Tesla will lose money on a cheaper Model 3, analyst says

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Tesla Inc. is expected to lose about $6,000 on every cheaper, base-version Model 3 sedan it will sell because the electric car’s powertrain isn’t as cheap as expected, analysts at UBS said in a note Thursday.

The analysts based their assumptions on a teardown of a higher-end Model 3, costing $49,000, which included a more powerful battery option and a higher-end trim. Tesla’s profit on that pricier model is around $3,430 per car, they said.

See also: Elon Musk left plenty of questions about Tesla going private, experts say

A base version of the Model 3, costing the roughly $35,000 that Tesla TSLA, -0.92%  has promised, would be unprofitable for the company to the tune of $5,900 per car, the analysts said.

Model 3s currently available to order start at $49,000 for a rear-wheel drive model, and quickly get pricier for “performance” sedans. On its web site, Tesla says a cheaper Model 3 with a “standard” battery will be available in five to eight months.

The ability to sell a vehicle that would appeal to the masses is the cornerstone of Tesla’s expansion plans, and the Model 3, which Tesla began making a year ago, is a high-stakes car that is critical to Tesla’s transition to higher-volume from niche car maker.

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Tesla’s powertrain, although lauded by UBS’ engineering partners as an engineering feat that beat peers, was not as cheap as expected, the analysts said.

Its overall cost of $178 per kilowatt hour is only about 6% better than Tesla’s estimate of around $190 kWh for the models S and X provided two years ago and “well above Tesla’s guidance of below $100/kWh ending 2018,” the analysts wrote.

General Motors Co. GM, +1.11%  Chevy Bolt’s powertrain clocked in at $205 per kilowatt hour and at $442 per kilowatt hour on a 2014 BMW i3, which would go down to $300-$320 in a newer BMW BMW, +0.60%  model, they said.

UBS said its teardown experts provided a “full breakdown” of the electric vehicles’ major components, including powertrain and battery, controlling electronics, and body and chassis, with each component removed and scrutinized.

Related: Opinion: Wall Street has spoken: Tesla funding is not ‘secured’

The analysts reiterated their sell rating on Tesla and kept their $195 price target on the stock. Contrary to what the company has said, the analysts said they don’t see “sustainable profitability” for Tesla in the second half of the year, but given the higher-priced Model 3 in the company’s initial mix, a third-quarter profit “is possible” if Tesla can average production of more than 3,000 a week.

Tesla shares wavered between gains and losses Thursday, helped somewhat by a report saying that the company was on track for a steady Model 3 production and another report raising a price target on the stock.

The reports come as markets are still questioning Chief Executive Elon Musk’s going-private plan, mainly doubting that Tesla has the money necessary to pull off a deal and weighing the legal fallout of Musk’s taking to Twitter to announce that funding was “secured.”