Full Self Driving

[R.S]

Depends, Elon mentioned that options won't even be on the Model 3 unless they can be lower cost than those on the Model S/X and can be mass produced.


I can explain it quite easily... low volume and the margins help fund Model 3.

Wow, I can now understand why some people were shocked by the last twitter storm by Elon. And I bet there will be even more people shocked when the Model 3 finally comes out.

The Model 3 isn't an improved Model S for halve the price. I think that is important to keep in mind, when we speculate about pricing. You can't just spec out your Model S on the Tesla website, imagine a Model 3 badge and a slightly smaller interior and divide the price by two.

AP hardware isn't that expensive, well they might actually leave it out for the 3, if you don't order it, but otherwise it isn't really expensive to build in. But it is valuable. The development was and is expensive and it is something you can't have on any other car around. It is a good option, that many people will pay premium for.

And it is true that many technologies trickle down and get cheaper – over time. But you won't find any technology on the Mercedes S Class option list, that can be had cheaper on a C-Class option list.

Head up display is the same in both cases, but active safety features and auto steer are a $2,250 option on the S-Class. But to get the C-Class to a similar level, not even fully there, you have to pay $8,650.

Why? Maybe because the C-Class isn't an improved S-Class for have the price.

Edit: Just to have mentioned it, the base C-Class C300, with less than enhanced autopilot features, and cloth seats(!), is $49,655.

 

[JeffK]

Wow, I can now understand why some people were shocked by the last twitter storm by Elon. And I bet there will be even more people shocked when the Model 3 finally comes out.

You can hear more about it from Elon at 2:31:50 - 2:34:00

I'm also confident they won't leave it out of cars if people do not pay for the feature. It's very useful for Tesla in crowdsourcing mapping data, in addition, we were told at launch that every car will come with the hardware.

 

[boaterva]

AP hardware isn't that expensive, well they might actually leave it out for the 3, if you don't order it, but otherwise it isn't really expensive to build in. But it is valuable. The development was and is expensive and it is something you can't have on any other car around. It is a good option, that many people will pay premium for.

Stated by Elon and the Tesla blog: every car made after last October has ALL AP2 hardware included. Not sure why this isn't understood by now.

 

[JeffK]

The Model 3 isn't an improved Model S for halve the price. I think that is important to keep in mind, when we speculate about pricing. You can't just spec out your Model S on the Tesla website, imagine a Model 3 badge and a slightly smaller interior and divide the price by two.

What you can do is choose the base Model S 60 at $68,000 and subtract $35,000 for a base Model 3 with similar or better range. This gives a difference of $33,000.

Next spec out a 75D and if one assumes that option prices do not decrease (which we know isn't true because of the AWD price tweet last year) then what you'll find out that if you get all the options for the 75 D minus the rear facing seats and subtract $33,000 then it'd be around $65,500 for the non performance model.

Basically you should be able get a fully loaded Model 3 (non-P) for less than the price of even the base Model S, which won't even be available anymore.

 

[R.S]

It isn't like I wouldn't want AP to be cheap. I just think being overly optimistic leads to disappointment, like with the HUD. I'd rather have reasonable expectations and be impressed by Tesla.

Another thing to prove my point would be the price decrease the S just saw. The base price of a 75 went down by $5,000. Tesla could just have had EAP included and left the base price unchanged, but they didn't. They rather slashed prices, than make AP cheaper. So I still don't think full self driving will be less than $8,000 on the Model 3.

 

[JeffK]

It isn't like I wouldn't want AP to be cheap. I just think being overly optimistic leads to disappointment, like with the HUD. I'd rather have reasonable expectations and be impressed by Tesla.

Another thing to prove my point would be the price decrease the S just saw. The base price of a 75 went down by $5,000. Tesla could just have had EAP included and left the base price unchanged, but they didn't. They rather slashed prices, than make AP cheaper. So I still don't think full self driving will be less than $8,000 on the Model 3.

It could never be $8,000 on a $35,000 car, it'd make no sense. This is especially true now that competitors are getting better with their own versions of AP 1.0. The market will drive these features to be cheaper and cheaper.

Consider that it'd be a poor business decision to sell these cars if the actual equipment cost was not already included with the base price. Therefore, the $8000 is pure profit to pad the profit margins. Tesla can price it anyway they wish as it's likely already built into the Model 3 $35000 price tag.

 

[R.S]

It could never be $8,000 on a $35,000 car, it'd make no sense. This is especially true now that competitors are getting better with their own versions of AP 1.0. The market will drive these features to be cheaper and cheaper.

Consider that it'd be a poor business decision to sell these cars if the actual equipment cost was not already included with the base price. Therefore, the $8000 is pure profit to pad the profit margins. Tesla can price it anyway they wish as it's likely already built into the Model 3 $35000 price tag.

