How much does it cost to build a car manufacturing plant?

The automobile usage rate has been increasing dramatically for the last 20 years.  The time-saving advantage is the most important reason for this. The more we become modern, the more we can realize how valuable time is! Now, we treat time as money. 

So, if you want to build a car manufacturing plant, you have to gather vast knowledge about its cost. That time, you have a question: how much does it cost to build a car manufacturing plant? 

A car manufacturing plant needs a huge investment based on the business size, R&D cost, geographical location, material quality, and labor cost. However, after a rough estimation, we have found it costs you around $8 – $10 billion.  

Fortunately, that amount isn’t the fixed cost. So initially, you don’t have to manage this large amount. You can start after managing approximately $5-$6 billion and the rest you’ll need during the work session. Let’s know every cost department of this large planning. 

How Much Does It Cost To Build A Car Manufacturing Plant?

First, you have to identify the sector of investment to properly understand the reason for this huge cost. After that, you should determine what proportion of money you should invest in which sector based on their importance. As a result, you can perfectly utilize every dollar and control the cost. 

Here is a rough cost estimation table by focusing on every section:

Cost sections Percentage of cost
Research & development cost 12-16%
Fixed cost 50-57% 
Variable cost 10-15%
Marketing cost 8-10% 
Government cost 5-8%

It’s a table to provide you with the average cost idea. The amount may vary depending on the needs, importance, and value. Now it’s time to get the elaborate cost idea. 

1. Research & Development Cost

You have to think out of the box to get into the market. That’s why you should appoint highly qualified car researchers and designers to develop new concepts. You have to invest approximately 16% or $1.6 billion for their salary.  

It is the prior investment of your project, and the rest of the success mainly depends on this. So there is no scope to ignore the sector.  

2. Fixed Cost

After researching and developing the car models, you have to spend more or less $5.5-$5.7 billion as a fixed costs. There are some areas of fixed cost. For example

Land and Infrastructure

To manufacture a car plant, you must need land and proper infrastructure. You probably don’t have your own land and building where you want to build the plant. In that case, you have to rent the land with buildings.  

Here the geographical area is another factor you should consider before choosing your land. You should choose your area by considering the communication system, enough road infrastructure, availability of raw materials, and human resources so that you can reduce the next step’s variable cost. 

Arlington, Texas, Kentucky, Michigan, Tennessee, and Indiana are some of the famous places in the USA to build a factory. You need approximately 25000-50000 square feet of land for your car manufacturing plant. You have to divide the space into various departments to operate your business. Such as warehouse, production, management, marketing, sales, etc. 

Here’s a chart of costs per square feet of space in different places in the USA

  • Arlington Texas – $19.84
  • Kentucky – $0.896
  • Michigan – $28.65 
  • Tennessee – $18.28 
  • Indiana – $23.86 

So, you may have to invest at least $1 billion for land and infrastructure purposes. But, in recent years, you have to spend a large amount as advance payment to rent any space. Another $1-2 billion you need for this. 

Equipment Costs 

The equipment and machinery sections are another way of fixed cost. The powerhouse or boiler, transmission housings, aluminum drive housings, gearbox cases, engine blocks, water pumps, engine cylinder heads, piston rods, etc. needs a minimum $2 billion investment.

Maintenance Cost

Paying building rent and workers’ monthly salary isn’t enough to run your business. Besides these costs, you should maintain them. Otherwise, your production range will reduce day by day. 

Maybe you have to pay the workers for absence or not working hours and maintain the infrastructure. Here, you should spend approximately $500 million annually.

3. Variable Cost

In the primary stage, you have to spend a significant amount to collect raw materials and other things. But, in accounting, these are considered as variable costs. Some common variable costs are

Material Inputs

You need some basic tools and raw materials for your car manufacturing factory. Some of the construction raw materials are steel, sheets, silicone pipes, board, glasses, doors, ceiling panels, etc. You may need to spend around $1.2 billion for this purpose. 

Labor Costs

After managing land, you have to manage an efficient workforce. And in a car manufacturer company, you’ll need different categories of staff. For example 

Controls engineer, powertrain engineer, test engineer, vehicle dynamics engineer, body shop technician, heavy equipment operator, oil technician, tire technician, welder, painters, hand packaging experts, etc. You have to pay an averagely $1 billion for those skilled professionals’ monthly salary

Packaging cost

You have to keep your budget for car packaging. Because it is a heavy and large product and needs thick and robust packaging to prevent shipping damage. 

