As you may have guessed, manufacturing a car is a complex process. It is not just about assembling the car body; from the tiniest nuts and bolts, your vehicle can have as many as 35,000 parts. Hence, the production cost of a car involves the designing, modeling, manufacturing, shipping, and assembling of all these parts.
On top of that, the figure depends on the vehicle’s make and specifications. The fixed costs like rent and staff salaries remain the same every production batch. However, variable costs like raw materials and wages may change with every set depending on output level. Because of this, sometimes, even the same model cars from the same manufacturers could have different manufacturing costs.
With all these factors taken into account, coming up with an exact figure is difficult, but on average, the cost of making a car could be anywhere between $30,000 to $140,000. However, in this article, we have briefly explained the various factors that constitute the total production cost of a car to help you gain more clarity.
How Much Does it Cost to Make a Car From Scratch?
Building a car from scratch would include the cost of all of its auto parts. The cost of raw material for the parts alone makes up nearly half of the cost of a car. External components would include the doors, handles, windows, shields, etc., for the car body.
The internal ones would be the engine, hoses, belts, nuts and bolts, clamps, and so on. The items mentioned earlier are only to make up a basic car structure. The car is further customized depending on its model, company, and added luxury features. Another aspect of manufacturing involves the make and idea of the product. The vehicle’s design, modeling, research and development, and rights take up another 15-17% of the cost. Together, both these areas cover the entirety of the fixed charges. The variable cost is further included with the miscellaneous expenses.
So, ultimately, the production cost would depend on which car you choose to build. Listed below are the manufacturing costs for some popular car models.
1. Ford F-150
The F-150 pickup truck is currently the most popular of the Ford F-series. The prices for the model range from $75,000 to $97,000. The base manufacturing cost of these cars is $25,000 to $28,000. The company roughly gains a profit of $12,000 to $14,000 per piece.
2. Toyota RAV4
Despite its rapidly increasing prices, this compact crossover SUV is a massive hit with motorists. The price range for this series is $36,000 to $48,000. This brings its manufacturing cost to $20,000 to $26,000 with an average profit of $5,000.
3. Toyota Corolla
Another model from Toyota has made this cut with the manufacturers keeping the production costs to a minimal. They start with an MSRP of $20,025 and range to $25,925. The production cost of these affordable automobiles is only $12,000. The company makes a profit of roughly $2,500 to $3,500 per piece.
How Much Profit Do Car Manufacturers Make Per Car?
We talked about the essential production cost for a car, but as the vehicle reaches the customer, the price rises to nearly twice the manufacturing cost. The rise is due to additional expenses like advertising and taxes. One of these added costs is the profit margin for the manufacturer. As of 2020, the average profit margin for the top car manufacturers is about 7.5%. Let’s understand how this figure came to being.
How This Profit is Calculated
As discussed earlier, the raw materials and auto parts needed to make up a car cost about half of its total price (45-50%). Manufacturing cost also includes research and development, which is 15-17%.
Once manufactured, the car does not reach the consumer directly; the company sells it to a car dealership. Contrary to popular belief, the dealer only gets a small chunk of the total price you pay for the car; most of it goes to the manufacturer. Dealership charges make up about 8-13% of the total cost.
Next, come the taxes. Sales taxes for cars in the country are generally about 5%, but depending on the state they are levied in, it rises an additional 4%. This makes the tax total 6-9%
Apart from these charges, we add another 10% miscellaneous expenses like depreciation, logistics, wages, etc.
All these costs leave room for a profit of 1-15% or an average yield of 7.5%.
According to research, Ferrari Motors makes the most profit of all car manufacturers, with a gross profit of over 23% per piece. Ferrari is followed by other popular companies like Volkswagen and Chevrolet, joined in the list by Hyundai and Toyota with their recent boost in profits.
Summary
To construct a car from scratch, all factors, including fixed costs like rent and salaries and variable costs like wages and electricity, must be considered. Starting with the cost of raw materials to research and development, the production cost of a car makes up about half of its final price. Due to the varying features and make of all cars, it is impossible to come up with an exact figure for their production cost. Though, the average manufacturing cost of cars is $30,000 to $140,000, with the manufacturers earning an average profit of 7.5% per piece.
