract buyers because of the slumps in these models’ sales. Although Tesla changes its plans frequently, a significant number of Tesla owners have unlimited free plans, reducing the income Tesla could have.

Add these lower electricity prices and the high operating costs of these Superchargers to see how costly they are for Tesla. All of these factors mean they need to make up for these costs in the overall price of Tesla cars. In fact, Tesla has made these costs built in the purchasing price of its products.

Cutting-edge Software

Tesla’s futuristic feel mainly comes from its cutting-edge software that you can’t find in any electric vehicle. This next-generation software gives Tesla cars a dynamic nature that can improve their performance over time through regular software updates, just like smartphones.

These free over-the-air updates add features to the cars and even solve problems without owners needing to take them to service stations. For example, there was a braking problem in Model 3 in 2018, which they addressed through a software update.

In addition to the autopilot and auto-steer capabilities, Tesla cars come with the following capabilities made possible with its software:

Tesla Theater

Tesla owners can turn the dull time while they’re waiting in a parked car into an entertaining feast through the car’s infotainment feature. They can watch their favorite shows on Netflix, Hulu, and YouTube videos. These shows are even country-specific, and the owners in China can watch their local shows.

Tesla Arcades

Tesla Arcades is another infotainment feature that drivers can use while their car is parked. It comes with a host of built-in games that increase in number through updates. These games can be played using the infotainment screen and the car’s steering wheel.

Here are some of the most popular games in Tesla’s gaming library:

Asteroids
Missile
Centipede
Cuphead
Lunar Lander
Fallout Shelter
Tempest

TRAX

TRAX is Tesla’s exclusive music-making tool that allows you to add different instruments and give music-making a try. You can access it through the screen and make your own pieces. This feature was a holiday present from Tesla given to owners through a software update.

Tesla App

Perhaps the most exciting software-related feature of Tesla is its smartphone app that delivers many cool features. For example, you can use your phone as the car key using the app, view your Supercharging history, and use the Smart Summon feature. In addition, it gives the owner a host of different options to monitor the car remotely, see its remaining range, activate its climate control, among many other features.

Tesla Services

Tesla treats the aftermarket and repair services exclusively and unlike other carmakers. This exclusiveness creates costs that are built into the purchasing prices.

For starters, Tesla sells its cars directly to end customers and doesn’t include dealers in the process. Other carmakers sell their products to dealers, who sell the cars to end customers. This process creates a monopoly for Tesla that eliminates competition. So, it can sell its cars at any price they want.

The process of manufacturing Tesla cars is different from other companies, involving robots and Gigafactory that make the final product unique. Not only is this process costly, but it also makes the aftermarket services a specialized task.

Not every repair person can diagnose and fix the problems that arise with Tesla cars. Even if a repair person has the skill and knowledge to repair a Tesla car, the company doesn’t allow the owners to use a service other than their authorized Tesla services.

However, this exclusive service that could mean long waiting lists to repair a car comes with a big plus for owners. Tesla doesn’t charge them to use the services, and if they have to leave their car at the service station, they receive a loaner vehicle. That’s the most important factor that makes services costly for the company, and they have to compensate for it through the big profit margins.

Any Plan To Make More Affordable Tesla cars?

All the reasons mentioned above for the high prices of Tesla cars don’t mean that Tesla can’t make an affordable car. To reduce the battery costs, Tesla has partnered with companies like Panasonic and LG.

But they didn’t stop there. Last year, Elon Musk announced plans to make a more affordable car that costs $25,000. They plan to achieve this goal mainly by using a battery pack that’s half the price of the current batteries. Although Musk hasn’t stated clearly what the car will look like, he said that the car will be unveiled by 2023.

Here’s the video where he talked about this plan in an interview with MKBHD.

Although the company hasn’t made any official announcements regarding the car’s details, Musk has previously dropped some hints. For example, he said the car would be fully autonomous, meaning it could drive passengers without human intervention. Plus, it may come without a steering wheel.

During the Tesla Battery Day, he said they don’t have a name for the new car yet. However, based on the news about making a new car in China’s factory, people are unofficially calling it Model 2. However, everything we know about this new model so far is based on Musk’s hints and experts’ conjecture.

Alternatives To Buying a Tesla Car

Until a more affordable Tesla model is launched, not many people can afford a Tesla car. So, for those who want to jump on the EV trend, there are many other alternatives.

More Budget-Friendly Electric Cars

Chevrolet Bolt EV

The starting price for the Bolt EV is $31,000, making it a great alternative to Tesla, although it has a much lower range of 259 miles. You can add a 360-degree camera to the hatchback and enjoy a wide range of driver-assistance features such as front pedestrian detection, rear cross-traffic alert, and adaptive cruise control, among many others.

Hyundai Ioniq Electric

The 2021 Hyundai Ioniq Electric is a great alternative to Tesla with its eco-friendly interior design and affordable price. The asking price starts at $34,250; it’s a great choice for EV lovers who don’t care about range.

It’s a comfortable EV with great options offering a range of about 170m, packed with semi-autonomous driver features, and an infotainment unit supporting Apple Carplay and Android Auto.

Nissan Leaf

With the reduced price tag, starting at $27,400, Nissan Leaf can be a decent option as an affordable EV. If you’re not thrilled by the 150m range, you can opt for the Plus with a maximum 226m range at $32,400.

It gives you a host of high-end technologies and self-driving features that offer you a semi-autonomous car.

Kia Niro

With a starting price of $39,990, Kia Niro EV is among the most budget-friendly electric cars. Equipped with regenerative self-charging, cold weather capabilities, driver-assist technology, and lots of smartphone options, it offers you a comfortable ride, although not comparable with Tesla.

The 201hp electric motor and the 64kWh battery deliver a range of about 239 miles with two standard and fast charging connectors.

Converting Old Cars to Electric Cars

Another budget-friendly alternative to a Tesla is to convert your gas-powered car to an electric one. Of course, it doesn’t give you the pleasure of driving a futuristic car like Tesla, but it can be an excellent alternative if you want an eco-friendly car.

Converting an old car to an electric one can cost between $5,000 and $10,000, depending on the type of components you choose.

The conversion process is simple, consisting of three steps:

Removing the gas engine.
Adding the electric engine.
Adding the battery and charger.

Although you can achieve many environmentally friendly features such as low emissions and lower fossil fuel consumption, there are some downsides. For example, your car may not have the range that other EVs provide. Plus, there aren’t many charging stations compared to what Tesla offers, increasing the range anxiety for you. And when you finally find a place to charge, it may take longer to charge the battery.

However, if you don’t travel long distances, it’s a perfect option for you to enjoy all the performance boost and lowered maintenance and costs that come with an EV.

Key Takeaways

Tesla cars are expensive for a wide range of reasons. Their battery is the most expensive component and can reduce the car’s overall price by 50% if it uses a less expensive technology.

In addition, their exclusive services, free Supercharging, and cutting-edge software add significantly to the purchasing price.

However, there are many affordable alternatives to Tesla cars, although they aren’t as exciting and efficient. You could also convert your old car into an EV through a straightforward DIY process.

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Why Are Tesla Cars So Expensive?

Table of Contents

Huge Demand and Low Production

Battery