You can use large and waterproof plastic to wrap the car. You have to spend around $5 to $15 to purchase per square feet car packaging plastic. And you need almost 19 square feet of plastic to wrap a car. That means you have to spend roughly $285 for packaging a car. 

Logistic and energy costs

You should store a fixed amount of extra raw materials to continue production and maintain good supply chain management. Otherwise, you may have to face raw materials shortage if it needs more time for transportation.

In accounting, this cost and the transportation cost of raw materials are considered logistics costs. For the logistic costs, you have to spend around $1 billion dollars, and to get better results, you have to spend it upfront. 

4. Marketing Cost 

If you are asked, “What is your target to build your car manufacturing plant?

Your answer will be “sales.”, right?

But, how do people know about your company and your car?

Yes, it is marketing and advertising.  

Now, there is huge competition everywhere. The more effectively you can do your marketing, the more you can reach your targeted audience. And the more you can engage your audience, the more chances you can create to sell your car. 

You have to promote your car both offline and online. TV advertisement, social media boosting, campaigns, and creating quality content are some of the advertisement spaces. 

As you are new in the automobile industry, you should hire the best marketing agency and follow an effective marketing funnel to backfire your competitors. You have to keep at least $50 million for marketing purposes by considering the present advertising market. 

5. Government Cost

No matter which country you live in, you have to follow the government rules and regulations to establish a business. You can’t do anything against them. The Environmental Protection Agency (EPA) and the National Highway Traffic Safety Administration (NHTSA) regulate this sector in the USA.  Here are two government costs for a car manufacturer company

Greenhouse gas emissions cost

When you manufacture cars, your factory will produce different types of toxic gas, which is harmful to the environment. It increases the greenhouse effect.

You can avoid this gas emission by using energy efficiency and fuel switching equipment. You may need to spend $1 billion to adopt these new facilities and gadgets. 

Sales tax

You have to pay sales tax to the government for your car manufacturing factory. But, the rate of sales tax isn’t fixed for all locations. It’ll vary depending on the location of your factory. 

Some popular states of USA and its sales tax rate

  • Arlington Texas – 8.25%
  • Kentucky – 6%
  • Michigan – 6%
  • Tennessee – 7%
  • Indiana – 7%
  • Illinois – 6.25%
  • Georgia – 4%

When you calculate the total sales tax, that can be $500 million to $1 billion. You should also keep this amount when you budget the cost. 

So these are the sector by sector average expenditure sheets of a car manufacturing plant. 

How Long Does It Take To Build A Car Manufacturing Plant?

After knowing the average cost, it’s time to know the average time frame the project may need to complete. 

It may need approximately 1-3 years to complete the plant and go to production based on the factory size, planning, site excavation and preparation, and many other factors.

The time will vary because of the factory location. If your factory is in an urban area, you’ll find all the construction equipment easily from more suppliers available and need less time to get them to your factory. 

On the other hand, if your factory is in a rural area, you have to face many challenges to find out the suppliers and need more time for transportation. 

How To Calculate The Total Cost Of A Car? 

It is very difficult to calculate the total production cost of a car because of many variables. But, here, we’ll try to make it simple.

First, you have to calculate the total fixed cost. Then divide the amount by the number of total producing cars. Next, add all variable costs for a car. Now, add a car’s fixed cost and variable cost to get a car’s total production cost.

Per unit production cost  = Fixed cost ÷ number of units +(all variable cost)

How To Determine The Selling Price Of A Car?

To determine the selling price of a car, you have to add a fixed profit percentage with the total cost. 

For example, you spent $30000 to construct a car and you want to profit 20% on construction costs. So  

Sales price = $30000 + ($30000*20%) 

                   = $30000+$6000 

                   = $36000

Final verdict

We hope now you get a clear idea;  how much does it cost to build a car manufacturing plant?  

A large scale of planning, arrangements, and costs are involved with this project. So you have to ensure the appropriate investment to sustain this business. Otherwise, you can’t cope with this competitive market and make your business profitable.

Good luck!

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