Musk’s comments were in response to a Twitter user who had shared an excerpt from the new book from James Dyson, the famed billionaire, inventor, entrepreneur and founder of Dyson Limited. Dyson had highlighted how the company was trying to build an electric car but was unable to do so due to the high costs of production and runoff costs.
“Because we were new kids on the automotive block, suppliers charged us more, which meant the bill for the parts would be as much as 25 percent higher than those sold to existing manufacturers, making the car expensive to produce,” Dyson wrote in his book ‘Invention: A Life’.
“On top of this was the obvious fact that the fewer cars you make, the higher the cost per car. At a relatively low volume, we would have to sell the car at $210,000. There are not many people who will buy a car at this price,” he added.
Musk also highlighted how established carmakers have an inherent advantage over newcomers to the sector. Musk tweeted, “Large incumbent carmakers sell their cars at low to zero true margin. Most of their profit is selling replacement parts to their fleet, of which 70 percent to 80 percent are past warranty. Like razors & blades.”
Production is hard. Production with positive cash flow is extremely hard.