22 Jul How Much Does It Actually Cost Manufacturers to Make a Car?
Looking to buy high dollar value vehicles but would like to save some money on taxes? It is important to begin by understanding the cost of manufacturing cars. While it is not possible to get an exact figure, it is generally more cost-effective to manufacture larger cars or when there is a bigger production volume. This means that building a limited number of exclusive versions or adding luxury features to a car will significantly push up the cost. For this reason, some cars are usually more expensive than others. Forming a Montana LLC can go a long way in helping you save money on taxes.
The Cost of Manufacturing Cars
Cars fall into different categories of expense. This means that the cost of manufacturing one model will not be the same as that of building another. Mostly, manufacturers will not disclose the expenses incurred during the manufacturing process. However, here are the costs of manufacturing a number of cars.
- Toyota – Toyota is probably the most popular car brand globally. Forbes magazine has also listed the Toyota Corolla as the best selling car globally. Toyota relies on huge production volumes to lower their costs. For a car that sells for $ 5,000, the manufacturer can make about $2,500 in profits, leaving the cost of manufacturing at about $12,500.
- Porsche – Most Porsche cars sell for between $50,000 and $150,000. For every car, the auto manufacturer makes an estimated $17,000. This makes the cost of manufacturing about $ 33,000 to $ 133,000.
- Ford – for every average priced car that Ford sells for about $ 22,000, they make $ 2,200 as gross margin. This means that the cost of production could be somewhere in the neighborhood of $20,000.
- Ferrari – While these sports cars can cost upwards of $200,000 in the market, it has been revealed that the manufacturer makes only about $6,000 per car. This means that the cost of manufacturing could be as high as $195,000.
Just as with Ferrari, other high-end cars such as McLaren and Lamborghini cost a lot to produce. While their price tags may be $200,000, the manufacturing costs are almost as high.
Factors Involved in the Cost of Manufacturing Cars
Manufacturing cars involves two types of costs: fixed and variable costs. Fixed costs cover expenses such as the cost of maintaining facilities, finding suppliers, testing prototypes, among others. Variable costs, on the other hand, include the cost of labor, raw materials, and other related things. Below is a breakdown of manufacturing costs.
- Raw materials and auto parts – this is by far the biggest cost driver in the auto industry, accounting for up to 57% of the total price. Research and development – mandatory research and development must be done before any new vehicle model is manufactured. This takes up about 16% of the manufacturing costs.
- Direct labor and advertising charges – auto manufacturers also have to factor in the cost of labor and advertising charges for the units.
- Sales tax – to make a profit, manufacturers have to include sales tax to the cost of production. This helps in determining the price of the car in the market.
- Other factors – some of the other factors that contribute to production costs are depreciation, logistics, overheads, and dealership markups.
It’s apparent that building any car involves a lot of costs. However, taking into account the different factors that affect the final cost, the expenses vary from one vehicle model to another. Considering the costs involved in manufacturing high-end cars, it is clear why automobiles are expensive.
The good news is that you can reduce the financial demands by getting a Montana LLC to take advantage of the no sales tax in the state. Contact a Montana LLC registrant to learn how we can help you save money on the taxes that would be due on such purchases.