Last Updated on January 18, 2023 by Leepu Da Maxim
A car can cost anywhere from $12,500 to $133,000 to build. Of course, the final cost depends exactly on the design of the car, as well as its performance and any safety features, or additional aspects that are included. Anyway, a car manufacturer can earn $17,000 for each car sold on average.
- The actual cost of a car hugely depends on the production process and equipment used
- Labor costs as well as research costs also play a very important role in the production cost of a car
- Parts and raw materials represent 57% of the total cost of making a new car
- Research and development represent 16% of the total manufacturing costs of a new car
Car Manufacturing Costs At Major Automakers
|Porsche||$33,000 – $133,000||$17,000||$50,000 – $150,000|
How Much Does It Cost Manufacturers To Make A Car?
Manufacturing a car is a certain procedure that can be more or less complex depending on each make and model. Of course, cars are not all the same and the manufacturing process is also different. There are even cars that are specifically classified by their cost and are placed in a low, medium or high range.
In any case, manufacturers do not usually inform about the costs required to manufacture a car. So, here we can talk about the manufacturing costs of a car when it is already finished depending on the different car manufacturers. In many cases, manufacturing costs are usually high for high-end cars.
This same situation is the case with low-end cars that have low manufacturing costs to leave a profit margin. Knowing the manufacturing cost of a car allows you to make a better decision when buying one of them. Even the tax-related costs of owning one of these cars can vary depending on the manufacturing costs.
Ford is one of the car manufacturers that can manage quite affordable prices on each of the cars sold today. Here we can take as a reference the vehicles that have a cost of $22,000 in a final sale. So, in this case, Ford can make a gross profit margin of approximately $2,200. Of course, these amounts may vary depending on each car.
By following this same example, we can establish that the cost to produce a $22,000 Ford vehicle is $20,000. Compared to other options today, this manufacturing cost can be quite affordable compared to other luxury car manufacturers. Even Ford and other manufacturers are looking to lower production costs to lower the overall cost of each unit.
Toyota is one of the global car manufacturers that manage high popularity and extensive business development and growth. The Corolla model is not only Toyota’s best-selling car but also one of the best-selling cars in the world. To reduce costs, this car manufacturer needs an incredible amount of sales for each model.
This is the same with the production of any other product or commodity. As a product is marketed in increasingly massive quantities, production costs decrease in a directly proportional manner. Thus, if a vehicle costs $15,000, the manufacturing cost is $12,500. Thus, Toyota can obtain a profit margin of $2,500.
When comparing Toyota or Ford with Ferrari, we can notice that the production costs are different. Of course, this is logical because Ferrari is dedicated exclusively to the production of high-end sports cars. So, its high cost is not only related to the prestige of the brand. Additionally, the development of these vehicles requires a higher cost.
On the market, many of Ferrari’s vehicles can cost over $200,000. Despite the very high cost of these vehicles, it has been known that $6,000 per car is the profit Ferrari can make. So the production cost could be somewhere in the neighborhood of $194,000. This may be reasonable due to the high-performance parts and design with high luxury details.
Along with that, other high-end sports cars, such as some Lamborghini or McLaren models, also run with the same logic. These vehicles also carry very high production costs, although the market prices are above $200,000, so it is not a very different situation.
In the last few years, we have noticed that most of the models that Porsche sells cost between $50,000 and $150,000. In turn, the manufacturing costs of these vehicles can be found between $33,000 and $133,000, so it is one of the vehicle manufacturers that manage to obtain a large profit margin for each unit sold.
However, large profit margins per unit sold are not very common for most vehicles. As we have mentioned, high-end sports cars have high selling prices, coupled with high manufacturing costs. So too, manufacturing costs can be lowered to lower the selling price of each vehicle as well.
Types Of Manufacturing Costs
Of course, not all manufacturing costs relate only to the parts used and labor required. It is common to differentiate between variable and fixed automobile manufacturing costs. On the one hand, variable costs related to raw materials, labor costs, and all related aspects.
On the other hand, fixed costs are based on prototype testing, supplier research, and expenses related to the maintenance of facilities and factories. So, automakers need to constantly deal with all these costs. Also, automakers must avoid high costs to avoid increasing vehicle prices. Otherwise, this would be a negative aspect for sales.
1. Parts And Raw Materials
In this case, it is one of the most important factors when we talk about the total costs of manufacturing a car. So, depending on each brand and model, these costs represent 57% of the total price of each unit. Here, we can also include the research and development necessary for a new vehicle.
Research and development usually represent 16% of total manufacturing costs. Besides, constant investment is usually made in these factors to be able to update a manufacturer’s vehicle model. In turn, R&D is necessary for automakers to be able to offer ever better performance or safety features, among others.
2. Advertising And Labor
The workmanship of each vehicle can vary with the evolution of technology. In fact, in recent years, certain machines have been implemented that automate the tasks of many workers. In this way, car manufacturers seek to optimize the level of production as well as reduce the production costs of each vehicle. However, it is always necessary to have some human labor.
For its part, advertising does its job to encourage people to buy units from a given car manufacturer. This, in turn, is one of the important factors for constant growth and development. Otherwise, a car manufacturer that does not use advertising would be easily displaced and overshadowed by the rest of the car manufacturers that use advertising.
The selling prices of each vehicle are also determined by the taxes that an automaker must pay. In general, these taxes are set specifically on each vehicle sale. In turn, the taxes are paid by the automaker even though the necessary money is transferred to the total cost and selling price of each vehicle.
So, the total cost of a vehicle may be different in one country or another. Here, the factor that may be different from country to country is the taxes that must be paid on each vehicle. In turn, vehicles that are imported into many countries are often more expensive than those vehicles that are sold in the countries in which they are manufactured.
4. Additional Factors
Here, are some additional costs that also influence the final selling price of a vehicle. Some of these costs are as follows:
1. Dealer margins
4. Auxiliary overhead costs
By taking each of these factors into account in the manufacture of a vehicle, we can see why the total manufacturing cost is very high. Of course, as we have mentioned, total production costs vary considerably from model to model. However, most of the selling price of a vehicle is made up of manufacturing costs.
So, when considering the most expensive high-end sports cars, we can realize that most of the cost is due to the production required. Many of these cars use high technology, exclusive high-performance parts, and a detailed manufacturing process. All this considerably increases the final selling price allowing only a few people to have access to these vehicles.
How Much Do Dealers Earn Per Car?
The costs of manufacturing a car include certain important aspects that make up the final selling price. One of those important aspects is the profit margin that dealers should keep. A dealership is an essential part of a car manufacturer since they are in charge of incentivizing and making sales.
Among the minimum profit margins that a dealer can earn is $200. For each vehicle sold, a dealer also has the possibility of earning a profit of $2,000.
As is generally the case, these profit margins can vary considerably depending on the final price of each unit sold. Likewise, each dealership employee keeps a percentage in commissions for each sale made.