Is it unethical to charge extra for Autopilot (software) after we had paid for the hardware?

[MXWing]

Feel free to share some valid opinions rather than disagree with every single post I made on this thread.

So serious response. A dollar is generally fungible in a simple model.

Whether they make it in hardware or software it contributes to the top-line number of a company.

Given Tesla's free cash flow it doesn't matter if each car is 'unit profitable'. Even if the 49,000 pays for all the 'hardware', Tesla is still at a major loss because of all the other expenses to create the first car and then subsequent marginal cars.

They need that 5000+ on every car to achieve positive FCF under GAAP. They have done that for only a single quarter in their entire existence.

 

[mhan00]

Lmao, disagreed with a couple of Vaxe’s posts and he’s going on to disagree with a bunch of my previous posts in unrelated threads. Pretty funny.

To answer the original question: no it isn’t unethical. Tesla is well within their rights to charge for AP. AP isn’t just the hardware, the vast majority of it is software that costs a lot of money and time to develop, money which Tesla needs to recoup.

 

[Jedi2155]

I guess I'll try to explain each of my dislikes since you're asking for valid opinions.

I think Tesla should’ve offered an option with less Autopilot hardware for less than the $49k base. Or they should’ve raised the base price and made Autopilot standard. It leaves a bad taste to take away a feature when the car you bought already has the hardware. If it’s a monthly subscription fee for a modest $25-$50 for server maintenance, improvements and updates, then yes. $6000 is just too much.

I’m sure Tesla already factored in the cost of BOM and included that in our invoice. $6000 goes straight to the bottom line.

Curious to hear your thoughts. Thanks all

The simple answer is that the hardware costs is low enough that they decided it was worth it to install it on every vehicle now for reasons I'll explain further below. A subscription model would not bring the same revenue as a one-time cost, and would devalue it when the majority of the development costs is now, not 10 years from now.

Say $5000, over 8 years is roughly $52/month. Except many customers who might've paid $5000 (like myself) would not want to have it over the whole 8 years but maybe 3 months of the year and that quickly brings the potential revenue to 1/3rd. Then there would be those who sell their vehicle at year 4, and the next owner would not want it at all. So you're looking at only $600 of revenue spread over 4 years vs. $5000 now (especially important due to their money crunch). They'd have to charge something like $100-200/month to get the same level of benefit now which most people would be far less inclined to pay.

Because I think the EAP development cost is already amortized in every Model 3’s sticker price.

Sorry but I’m not convinced Tesla would not want to amortize EAP cost into every Model 3 that ships.

I agree with your assessment but I think it’s a huge gamble for Tesla to not amortize 100% of the cost of EAP into every Model 3 (which is why I think they did), and paying that $6k now is like paying for the same service twice. If there is evidence that the $6k for EAP has no overlap with the sticker price, and represents true development cost that Tesla has chose to absorb until the customer buys in, then I would without a doubt pay up.

I don't know how Tesla budgets their R&D and I'm betting they don't know either lol. A funny joke I've heard is that the R&D engineers there don't know what they're working on for the next until Elon tweets about it.

EAP is an on-going software development cost because additional features of EAP is still being developed right now. Right now all we have is Auto-steer, adaptive cruise etc. Summon was introduced recently, so how do you amortize the on-going software development? Don't answer that because I'm not an accounting major lol.

Feel free to share some valid opinions rather than disagree with every single post I made on this thread.

I think the one thing that is not widely known is WHY Tesla decided to put Autopilot hardware in every single vehicle to increase their BOM/costs. It wasn't to serve the business model that everyone here is discussing. The answer is more complicated, and that answer is simply Data. Big Data. Elon made a critical engineering and business decision to say that you could do full automation with simply cameras, ultrasonic sensors and radar which are all relatively cheap compared to the alternative LIDAR that other companies are utilizing in their autonomous vehicle tech.

They felt that could do tackle that problem by applying the latest big data science (machine learning, neural network, AI) to data they capture through the autopilot sensors. The big problem is capturing all the edge cases the vehicle may experience during incidents (thus why the event data recorder has lot of these details upon a crash), and create the appropriate AI response for them. The data pattern they're harvesting will be extremely valuable in the future.

This gives them a huge leg up over other manufacturers as they try to do their own autonomous driving without the expensive LIDAR technology and realize they need that same data that Tesla has already spent the past 3-4 years collecting. One should also bear to mind that Elon hasn't proven that you could do full Level 4 or Level 5 self driving with just those sensors, but only that he believes he can. We'll find out more with time.

 

[Jersey Shore Tom]

Paul, do you have unequivocal evidence that Tesla put all the EAP hardware for “free” and “did not charge for them”? Would any publicly traded company be so altruistic? What makes you so sure the $49k base you paid doesn’t include the cost of all these sensors and software development cost. Oh right, Musk said so, because he is “generous” and “did us all a real solid”.

