How to Transition Pricing as Tesla's Vehicles Evolve

[jhm]

Tesla would have a huge risk with your strategy, @jhm: if the vast majority of customers opt to wait, the production lines would be idled while the new model awaits production. I think that the time between announcement and commencement of production has to be short, and further that there needs to be a step-up in price, to limit the impact on production and the regret of customers who receive the older model ("at least mine cost less").

I think that this is what we'll see for the AWD Model S release. While we few here on TMC know that it's well along and likely to be released this quarter, Tesla has been silent about a release date. I seriously doubt that people who have finalized their orders this month or next will be able to modify those orders to be AWD. Short lead time on announcement, step-up in price.

Yeah, I recognize that risk. In the case of higher density batteries, a modest price increase may be consistent with the objective of holding the price stable. For example, price the 100 kWh $6000 above the 85, the 70 $4000 above the 60, and offer a 50 $4000 below the 60. (Note a higher density 50 could get more miles per kWh than the 60, and it would give the impression 5 has Teslas are becoming more affordable.) Such a pricing scheme does no reason fundamentally increase the price of the Model S. In fact, on a per range basis, it would slightly decrease the price.

If this modest repricing was not enough to keep the factory running at full capacity, then at least two more options remain: divert more old version cars into the service loaner fleet and sell cars with a rebate. Either way, Tesla is absorbing the reduction in value due to discontinuation. I would prefer this to the rebate check idea discussed upstream. There is no need to give away apology checks to someone who purchased a car prior to the announcement of an upgrade, but as a practical matter a rebate offered to a post-announcement buyer may be needed to clear inventory. But it a pricing scheme like the above is in place the perhaps a modest rebate of $1000 or $2000 may be needed so close the sale. Again this would not be such a big price adjustment as to alter the basic resale value of older Ss.

On the other hand, an option like AWD is not likely to create much of a problem. The option will carry its own price and only a fraction of buyers would want it. I, for one, would not pay an incremental $2000 or wait an extra month for it, so I would happily take delivery earlier while others wait for an option that they more highly value than I.

 

[mitch672]

I've gone through this already, my reservation was in July of 2012, delivery was 6 months later in January of 2013.

Since then, Teslas has new options for the Model S:

Power folding mirrors
Parking sensors
Winter package (rear heated seats/steering wheel/wipers)

While some of these things can be retrofitted (for a very high price), it's generally not worthwhile.
On the other hand, with all of the price increases, my same car is at least $10-12K more than I paid, so I am not unhappy I bought early. I've priced some of the newer options, and frankly they are too much money to retrofit.. What's more likely to happen is I'd upgrade to a Model X or wait until the AWD Model S, in a few years, and sell my used Model S as it is. That's what's practical, in reality.. I won't be first in line for either the AWD Model S OR the Model X either, too many early issues I'd rather wait for them to sort out first.

 

[kcveins]

I've gone through this already, my reservation was in July of 2012, delivery was 6 months later in January of 2013.

Since then, Teslas has new options for the Model S:

Power folding mirrors
Parking sensors
Winter package (rear heated seats/steering wheel/wipers)

While some of these things can be retrofitted (for a very high price), it's generally not worthwhile.
On the other hand, with all of the price increases, my same car is at least $10-12K more than I paid, so I am not unhappy I bought early. I've priced some of the newer options, and frankly they are too much money to retrofit.. What's more likely to happen is I'd upgrade to a Model X or wait until the AWD Model S, in a few years, and sell my used Model S as it is. That's what's practical, in reality.. I won't be first in line for either the AWD Model S OR the Model X either, too many early issues I'd rather wait for them to sort out first.

This.

I got my car in Feb 2013, and was driving a new loaner last week.
All of these, plus more (much sharper rear camera images, etc) are in the newer vehicles and this is just the price that you pay for getting a car and driving it for 18 months. Just like a new computer or new phone that seems to have more features or more bang for the buck, the same with Tesla.
The difference with Tesla is that there is no model year and things get changed on the fly as opposed to the traditional car maker philosophy

 

[green1]

Just like a new computer or new phone that seems to have more features or more bang for the buck, the same with Tesla. The difference with Tesla is that there is no model year and things get changed on the fly as opposed to the traditional car maker philosophy

I'm not sure why people have a problem with this. People accept it on a computer, that next week there will be a better model out for less money, but for some reason on a car they scream "but there must be a model year!" or insist that prices have to go up (computer prices have been falling for decades, all while performance has been increasing)

There's no reason why Tesla needs to raise prices to keep people who bought earlier happy.
There's no reason why Tesla needs to avoid releasing improvements until a fixed date to keep people who bought early happy.
There's no reason to do anything other than make the next car off the assembly line the best and cheapest, car that they can.

If you can't handle someone else getting a better deal than you did just because they were later. The problem isn't with Tesla, it's with you.

 

[Smallfootprint]

If you can't handle someone else getting a better deal than you did just because they were later. The problem isn't with Tesla, it's with you.

Put a little more kindly but the same basic thought: the idea that someone who purchased later got a car with 1 or more incremental features doesn't make my driving experience any less great!

