Ever wondered why some cars are expensive while others are more affordable? It all depends on the capital spent on making the car.
More features in a car cost a lot of money; thus, a car with more innovative and complex features will be more expensive than the others.
Auto companies have assembly plants designed to manufacture many cars at the same time to save costs and meet demand. However, they ensure their target audience can afford the cars. These car companies install different features to meet their audience’s needs. Also, adding features helps them stay ahead of the competition.
Thus, the prices of cars will vary based on what they offer.
How Much Does It Cost To Make A Car
No automaker reveals how much they spent manufacturing the car, so the final price has many “ifs” and “buts” in it. Building a limited edition or new concept car will be expensive due to the few manufacturers with the capital for such investments.
It also depends on the parts used in the car; common auto parts are easy to get, while a unique part is difficult to access and expensive to purchase. The auto companies calculate the price to sell their cars based on fixed and variable costs they incur during production. Other factors are involved, but these are the main factors to consider..
Fixed Costs
Fixed costs won’t change with the product or sales volume, but they increase or decrease wi th time.
In the beginning, an auto business will have a high fixed cost, but the price will decrease with manufacturing the second generation of vehicles. It happens because most technology from the old models is incorporated in the new models. Therefore, the auto company will not need to invest more money in new equipment since they already have functional assembly units for the newer car models.
Variable Costs
These are expenses directly related to the car’s manufacturing process. Variable costs increase and decrease based on demand and production capacity. The cost of raw materials for the production of cars is the most significant driver in the auto industry as it covers almost 57% of the variable cost.
Also, research and development are necessary before manufacturing a new model, and it will take up to 16% of the manufacturing cost. Advertisement is essential as it takes your message to the customers and attracts them to the auto brand. Quality advertisement requires extra charges that directly impact the variable costs. If the company does a good ad, it can bring many customers and boost sales.
More customers mean more sales which leads to earning a higher profit.
Sales tax also impacts the overall cost, as the more you sell, the higher your sales tax. The estimated sales tax for a car is almost $4,900.The dealership markup also affects the overall price as an average dealership markup is nearly $1,500.
Considering all these costs of an automobile, it is clear why a vehicle is expensive. If variable or fixed cost increases, the company is bound to increase the price of their cars.
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Cost of Some Well-Known Automobile Brand’s Cars
Since cars fall into different categories, each brand has a diverse manufacturing cost. Most companies won’t disclose their price, but some big brands are not shy about it. So, let’s see how much a famous company costs to make a car and how much profit they earn.
Toyota
Toyota is among the top and most reputable automobile brands, and its number of customers proves how good the company is. This automobile company relies on huge production volumes to reduce its overhead costs. On average, a car the company sells for $15,000 generates a profit of $2,500, which makes the cost of a vehicle about $12,500.
Porsche
Porsche is more of a luxury car brand, but they still make a lot of cars. The company sells cars for a price range of $50,000 to $150,000. For every car the company sells, they make a profit of almost $17,000. So if we deduct profit from the selling price, we get a cost that falls between $33,000 to $133,000, based on the model.
Tesla
Tesla is the leading automobile company in electric cars. When we still regarded electric vehicles as new products, these cars were expensive. Now, electric cars are getting cheaper every year because of the price drop in batteries. The entire battery pack of the Tesla Model 3 is around $5,000 to $7,000, which was about $15,000 back in 2016. The price of an average Tesla Model 3 is $39,940, and Tesla spent $28,000 on making this car.
Ferrari
Since Ferrari only makes unique sports cars, they set their prices high for a special target market. The price of Ferrari 296GTB is about $250,000, while Ferrari 812 GTS is about $410,516. In 2019, Ferrari made a profit of $94,000 on each car sold, which makes the cost of their cars around $156,000 to $316,516. You can purchase a luxurious Tesla model for the profit this company makes on each car they sell.
Ford
Ford makes relatively affordable cars; their F-150 model varies between $28,940 – $74,250. Their profit is somewhere around $8,000 to $54,000 on each F-150 sold. This makes the cost price of their Ford F-150 model about $20,000.
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Conclusion
How much does it cost to make a car? The cost of making a sports car will be higher as it has unique parts installed. While making a regular car for daily use is cheaper.
An average family car will be cheap since auto companies make them in bulk due to high demand. However, all the top auto companies globally make customer-friendly cars. For the past couple of years, eco-friendly electric vehicles have arrived and are becoming everyone’s favorite, even though making them cost a little more. It won’t take much time before electric cars take over petrol cars since they are affordable and eco-friendly.