Please, I’m sure you’re not a sheep.

I think you need to consult with both an accountant and CFO type to get a good understanding of how companies amortize R&D costs and the relationship that to product pricing. Bottomline, pricing of commercial items, especially bleeding edge one like a Model 3, bears little relationship to amortization of various costs. You seem to think Tesla "calculates" the price of the Model 3 by adding up all of the costs associated with the Model 3 then tacks something on for profit posts the price on the internet. Sorry, that is not the way it works.

BTW, how much of EAP development cost incurred in June 2017 should be amortized against the $25K sedan that Tesla hopes to start selling sometime in the early 2020's? The fact that the question is nonsense should tell you that R&D costs are not amortized against particular sales.
,

 

[ℬête Noire]

How sure are we that it doesn't actually matter? ((Hint: Pretty damn sure.))

They make a product, put a price on it. They also price the options. You decide whether or not the product and each option has that much value for you, or not, and base your purchase on that. Later you may choose to purchase another option, or not, based on your assessment of it's value to you. There is no coercion here.

I find it baffling that someone that has purchased a product(s) from Apple, of all companies, that you don't grasp this. Apple is [in]famous for padding out their margins because they do so a damn good job and designing and manufacturing them that their product's perceived value is well about the cost to design and build them. Then, in the case of things like the iPhone (and before it the iPod), for a small fraction of the cost of the upgraded flash ROM hardware they charge $100 or more for a memory bump. ¯\_(ツ)_/¯

Is that ethical? Over the years I've seen plethora of claims that it is....and of course I reject that as illogical.....and usually transparently narcissistic.

Wow, that post has got a lot of typos and Grammar Slammer Bammer moments. I don't remember drinking while posting that? A 'thank you' to those charitable Like's for fighting your way through deciphering out the underlying message in that mess.

 

[Reciprocity]

I support Tesla’s vision and have always recommended them to friends and coworkers. With the latest firmware, I was able to try Autopilot for the first time and would like to buy it - but I’m having a hard time justifying the purchase.

If I had to bring the car in for service to have them install additional sensors or cameras, then I’m all for shelling out the $6000.
However, with a 30min software download, I now have Autopilot, which means I had already paid for the hardware. It’s like buying an iPhone with camera enabled, but live video recording disabled unless you download a paid app.

I think Tesla should’ve offered an option with less Autopilot hardware for less than the $49k base. Or they should’ve raised the base price and made Autopilot standard. It leaves a bad taste to take away a feature when the car you bought already has the hardware. If it’s a monthly subscription fee for a modest $25-$50 for server maintenance, improvements and updates, then yes. $6000 is just too much.

I’m sure Tesla already factored in the cost of BOM and included that in our invoice. $6000 goes straight to the bottom line.

Curious to hear your thoughts. Thanks all

It's unethical to make a post like this without actual thought. First and foremost, the hardware is used for safety features, it's not optional for Tesla to no include it. You are paying for those features and you get them. When Tesla finishes FSD features, everyone will benefit from having a guardian angle backing them up even if they don't pay for it.

 

[Vitold]

I will answer with a question: where does money for salary for software developers who work on Autopilot updates, testing and validation comes from?

 

[Vaxe]

Appreciate the informative post

I guess I'll try to explain each of my dislikes since you're asking for valid opinions.



The simple answer is that the hardware costs is low enough that they decided it was worth it to install it on every vehicle now for reasons I'll explain further below. A subscription model would not bring the same revenue as a one-time cost, and would devalue it when the majority of the development costs is now, not 10 years from now.

Say $5000, over 8 years is roughly $52/month. Except many customers who might've paid $5000 (like myself) would not want to have it over the whole 8 years but maybe 3 months of the year and that quickly brings the potential revenue to 1/3rd. Then there would be those who sell their vehicle at year 4, and the next owner would not want it at all. So you're looking at only $600 of revenue spread over 4 years vs. $5000 now (especially important due to their money crunch). They'd have to charge something like $100-200/month to get the same level of benefit now which most people would be far less inclined to pay.






I don't know how Tesla budgets their R&D and I'm betting they don't know either lol. A funny joke I've heard is that the R&D engineers there don't know what they're working on for the next until Elon tweets about it.

EAP is an on-going software development cost because additional features of EAP is still being developed right now. Right now all we have is Auto-steer, adaptive cruise etc. Summon was introduced recently, so how do you amortize the on-going software development? Don't answer that because I'm not an accounting major lol.



I think the one thing that is not widely known is WHY Tesla decided to put Autopilot hardware in every single vehicle to increase their BOM/costs. It wasn't to serve the business model that everyone here is discussing. The answer is more complicated, and that answer is simply Data. Big Data. Elon made a critical engineering and business decision to say that you could do full automation with simply cameras, ultrasonic sensors and radar which are all relatively cheap compared to the alternative LIDAR that other companies are utilizing in their autonomous vehicle tech.