I am not so sure. There are expensive options on their competitors, too. Like I said, to get similar to EAP features on the C-Class you have to pay more than 8k. And Elon said "Hardware in all cars. Autopilot safety features standard. Convenience features optional (like S and X)." I'd rather say it would make no sense to ask 8k for a feature on a high end luxury car, that costs less on a entrance level luxury car.

So while they surely could just ask $1000 for it, most would still pay a lot more for autopilot. And since they want to achieve a 25% gross margin with this vehicle, they can't just give out everything for free, just because it would be nice.

So is it impossible that AP will be very cheap on the Model 3? No, of course not. But that doesn't mean we should expect it to be cheap? There are no hints from Elon, or Tesla that AP will be cheap on the Model 3. When they increased the price on AP last year, they even said they felt this is what it's worth.

Why I even continue to argue for it, despite getting at least 2 disagrees on each comment, is that I won't be disappointed if it's less than 8k, like I wouldn't have been disappointed if it would have come with a very advanced HUD. But I just know that there will be certain people what will start to complain if it really is 8k. Or doesn't come with a great HUD, or with a 100kWh battery, or with a 0-60 of less than 2 seconds.

We have been there over and over again. We expect way too much and then complain, if your expectations don't come true. I'd be impressed if the Model 3 can compete on price and features with a BMW 3 series, a Mercedes C-Class, or a Audi A4, despite being fully electric and from a relatively young startup. No other company has achieved that, yet. To build an EV that is truly competitive with it's petrol rivals, even without incentives.

That is what's so impressive with the Model 3. That it can compete, not that it will be a lot better, than anything ever seen in the automotive landscape.

That is my take on it. So just go to a BMW/Audi/Mercedes online configurator and spec out your "Model 3". If it turns out to be even better, we can still be positively surprised.

 

[JeffK]

So while they surely could just ask $1000 for it, most would still pay a lot more for autopilot. And since they want to achieve a 25% gross margin with this vehicle, they can't just give out everything for free, just because it would be nice.

But would you agree that 25% gross margins on a $35,000 car are less than 25% gross margins on a $70K+ car?

 

[R.S]

But would you agree that 25% gross margins on a $35,000 car are less than 25% gross margins on a $70K+ car?

We can agree on that, but could we also agree that it's impossible to retain a 25% gross margin, if you sell the 70k car, with the same options as standard, and slightly smaller, for 33k less?

 

[Reciprocity]

But would you agree that 25% gross margins on a $35,000 car are less than 25% gross margins on a $70K+ car?

You do know that 25% of something is exactly the same ratio. Can we agree that the addressable market for the 100k electric car is nearly saturated at this point and one could sell 10x as many cars at half the price? 150,000 vs 1.5 million per year.

$70,000 x .25 = $17,500 gross margin
$35,000 x .25 x 10 = $87,500 gross margin

Even if the addressable market is only 3x as large.

 

[JeffK]

You do know that 25% of something is exactly the same ratio. Can we agree that the addressable market for the 100k electric car is nearly saturated at this point and one could sell 10x as many cars at half the price? 150,000 vs 1.5 million per year.

$70,000 x .25 = $17,500 gross margin
$35,000 x .25 x 10 = $87,500 gross margin

Even if the addressable market is only 3x as large.

Exactly, which is precisely why options which are priced by value, right now, for the Model S/X market will not necessarily be priced the same way for Model 3. There's zero need to do that to maintain margins unless you'd be selling the base model at a loss which I highly doubt.

 

[R.S]

Exactly, which is precisely why options which are priced by value, right now, for the Model S/X market will not necessarily be priced the same way for Model 3. There's zero need to do that to maintain margins unless you'd be selling the base model at a loss which I highly doubt.

The thing is that the base 35k Model 3 will not carry a very high gross margin, at least compared to a base Model S. And if every option is super cheap, we will never get to a high gross margin.

The main thing to keep in mind is that we should not over-hype the Model 3. And there are people that constantly do that.

Want an example?

"One has to realize, for many of us, the P100D might as well be a million dollar supercar because it's equally unobtainable.

We want ludicrous performance, but with something we can actually afford. These are very different market segments. Physically there's is zero reason a performance version of the Model 3 shouldn't be able to outperform the Model S. If they handicap Model 3 for no reason it's not going to drive people into buying the performance version of the Model S. If they don't have money for it now, they're not magically going to have money for it later.

The closest thing you'd do is drive people from a high profit margin, highly optioned Model 3 to a low profit margin, base model Model S. The very idea doesn't make business sense."

That was, in retrospect, a false assessment. Wasn't it? Elon said the Model 3 won't outperform the Model S. And we should have known it! But in the thread this was posted, quite a lot of people agreed that the Model 3 would outperform the Model S.

Do you know who posted this? I think it was someone who wants to tell me now, that the very idea, of not making AP on the 3 cheaper than on the S, doesn't make business sense.

 

[JeffK]

The thing is that the base 35k Model 3 will not carry a very high gross margin, at least compared to a base Model S. And if every option is super cheap, we will never get to a high gross margin.

