Car manufacturers keep sensitive manufacturing costs to themselves to avoid competition. Therefore, regular customers can’t know for sure how much do cars cost to make. Still, industry reports and other figures may help create an accurate estimation.
You can build a Toyota cheaper than a Lamborghini. Like other commodities, the higher the quality is, the higher the manufacturing cost. Popular vehicles need fewer raw materials, so their manufacturing costs are lower. However, some exceptions exist.
Limited edition cars may cost a lot of money to make but sell a few units with a high-profit margin. Hybrid vehicles may cost more to build but cost less to maintain in the future. Thus, it depends on several unknown factors.
This article will cover the main costs of building a car, fixed and variable costs. As a result, we may reach an estimation as close to reality as possible.
What Are the Main Costs of Making a Car?
Features are crucial for manufacturing costs as they need research and raw materials. For example, they need electric wires, leather, and technology. Some rare earth elements might even go into building the car, costing more.
- The Ford Escort from the 1970s had a 57 horsepower engine
- A 1999 Ford Focus had a 153 horsepower engine at 5750 rpm
- A hybrid 2020 Ford Escape offers a 221 horsepower engine, ABS, and electric steering.
Cars evolved over the years, each model offering more features than the previous one. Today’s cars offer fashionable features such as:
- Parking assist
- Autonomous driving
- Automotive night vision
- Ambient Lighting
- Luxurious upholstery
- Virtual assistants
Even an average car has more luxuries than an old car from 20 years ago. So, it’s more challenging to determine how much cars cost to make when popular vehicles are full of features.
These comforts add to the manufacturing costs of cars. It’s interesting to note that super fancy cars like a Ferrari might cost up to $280,000. Be that as it may, you can be confident that manufacturing it would cost $250,000 or even more.
Remember, fancy cars cost more to build, but manufacturing and retail prices are close. Yet, average vehicles have a significant gap between manufacturing and retail prices. So, the manufacturing costs of a $47,000 car might be near the $35,000 mark or even less.
Even researching and developing (R&D) these features cost so much money. For example, automakers design their cars to the tiniest details, like the cupholder. Most likely, the research costs add to the retail price.
Fixed and Variable Costs of Making a Car
The manufacturing costs of a 1970s car are different from a 2020s car. Building the exact vehicle in a few years will be different from today. It might be the same car model with the same features, but the manufacturing costs won’t be the same. It’s the same with old cars that cost more to duplicate today.
Fixed and variable costs are the two primary categories in manufacturing costs. R&D is an excellent example of fixed costs. Whether you’re going to build a large or small volume of cars, you’ll always need to do research. So, it’s a rigid expense that depends on the pre-production processes of building a vehicle, such as:
- Facility maintenance
- Building prototypes
- Rents and leases
- Utility bills
What Are Variable Costs?
Variable costs change depending on the volume of cars you make. These expenses include:
- Raw materials
- Hiring talents
- Marketing and advertising
- Gas and electricity
Variable costs also influence production costs. You’ll need more raw materials to build more cars, increasing manufacturing costs.
Variable costs are higher than fixed costs. Copper, iron and steel prices change according to supply and demand. So, research is vital because automakers profit from controlling variable expenses.
In simple terms, machines are fixed costs, but the oil running them is a variable cost. So, even if we know the fixed costs, we can’t understand the variable costs.
We can’t know for sure how much do cars cost to make. If mass-produced vehicles cost less to make than luxuries cars, so we may conclude that:
- Toyota produces more cars because mass production is cheap
- Lamborghini makes fewer but more expensive cars
R&D is a fixed cost because you must research and test your car before producing it in large volumes. Raw materials are variable costs because they depend on international prices.
In summary, the manufacturing costs of a car change over time, even for the same model. Without the actual figures from the automakers, we can only make educated guesses. So, you might want to do more research in your specific location and industry for a more accurate answer.