They felt that could do tackle that problem by applying the latest big data science (machine learning, neural network, AI) to data they capture through the autopilot sensors. The big problem is capturing all the edge cases the vehicle may experience during incidents (thus why the event data recorder has lot of these details upon a crash), and create the appropriate AI response for them. The data pattern they're harvesting will be extremely valuable in the future.

This gives them a huge leg up over other manufacturers as they try to do their own autonomous driving without the expensive LIDAR technology and realize they need that same data that Tesla has already spent the past 3-4 years collecting. One should also bear to mind that Elon hasn't proven that you could do full Level 4 or Level 5 self driving with just those sensors, but only that he believes he can. We'll find out more with time.

Tom - you get my question, but I find it hard to believe that when Tesla spec’d the car, and factored in all the costs that went in + cost for continued sw development, they did not put the maximum amount possible into the sticker price. Tesla is a business and they want to turn a profit - why not recoup development costs upfront from 100% of the Model 3 buyers, rather than from only those who choose the EAP option?

The public never did a tear down of the BOM value, and no one has calculated residual R&D cost for the 3, so we don’t know what goes into the $49k base. Imagine the scenario when they decided to raise the initial base from $35k to $49k — does LR battery, heated seats and a center console really drive that $14k premium, or did they feel they needed additional revenue to offset s/w costs incurred after March 2016? This is why I think we have all paid our share of ALL developmental cost to this point, and any additional $6k EAP buy-in is to support continued development and becomes fuel that goes into the bottom line. Hence my stance that EAP should’ve been standard, and a subscription service to support future s/w development.

And to answer your question - by the time the $35k base comes out, they would’ve recouped s/w cost from all the $49k models sold. This is why they couldn’t afford to release the $35k model first, as originally promised in the unveil.

I think you need to consult with both an accountant and CFO type to get a good understanding of how companies amortize R&D costs and the relationship that to product pricing. Bottomline, pricing of commercial items, especially bleeding edge one like a Model 3, bears little relationship to amortization of various costs. You seem to think Tesla "calculates" the price of the Model 3 by adding up all of the costs associated with the Model 3 then tacks something on for profit posts the price on the internet. Sorry, that is not the way it works.

BTW, how much of EAP development cost incurred in June 2017 should be amortized against the $25K sedan that Tesla hopes to start selling sometime in the early 2020's? The fact that the question is nonsense should tell you that R&D costs are not amortized against particular sales.
,

I will answer with a question: where does money for salary for software developers who work on Autopilot updates, testing and validation comes from?

see above post

 

[KG M3]

Feel free to share some valid opinions rather than disagree with every single post I made on this thread.

Hah! The most valid and informed opinion IS to disagree with everything you said

 

[Runt8]

The entire premise of this post is asinine. This is a luxury car, not a life saving drug. Tesla can charge whatever they want to charge for whatever reasons they chose. Ethics or morality never enter the equation.

 

[Twiglett]

I support Tesla’s vision and have always recommended them to friends and coworkers. With the latest firmware, I was able to try Autopilot for the first time and would like to buy it - but I’m having a hard time justifying the purchase.

If I had to bring the car in for service to have them install additional sensors or cameras, then I’m all for shelling out the $6000.
However, with a 30min software download, I now have Autopilot, which means I had already paid for the hardware. It’s like buying an iPhone with camera enabled, but live video recording disabled unless you download a paid app.

I think Tesla should’ve offered an option with less Autopilot hardware for less than the $49k base. Or they should’ve raised the base price and made Autopilot standard. It leaves a bad taste to take away a feature when the car you bought already has the hardware. If it’s a monthly subscription fee for a modest $25-$50 for server maintenance, improvements and updates, then yes. $6000 is just too much.

I’m sure Tesla already factored in the cost of BOM and included that in our invoice. $6000 goes straight to the bottom line.

Curious to hear your thoughts. Thanks all

Is it unethical to post questions that suggest software should be free because it doesn’t physically exist?
Ask Microsoft that question and see where it gets you.

 

[Vaxe]

Hah! The most valid and informed opinion IS to disagree with everything you said

I guess you are uncomfortable questioning Tesla - I’m sure Musk is an altruist and he’s not running a for profit business. Boy, there has been some good perspectives from the thread, but it has opened my eyes to the Tesla cult of devotees who can’t even entertain a discussion. I like the car and own some shares, but frankly don’t care what happens to the company in 10 years, so I’m not going to blindly pour money in and justify that as investing in their vision.

They have a sound business model of putting future development cost into every vehicle currently sold, and I’m sure we all paid our share of development cost up to the point of taking delivery. The fact that they’re burning cash is poor management.