The main thing to keep in mind is that we should not over-hype the Model 3. And there are people that constantly do that.

Want an example?

"One has to realize, for many of us, the P100D might as well be a million dollar supercar because it's equally unobtainable.

We want ludicrous performance, but with something we can actually afford. These are very different market segments. Physically there's is zero reason a performance version of the Model 3 shouldn't be able to outperform the Model S. If they handicap Model 3 for no reason it's not going to drive people into buying the performance version of the Model S. If they don't have money for it now, they're not magically going to have money for it later.

The closest thing you'd do is drive people from a high profit margin, highly optioned Model 3 to a low profit margin, base model Model S. The very idea doesn't make business sense."

That was, in retrospect, a false assessment. Wasn't it? Elon said the Model 3 won't outperform the Model S. And we should have known it! But in the thread this was posted, quite a lot of people agreed that the Model 3 would outperform the Model S.

Do you know who posted this? I think it was someone who wants to tell me now, that the very idea, of not making AP on the 3 cheaper than on the S, doesn't make business sense.

Read the post a bit more carefully ... it's suggesting that the high end Model 3 will have greater margins than the base Model S which is completely true.

 

[182RG]

Stated by Elon and the Tesla blog: every car made after last October has ALL AP2 hardware included. Not sure why this isn't understood by now.

Technically, the Model 3 hasn't been "made" yet. You know...EM loves his "weasel" words and phrases. Until a Model 3 is delivered into someones hands and I can see a copy of the sticker, I believe almost nothing he says around cost, timing, features, and functionality.

 

[JeffK]

Technically, the Model 3 hasn't been "made" yet. You know...EM loves his "weasel" words and phrases. Until a Model 3 is delivered into someones hands and I can see a copy of the sticker, I believe almost nothing he says around cost, timing, features, and functionality.

Well we know three facts...

1. It was stated at launch that it would contain AP hardware.
2. MobilEye isn't doing business with Tesla any longer.
3. Elon said the FSD announcement was the Model 3 reveal part 2 he had previously been referring to.

 

[182RG]

Well we know three facts...

Facts. Tesla. Sure we know.

 

[R.S]

Read the post a bit more carefully ... it's suggesting that the high end Model 3 will have greater margins than the base Model S which is completely true.

Maybe you should change that to: Which, in my mind, is completely true! Because you have no proof. So your post isn't totally false, just partly, with the other part not being provable right now. But you are 100% sure that the Model 3 will come with AP being cheaper than on the Model S?

I mean, we can sit around and fantasize about "facts". But does that make the Model 3 any better? Not really.

 

[JeffK]

Maybe you should change that to: Which, in my mind, is completely true! Because you have no proof. So your post isn't totally false, just partly, which the other part not being provable right now. But you are 100% sure that the Model 3 will come with AP being cheaper than on the Model S?

I mean, we can sit around and fantasize about "facts". But does that make the Model 3 any better? Not really.

When it was posted the margin on the base Model S was around 15% according to Elon in a financial call (Q2 2016).

If you think the high end Model 3 will have lower than 15% gross margins then I don't think they'd make a 25% average. Maybe you are thinking of the cash price instead of a percentage.

 

[R.S]

When it was posted the margin on the base Model S was around 15% according to Elon in a financial call (Q2 2016).

If you think the high end Model 3 will have lower than 15% gross margins then I don't think they'd make a 25% average. Maybe you are thinking of the cash price instead of a percentage.

To be honest, I do think that the high end Model 3 will have a greater profit, even in cash, than the base Model S has right now and even than the Model S will have then. But that is an assumption, that is based on the believe that the options on a Model 3 won't be dead cheap.

A base Model 3 won't come with the same features as a base Model S. And you will have to pay money to achieve a similar level of features. They might have some kind of tech package, like the Model S had, that most will buy, just to have satellite navigation, memory seats and internet connection.

And a Model 3 that will cost the same as a Model S will definitely bring in more cash. But the idea that a Model 3 will be as good as the Model S, or even better, but a lot cheaper, is just wrong. It won't perform better than a Model S, despite you arguing for it. It won't have a 100kWh battery, despite you arguing for it in another thread. You can argue all you want, but it won't change the reality.

 

[gregincal]

Maybe you should change that to: Which, in my mind, is completely true! Because you have no proof. So your post isn't totally false, just partly, with the other part not being provable right now. But you are 100% sure that the Model 3 will come with AP being cheaper than on the Model S?

It's hard to say exactly what they will do, but a $5000 option is not likely to be very popular on a $35K car. One thing they could do is to have a reduced EAP. The competition certainly offers stop and go adaptive cruise control and lane keeping for less than $2K. Summons is something they could certainly drop from the Model 3 EAP and leave for FSD, and perhaps auto lane change or self parking. That way they could offer it at a more attractive price and still justify the higher Model S price. Other companies driver assistance packages vary by model.