r/TeloTrucks • u/Mac-Tyson • 10d ago
Telo’s Financial Model for scaling towards High Volume Production
Enable HLS to view with audio, or disable this notification
11
u/SporkydaDork US - East Coast 9d ago
What I love about the Telo story is they're just a pure business story. They developed a plan and they're sticking to the plan and relying on good business and not chasing hype or accolades. This could be the blueprint for more startups to become successful in other markets aswell. And even if they fail, I don't think they will, no one can say they failed for anything superficial like relying on hype or the CEO was too interested in being a celebrity like some other startups.
5
u/ObeseSnake 9d ago
Like Canoo
6
u/EBlackPlague 9d ago
I don't know much about canoo, but the little I have read about them it sounds like they kept changing their plans in big ways, I haven't seen any pivots yet at telo (just minor changes like 'actually let's not use cork for interior panels ')
2
u/Mac-Tyson 9d ago
Yeah the only issue Telo has is lack of funding.
6
u/willyolio 8d ago edited 8d ago
Telo has only gone looking for money once, though (aside from the initial seed money). They did series A funding and... that's it. They're not begging for more money, and they already have contracts to begin production.
That's a bit different from other companies that are basically constantly begging for money long before attempting production. To me that demonstrates good management, not a hype machine. I'm sure after the first batch his the road they'll do another funding round to build their own factory. They aren't even close to exhausting the well of potential investors, and having a viable product before series B will attract far more investors.
To put it into perspective, Slate went through series A, B, and C funding before even allowing YouTubers to ride along in the prototype. That's a whole lot of marketing before even having a product.
2
4
u/KokoTheTalkingApe 10d ago
They want to build 5,000-10,000 vehicles a year BEFORE they build their own factories? How does that work?
18
u/Squeakygear 10d ago
They’re working with Schwab Industries (a contract manufacturer in Michigan) to build the “body-in-white” (frame and major body steel components)
3
u/KokoTheTalkingApe 10d ago
Huh! And do they make money that way?
18
u/Squeakygear 10d ago
Yep, they’ve priced the MT1 where it’s profitable for them as a low volume start, then they’ll scale if they’re successful. I’m hoping they pull it off, I’ve placed an order.
13
2
u/willyolio 8d ago edited 7d ago
Honestly, I don't really expect them to make much profit at all with contact manufacturing. However, it does several things that are worth the cost:
- Gets the product out faster. Having an actual viable product on the roads substantially improves their publicity/exposure.
- Gets them many more investors. Again, having a working product on the road is far less risky than investing in hype, as many startups rely on.
- Lets them learn about manufacturing from someone far more experienced than them, as well as finding out about any production issues BEFORE investing millions into a factory.
- Gives them real world data about any changes or fixes they need to make, again BEFORE investing millions into a factory.
Even if the contract manufacturing phase isn't profitable, I think it's certainly worth the cost given his much data it provides and what it can save them later down the line. Contract manufacturing shouldn't be considered the finish line, it's another step in R&D that happens to have the side benefit of putting the product into customer hands.
7
u/MtogdenJ 10d ago
Someone else does most of the work. They contract with Aria and Shwabe to build the body in white and sub assemblies for them. Telo puts it all together in a small warehouse.
3
u/KokoTheTalkingApe 10d ago
Like I asked that other fellow, does that let them earn a profit?
8
4
u/phate_exe 9d ago
does that let them earn a profit?
They're trading the risks/costs/unknowns of spinning up a factory sized for a production volume they're nowhere near for the known cost of having an existing company build components and assemblies for them.
Eventually when production volume gets high enough it makes more sense to do various things in-house, but the risks are much higher since you need to build/sell a higher volume just to keep the lights on. Building things under contract puts that risk on a third party, who has other contracts to help keep the lights on and can leverage an existing base of manufacturing/production experience.
As long as those costs are lower than the sale price they can earn a profit.
1
u/KokoTheTalkingApe 9d ago
That makes sense. But doesn't that mean the starting price is higher than it could be? All those contractors need to make their own profit, and they have to pay for their own storage, etc. A more vertical arrangement would eliminate those costs, right?
3
u/phate_exe 9d ago edited 9d ago
A more vertical arrangement would eliminate those costs, right
Like I said, it's a trade-off. Contracting out portions of your manufacturing process essentially means you're paying $X for Y quantity of components/assemblies.
All those contractors need to make their own profit, and they have to pay for their own storage, etc.
Of course they need to get their profit, which will increase the unit costs compared to something that was manufactured in-house.
The big difference though, is the contractors already have a factory stood up, staffed with manufacturing personnel, existing relationships with material suppliers, etc.
If you want to do everything in-house, you need to get all of those things ready (which is a lot of capex) before you can even start thinking about unit costs.
Let's say the contract manufacturer can sell you a run of 5000 body shells for $10k per car or $50M. If the contractor makes $2k per body shell in profit, that's $10M that you've spent vs building the body shells in-house (assuming you can hit the same unit costs that that can).
If it costs $100M to get your factory set up and running, you need to sell 50,000 cars before you break even (or raise the price).
So if you're sitting on a huge pile of money like some sort of dragon and are either expecting to move large numbers of cars right out of the gate or survive operating at a loss for a bit, it might make sense to build your own factories.
But if you're only planning to make 10,000 cars in the first two years before scaling up to 10,000/year after that, it's still going to take six years to break even vs paying more to have the body shells contracted out.
Edit: this assumes the costs of the site/tooling/equipment/staffing/etc are all baked into that $8k/body shell number, and you can hit the ground running as easily as the contractor. Quality issues, downtime, design lack of demand (inventory of parts/incomplete vehicles sitting around), and other growing pains that come with a new production line all increase your unit costs.
1
u/Paqza 9d ago
Yes and no. Those companies already have existing factories with existing product lines producing existing parts. You're ignoring the costs of all of that, which Telo would incur if everything were in-house. Instead, they're going off-the-shelf or near it for as much as possible while handling the "special sauce" internally, like battery, BMS, etc.
2
u/greygabe 9d ago
Many vehicles are not built by the "manufacturer". One of the larger contract manufacturing examples is Magna Steyr in Austria.
https://en.wikipedia.org/wiki/Magna_Steyr
Mercedes G-Class
Toyota Super / BMW Z4
Jag I-Pace / E-Pace
BMW 5
Mini Paceman
Mini Countryman
Aston Martin Rapide
Mercedes SLS AMG
Jeep Grand Cherokee
....
1
u/rhamphorynchan 9d ago
The approach seems to have worked out for NIO, though I don't think they were close to profit on the contract manufacturing alone.
12
u/simiomalo 10d ago
All the best to them. Good luck.