 

[Vaxe]

The entire premise of this post is asinine. This is a luxury car, not a life saving drug. Tesla can charge whatever they want to charge for whatever reasons they chose. Ethics or morality never enter the equation.

So paying twice for a feature is ok with you?

 

[Dana1]

I guess I'll try to explain each of my dislikes since you're asking for valid opinions.



The simple answer is that the hardware costs is low enough that they decided it was worth it to install it on every vehicle now for reasons I'll explain further below. A subscription model would not bring the same revenue as a one-time cost, and would devalue it when the majority of the development costs is now, not 10 years from now.

Say $5000, over 8 years is roughly $52/month. Except many customers who might've paid $5000 (like myself) would not want to have it over the whole 8 years but maybe 3 months of the year and that quickly brings the potential revenue to 1/3rd. Then there would be those who sell their vehicle at year 4, and the next owner would not want it at all. So you're looking at only $600 of revenue spread over 4 years vs. $5000 now (especially important due to their money crunch). They'd have to charge something like $100-200/month to get the same level of benefit now which most people would be far less inclined to pay.






I don't know how Tesla budgets their R&D and I'm betting they don't know either lol. A funny joke I've heard is that the R&D engineers there don't know what they're working on for the next until Elon tweets about it.

EAP is an on-going software development cost because additional features of EAP is still being developed right now. Right now all we have is Auto-steer, adaptive cruise etc. Summon was introduced recently, so how do you amortize the on-going software development? Don't answer that because I'm not an accounting major lol.



I think the one thing that is not widely known is WHY Tesla decided to put Autopilot hardware in every single vehicle to increase their BOM/costs. It wasn't to serve the business model that everyone here is discussing. The answer is more complicated, and that answer is simply Data. Big Data. Elon made a critical engineering and business decision to say that you could do full automation with simply cameras, ultrasonic sensors and radar which are all relatively cheap compared to the alternative LIDAR that other companies are utilizing in their autonomous vehicle tech.

They felt that could do tackle that problem by applying the latest big data science (machine learning, neural network, AI) to data they capture through the autopilot sensors. The big problem is capturing all the edge cases the vehicle may experience during incidents (thus why the event data recorder has lot of these details upon a crash), and create the appropriate AI response for them. The data pattern they're harvesting will be extremely valuable in the future.

This gives them a huge leg up over other manufacturers as they try to do their own autonomous driving without the expensive LIDAR technology and realize they need that same data that Tesla has already spent the past 3-4 years collecting. One should also bear to mind that Elon hasn't proven that you could do full Level 4 or Level 5 self driving with just those sensors, but only that he believes he can. We'll find out more with time.

Haha, I am a cost accountant. Under GAAP R&D is expensed because the future benefit is unknown (and, hey, lots of fraud potential). In most of the rest of the world under IFRS there are criteria for which R&D can be capitalized. Even if amortizing it wouldn’t be done on a per car basis because you don’t know how many cars you’re going to sell. It’s time. 3 years, 5 years...”useful life”. Financial statements can have different amortization and depreciation schedules than tax returns because the IRS tells you what the useful life of a computer, chair, building, etc is.

 

[Twiglett]

You can disagree all you want Vaxe, but it doesn’t change the basic truth that software costs dramatically more than hardware.
The hardware cost is already baked. The software costs continue to rise as new features are added and pushed out to everyone who paid for it.

 

[Maximilien]

The same argument happened before when Tesla released software locked S & X 60/60D with lower cost, some people felt entitled to 75/75D because they believed they have the hardware and think Tesla is greedy not to give it for free.

Free lunch never exists.

 

[⚡️ELECTROMAN⚡️]

I think it was unethical of you to start this thread.

 

[Runt8]

So paying twice for a feature is ok with you?

I’m not paying twice for a feature. I’m paying a certain amount for a car and more to add an option. Just like any other car I’ve ever purchased.

 

[Vaxe]

I’m not paying twice for a feature. I’m paying a certain amount for a car and more to add an option. Just like any other car I’ve ever purchased.

EAP in its current product life cycle is already baked into the $49k base you paid. The additional $6k is just to enable future development, so why lock EAP (in its current state that we all paid for), rather than charge subscription fee for future upgrades, or like you said, make them optional. This is my gripe.

 

[MP3Mike]

I think the one thing that is not widely known is WHY Tesla decided to put Autopilot hardware in every single vehicle to increase their BOM/costs.

Yes we do know. It is because they had to enable AEB for everyone. (Regulations stating that vehicles have to have to feature by a certain date.) For that you need radar, cameras, and the APE computer. Then they decided everyone should have the safety features like FCW, SCW, etc. Almost all of the hardware, especially the expensive parts, are in use on every Tesla regardless of if you purchase EAP or not.