I vote Tesla should keep adding features / versions as they're available and at the most fair price possible as its not like people who lock in and get the last of the old version are getting any LESS than they were promised. And I say that as the owner of an A battery.

 

[gym7rjm]

I'm not sure why people have a problem with this. People accept it on a computer, that next week there will be a better model out for less money, but for some reason on a car they scream "but there must be a model year!" or insist that prices have to go up (computer prices have been falling for decades, all while performance has been increasing)

There's no reason why Tesla needs to raise prices to keep people who bought earlier happy.
There's no reason why Tesla needs to avoid releasing improvements until a fixed date to keep people who bought early happy.
There's no reason to do anything other than make the next car off the assembly line the best and cheapest, car that they can.

If you can't handle someone else getting a better deal than you did just because they were later. The problem isn't with Tesla, it's with you.

I agree with your premise, but I don't think the situation is quite the same as a cell phone or laptop upgrade. The upgrade cycles for consumer electronics is much shorter than cars. People are upgrading their cell phones and laptops every 1-3 years. Furthermore, consumers buy knowing that better models will be out in 6 months or less.

It is understandable that someone might be disappointed if a major update happens to the Model S right after they buy because they probably won't be upgrading their car for a longer time period. They could have to deal with not having the big upgrade for 10 years.

The existing model they are doing seems to be working well though. Continually rolling out new features; adjusting what features are in certain packages; and adjusting the pricing for these updates.

For major updates, like AWD or larger batter option, I think we will see a price increase for the new features. These features will probably trickle down to lower end models over time, but will only be available on the top model to start with. The AWD Model S Supercar variant rumor seems to support this.

 

[dalalsid]

It is understandable that someone might be disappointed if a major update happens to the Model S right after they buy because they probably won't be upgrading their car for a longer time period. They could have to deal with not having the big upgrade for 10 years.

Such people should lease. Self driving is coming in <10 years and that will be a major upgrade. I still think the continuous incremental upgrades are the way to go for Tesla. Model year mentality is what causes "major update" right after you buy. Incremental update sort of avoids that.

 

[ecarfan]

For major updates, like AWD or larger batter option, I think we will see a price increase for the new features. These features will probably trickle down to lower end models over time, but will only be available on the top model to start with. The AWD Model S Supercar variant rumor seems to support this.

In the case of an AWD S of course the cost will be greater because it requires an additional motor and inverter and drivetrain to the front wheels. No one is saying that an AWD S should cost the same as the current model.

But in the case of higher capacity cells becoming an industry standard at the same cost as the previous generation of cells and then Tesla using the new generation cells in their existing Model S battery case, then there is no reason for the new higher capacity battery pack to cost more to the end user, the car buyer. This happens all the time in consumer electronics, and it will happen in EVs as well.

It will accelerate the shift to EVs if every few years battery capacities increase but price remains the same or even goes down. That is what should happen, and it would send a powerful message to the market that EVs are clearly the logical choice for personal transportation.

I am a relatively recent Model S owner but if next year Tesla starts selling cars with 70kW and 100kW battery choices for the same price I think that would be great!

 

[gym7rjm]

Such people should lease. Self driving is coming in <10 years and that will be a major upgrade. I still think the continuous incremental upgrades are the way to go for Tesla. Model year mentality is what causes "major update" right after you buy. Incremental update sort of avoids that.

I don't think that is a fair argument to make, that in order to avoid disappointment over missing an upgrade, you must lease. I was pointing to the differences between how a cell phone buyer and car buyer would react to missing a major upgrade. Because the consumer upgrade life-cycle between these two groups is much different, I think there is a pretty distinct difference between these two groups, with the latter group having a higher chance of buyers remorse from missing an upgrade.

In the case of an AWD S of course the cost will be greater because it requires an additional motor and inverter and drivetrain to the front wheels. No one is saying that an AWD S should cost the same as the current model.

I agree that it is pretty obvious that AWD, or any upgrade similar in scope, will cost more initially when introduced. It was a counter point to green1 writing "There's no reason why Tesla needs to raise prices to keep people who bought earlier happy." Tesla won't raise prices without reason, and their price increases from adding more valuable options probably will keep earlier buyers happy to some degree since they paid less.

It will accelerate the shift to EVs if every few years battery capacities increase but price remains the same or even goes down. That is what should happen, and it would send a powerful message to the market that EVs are clearly the logical choice for personal transportation.

On a global scale I agree that battery capacity and price value will improve over time. $100k Model S in 5 years will be much much better than a $100k Model S today. However, I also think that the Model S ASP will increase gradually over time as better options emerge. Maybe the entry level S price won't increase too much, but the highest end S will increase by a lot over time pulling the ASP up by a lot. At the same time GM of the S will increase into the 30's% due to high GM options and lower battery costs over time.

I am a relatively recent Model S owner but if next year Tesla starts selling cars with 70kW and 100kW battery choices for the same price I think that would be great!

What if the 70 kWh and 100 kWh battery choices were released the day after you brought your new S home? As an investor and Tesla fan, maybe it wouldn't annoy you that much, but it might annoy the average buyer quite a lot.

The idea of price evolution of the Model S is very interesting to me and I think it brings up a lot of questions about what Tesla's policies will be in the future and how consumers will respond.