It is very difficult for anyone outside the factory finance section to give an estimation of car manufacturing cost. However, considering the characteristics and type of vehicle, various parts, raw material prices, labor, research and development (R & D), we can get an idea or can say rough estimation of the cost.
The automobile sector is one that has one of the most expensive types of factories in the world. In this sector, when a car is built, it involved by a lot of labor, cost, and materials such as metal, glass, machinery, auto parts, etc. So the question is how much does it cost to manufacture a car?
In this article, we are going to find out how much it costs to build a car, what are the reasons behind the high price of the car, how the manufacturers determine the price of the car, and how much it costs to manufacture different cars depending on the company. So stay with us.
Type of Costs involved in car manufacturing?
Each car comes on the market at different prices because the size and configuration of each is different. Car manufacturers will never disclose the actual production cost of a car to the public.
However, research has shown that the total production cost of a car depends on two factors, one is the fixed cost and the other is the variable cost. Below we are going to discuss these two costs.
1. Fixed Costs
No matter how many cars an auto company makes, there are fixed costs behind each car. R & D is one of them. Whenever a company goes to make a new model car, R & D and thorough testing are mandatory and obligatory no matter how long it takes.
There are also some fixed costs such as retraining staff, preparing and testing prototypes, maintaining facilities, finding suppliers, adding new equipment and technology, etc. The mentioned costs for each vehicle must be borne by an auto company.
2. Variable Costs
In contrast, variable costs depend entirely on the size of the vehicle because each vehicle mode sizes and configurations is different. This is also includes the production volume of any specific model. These types of costs vary with the car’s output.
Making technical terms easy, production cost of high volume product is always lower than the product cost of low volume products. Other thing in this is the market material cost. If material cost, labor cost or processing cost increases then car manufacturing cost will increase regardless of the production volume.
What Are the Factors That Affect the Manufacturing of a Car?
When an auto company decides to develop a new car model then it has to invest in several sectors like research, design, machines, material, and technical labor . So we will try to explain each to give you a better understanding of this concept.
Research and Development
An auto company does a lot of research before manufacturing a new model. This research is need high level experts of both business and auto industry. A lot of money is invested in this when car manufacturing itself is in just decision making stage.
Manufacturing Facility Setup Cost
This involves the most cost as compared to all other factors but its a one time cost. Setting up a complete manufacturing facility or making changes in existing setup to develop a new car model involves a lot of time and cost even before the first car manufacturing starts.
Auto Parts and Raw Materials
One of the most significant part of an auto company is the raw materials and auto parts sourcing. Companies cannot make material or all parts by themselves and need to outsource them from different companies. When companies determine the price of a car, the market value of these materials and parts highly affects that price.
Logistic Costs
Logistics costs mean transportation of raw materials / parts and other resources into and out of the factory. In a word, logistics costs include the cost of transporting materials / parts and all other resources between supplier / customer and factory. This sector has a significant impact on the production cost of a car.
Manpower
In modern factories, there is more machines than human labor. This reduce the labor number but increase the level of expertise needed for an individual labor. Experts charge much more than a basic level labor. Other than this upkeep machines that do labor work also involves a lot of cost. So Manpower add a lot of cost in car manufacturing.
Advertising Sector
The more publicity that can be had in any business, the more expansion there will be. Once a car is built, the company has to advertise it to the public. Of course, the advertising sector is very expensive most of the time, yet it carries a lot of importance. This is because it increases both sales and profits.
Sales Tax
The tax that the government has to pay when selling a car is also included in the production cost of the car. Since the amount of tax determines the final price, it is quite important.
Cost of Greenhouse Gas Emissions
Greenhouse gases are a big problem for the environment and auto companies are one of the major producers. Although this cost depends on the region, auto owners have to spend a lot to avoid producing extra greenhouse gases from their factories.
How to Calculate the Manufacturing Cost of a Car?
Based on all the factors mention above you need to work and find an estimated cost of each of the factor. This cost will vary a lot based on your country / state laws, rules and regulations.
Country with already well established infrastructure or easily available parts / materials and labor with low cost logistic will greatly influence the car cost in market as compared to the country that does have easy excess of these factors.
How Much Does It Cost to Start a Car Company?
If you are thinking of starting a car company, you need to get on the field with a minimum of XX billion dollars. This is not the end, because, with this money, you can only set up the business and factory and buy parts. Then you have to add marketing costs which are much bigger in number.
On the other hand, if your budget is low, about XX million, then you can start a business like car customization. In this case, your job will be to modify and customize the engine or body of the old car and give it a new look.
This way you will have a healthy amount of profit even if you get less annual production. If you really want to start a car company, it is best to go through a process. For example, first a car garage or repair shop, then save some money and make a bigger investment, and finally start a business like car customization.
Cost of Manufacturing Cars for Different Companies
Now let’s find out how much it costs for some famous companies to manufacture their cars.
Ferrari
Ferrari’s regular model cars cost around $200,000 while the classics go up to $350,000.
Ford
A Ford truck can cost you any thing between $33,000 to $90,000 all depending on the model and features of the truck.
Tesla
Tesla differs from other competitors in that it produces electric cars. Its model Y cost above $50,000 and model S model more than $94,000.
Toyota
The Toyota company always tries to figure out how to use high-quality components on a low budget. Starting from $20,000 Toyota has a car for everyone with the price as high as $58,365 for Sequoia 2023 model.
Conclusion
In this article, we have tried to give you an idea of the cost of building a car. We will never know the exact amount of car manufacturing cost as Auto companies do not disclose actual production costs.
However, you can get a clear idea of the cost of production by calculating the number of parts, features, and labor used in the car. Keep in mind, however, that prices vary depending on the type, size of the vehicle, and the company.
