Electric cars

Martyn1981

Not often that EV transmissions come up, so this jumped out at me, though the article implies it's for light/medium commercial vehicles.

Kreisel Electric Introduces Automated 2 Speed Electric Car Transmission

zeupater

almillar wrote: »

... I'm still not sure if I understand what 'against variable costs means ...

Hi

Maybe I could help here

Variable costs are the costs that you incur if you actually do (/make) something (think power for machines etc) & fixed costs are payable even if you do nothing (think depreciation, financing, management costs, rent & rates etc), so a typical product costing would look a little like this ...

---

Prime - Total
Material

---

10

---

10
DL & VWO ---- 10

---

10
Fixed O/H

---

10

Operation 1

---

10---- 15
Operation 2 ----10---- 15

---

Works Cost --- 40---- 60
Administration

---

15
Components ----25---- 25
Delivery

---

10---- 10

---

Total

---

75--- 110

---

Profit ...Selling the product at £110 results in a break-even position, and selling with a 10% profit-to-sales (ie 10% of the selling price is profit) would result in a price of £122.22

Contribution ... Selling the product at £75 covers all variable costs, but no fixed costs whilst anything above this makes a 'contribution' towards the fixed costs of operating the business. If the goods are sold at £110 there would be a 31.8% contribution-to-sales achieved.

Any goods sold between £75 & £110 in the example are making a loss for the company, but as they're covering their prime (/variable) costs they can be described as being profitable "measured on variable costs" although they're really making a loss.

The issue with fixed cost allocation is that it's invariably based on estimating though-put when standard costs are established. As fixed costs are essentially 'fixed', as long as any increase in production volume doesn't effect the indirect cost elements of the business (think not needing larger plant or more management!) then the fixed cost element can be apportioned over more components ... for example, if the production in the next year was expected to double, the prime product cost would remain at £75, but the total cost would be reduced to £92.50 due to fixed cost dilution - sales at £110 would no longer be break-even, they'd be making an 18.9% profit-to-sales although the contribution-to-sales would remain unchanged ... that's where terms such as 'operational efficiency', 'productivity' & 'economies of scale' come into play and are so important ... a company which is reporting no profit turns itself around through simply increasing volume & starts returning value to shareholders.

It's pretty simple really! ....

HTH
Z

Martyn1981

zeupater wrote: »

Hi

It's pretty simple really! ....

HTH
Z

You are kidding, right? My head is still spinning.

Question, if the building and some plant have been fully amortised, then for say Renault (just as an example given their great progress with the Zoe), could they be fairly classed as 'profitable' even if the profits above variable costs are quite small?

In other words, could we see some companies going profitable, even though it wouldn't be repeatable if a new/second factory had to built?

I'm kind of thinking back to leccy costs and the issue of coal generation costs from old plant v's new plant, and how this can skew and confuse things, whilst not really being misleading, just not a business model that can be easily duplicated.

(I'm a bit confused here, but I suspect you'll understand what I'm trying to say.)

zeupater

Martyn1981 wrote: »

You are kidding, right? My head is still spinning.

Question, if the building and some plant have been fully amortised, then for say Renault (just as an example given their great progress with the Zoe), could they be fairly classed as 'profitable' even if the profits above variable costs are quite small?

In other words, could we see some companies going profitable, even though it wouldn't be repeatable if a new/second factory had to built?

I'm kind of thinking back to leccy costs and the issue of coal generation costs from old plant v's new plant, and how this can skew and confuse things, whilst not really being misleading, just not a business model that can be easily duplicated.

(I'm a bit confused here, but I suspect you'll understand what I'm trying to say.)

Hi

That's where a business case involving new capital investment comes into play.

There are plenty of profitable businesses around that only remain profitable because their capital equipment is fully depreciated on the books, therefore they no longer take the bottom-line hit on the annual accounts ... unless there's a justification based on new business opportunities or cost reduction they often can't afford to move the company forward .. it's often a catch22 position, they can't survive without investment, but also can't invest & expect to survive so they're normally prey for take-overs.

On the question of profitability ... well that's down to what's in profit & whether it's on a product, division or corporate level, all this being linked to the effect of cross-subsidy. Parts can cross subsidise each other to help a plant make a profit and plants or even entire divisions can cross-subsidise each other within a group structure - the problem comes at the corporate level when there's not enough profit in the profitable divisions to subsidise the losses in others .... the result - failure, restructuring or a take-over involving restructuring and amalgamation/consolidation of assets.

Unless a product is truly profitable on a total cost basis then it, on it's own & at time of production given the applicable volumes, is loss making despite having the potential to move from a position of below cost contribution-to-sales% to profitability-to-sales% through little more than improving plant & machinery utilisation & increasing sales volumes ... it's often possible to move an entire product line from being loss-making into profit through reducing prices (yes reducing prices!) to grow market share ...

HTH
Z

Car_54

Martyn1981 wrote: »

No need for spin, cheap shots, avoidance or filibustering, which position do you agree with?

Neither. I was simply pointing out that there’s is a difference between facts and predictions/projections/guesses.

Martyn1981

Car_54 wrote: »

Neither. I was simply pointing out that there’s is a difference between facts and predictions/projections/guesses.

But if you'd checked, the facts (actual past sales) where there for you to see, and you'd have noted that the numbers appear to add up and match the 4m PEV claim. The only prediction/projection/guess was the graph showing estimated Chinese sales at 2018 year end, but those will of course be additional to the 4m, not contributory.

So it's interesting that you don't agree with the BNEF results. What figure did your research and findings conclude with? No FUD please.

Martyn1981

zeupater wrote: »

Hi

Unless a product is truly profitable on a total cost basis then it, on it's own & at time of production given the applicable volumes, is loss making despite having the potential to move from a position of below cost contribution-to-sales% to profitability-to-sales% through little more than improving plant & machinery utilisation & increasing sales volumes ... it's often possible to move an entire product line from being loss-making into profit through reducing prices (yes reducing prices!) to grow market share ...

HTH
Z

Thanks. Certainly explains the benefits of dumping policies, and why of course in most scenarios for everyone else, that's a bad thing.

At the risk of harping on more about Tesla (but it's a 'cleaner' EV company for these discussions as we don't need to worry about ICE's (but there is the energy production and storage strings to the bow I admit)), then that seems to match what you are saying about reducing prices.

Not exactly the same, I admit, as the product isn't the same, but they move each time into a higher volume, lower priced market to maintain viability. If the MY is more expensive than the M3, then that will display a lot of confidence, especially if they do build a 1m pa production line(s) as suggested by Elon.

Renault are doing it the hard way (but what choice do they have) attacking the even lower priced market, where volume is even more important - I suspect though, that this is an excellent learning exercise, and hope they (and Nissan) take it forward with greater production numbers and marketing. At least batt prices, long term, are on their side.

Martyn1981

I suspect we will see more and more announcements like this:

LG Chem’s 2020 Battery Production Target Raised 29% To 90 GWh

Martyn1981

Ouch! That changes the game somewhat.

Dirty Reality Catching Up With Fossil Fuel Vehicles

Car_54

Martyn1981 wrote: »

But if you'd checked, the facts (actual past sales) where there for you to see, and you'd have noted that the numbers appear to add up and match the 4m PEV claim. The only prediction/projection/guess was the graph showing estimated Chinese sales at 2018 year end, but those will of course be additional to the 4m, not contributory.

So it's interesting that you don't agree with the BNEF results. What figure did your research and findings conclude with? No FUD please.

Where did I say I disagreed?