Model 3 Supercharging Capable Discussion

[dhanson865]

Sure, pedantically I used the word "margin" wrong. The fundamental argument is still sound though: Tesla's profit per Model 3 is ~$8k (~20% of ~$40k), while their profit per Model S/X is ~$25k (~25% of ~$100k). So Tesla is currently diverting ~8% of their Model S/X profits toward the SC network

bzzz, wrong again. Tesla doesn't divert profits into the supercharging network. Supercharging is a cost and comes before the margin.

You have to realize costs are flat fee and profit is margin based. The two don't mix for the purpose of this discussion.

Sure it's a different portion of the price shown to buyers but it's a fixed cost for Tesla and is factored into the cost side before profit is decided.

If it costs $1234.56 cents per car it still costs that no matter if the car is $20,000 or $180,000

If they sell it at a round number above or below that fixed cost the difference becomes part of that profit margin but only the difference. Not the entire cost.

So if the actual cost for supercharging to Tesla is $2000 over the life of the vehicle and they charge you $2000 for it there is 0% and $0 towards the margin on cars no matter their price on the sticker, configurator, credit card bill, etcetera.

If the actual cost for supercharging to Tesla is $1000 over the life of the vehicle and they charge you $2000 then that profit factor is $1000 absolute and the margin percentage change due to that would vary based on the price of the car it is bundled with.

But that variable margin in the latter case doesn't affect their choice in offering the option. They can do it just as easily on $15,000 cars as $150,000 cars so long as consumers are willing to pay equal to or more than what it costs Tesla to provide that infrastructure and the power that goes with it.

You can use that to argue how much it is worth to you and make a purchasing decision but you can't as a consumer look at the price of the car and the price of supercharging and know what affect it has on margins or profitability of the car or the company as a whole.

Tesla can tell you but they aren't required to do so and will detail only what is required on their quarterly financial statements. Any talk you want to have about how supercharging affects margins has to get deep into financial statements from Tesla investor relations and will likely not be detailed enough to get you very far. Feel free to dive into Q4_15_Tesla_Update_Letter.pdf and see how vague the numbers are because supercharging is rolled up with a bunch of other costs.

 

[nwdiver]

due to increased efficiencies incentivized by pay-per-use, I think Tesla could very well make this work.

LOL... I can see people running out of a restaurant half-way through their meal to move their car before Tesla starts fining them so there will be 5 empty stalls instead of 4... sounds like a great idea to maintain customer loyalty

I've left a meal to move my car when the SCs were busy but I didn't mind because I was being courteous... but to levy a fee when it doesn't matter would be absurd. That's what happens when you apply a blanket solution to a 5% problem.

 

[Ben W]

I simply don't understand where the $2,000 figure is coming from. Right now Tesla sets aside $500 per car. If anyone has evidence they are off by a factor of four, they should be screaming to the SEC.
...
If it turns out I am wrong and Tesla can't afford it, then they would have to go to an upfront fee. Collecting $0.25 a minute for the 2 hours a year you will be Supercharging won't generate the upfront capital needed to expand the system. Either Tesla pays the upfront costs out of the sales price, or buyers pay it upfront when they buy the car.

If you are concerned with people who live near a Supercharger using it for daily charging, there have to better ways than setting a fee per charge system.

For example, we could continue to let Tesla deal with it; or, Tesla could insert software that would turn your car horn into a speaker that would broadcast "I am a moocher who uses a Supercharger for my daily driving" whenever someone Supercharges locally. Or insert your own non-sarcastic idea here that doesn't involve a fee per charge.

End of Rant.

The $500 is an accounting figure, and probably bears little resemblance to the actual lifetime cost per car Tesla incurs. At 10 cents per kWh (a very cheap rate, especially in CA), $500 pays for about 15,000 miles of electricity, which is about what I would expect to use from supercharging over the life of my Model S. (I'm currently at 37k miles, about 6k of which have been supercharged.) So the $500 earmarked from my car covers only their marginal electricity (if that), but NOT the additional costs of building and maintaining the network. I expect the same will be true of typical Model 3 owners, if not more. In short, $500 is a ridiculous underestimate of Tesla's actual costs per car for SC.

My 6k supercharged miles to date represents about 2000 minutes of charging (averaging 60kW, probably an overestimate), which at $0.25/min works out to... $500. So hey, whaddaya know, Tesla would have already recouped my $500 from the per-minute fees alone, with an expected $1000 more over the next few years.

I don't see a cleaner way to deal with the local-charging issue than pay-per-use. (In terms of simplicity, fairness, and effectiveness.) I also think it's only fair that heavy users should contribute more than light users. This is how economics is generally supposed to work. But if I think of anything non-sarcastic, I'll be sure to post

 

[nwdiver]

I don't see a cleaner way to deal with the local-charging issue than pay-per-use.

So you'd rather charge for all supercharger use than make a local call roadside assistance to unlock a SC near their home?

 

[Ben W]

bzzz, wrong again. Tesla doesn't divert profits into the supercharging network. Supercharging is a cost and comes before the margin.

You have to realize costs are flat fee and profit is margin based. The two don't mix for the purpose of this discussion.

This is splitting hairs. If Tesla is selling their car for $35k with "free" included supercharging, then it makes a huge difference to the success of the company whether their actual marginal costs per car for SC is $500 or $1000 or $2000, all else being equal. It makes less of a difference when they're selling cars for $100k (and SC still costs $500 or $1000 or $2000), but still some difference. Ultimately, the question is how Tesla should structure the supercharging model to give themselves the best chance at success in their overall mission. Accounting shell games ultimately won't change what their best strategy should be.

 

[dhanson865]

Letter to the SEC

Because we do not spend money on traditional advertising and consider our Supercharger network as our only major marketing effort from a business perspective, we recorded a portion of the costs related to our Supercharger network to cost of automotive sales and another portion to selling, general and administrative expense. This allocation was based on expected usage levels at Supercharger locations. Generally speaking, Superchargers located on more frequently traveled routes with eight or more charging stations were those that we estimated would have a higher utilization rate and are recorded to cost of automotive sales. Supercharger stations expected to have low utilization rates serve more as a marketing function for Tesla and we recorded these costs to selling, general and administrative. As of December 31, 2013, we allocated 40% of our Supercharger network costs to cost of automotive sales and the remaining 60% to selling, general and administrative. Notably, this methodology did not have a material impact to our reported automotive gross margin. Had we included all Supercharger costs within costs of automotive sales for the full-year 2013, our automotive gross margin would have decreased by approximately 0.1%.

At least annually, we review the utilization of our Supercharger network and adjust our cost allocation, as appropriate, based upon changes in utilization trends.

Bolding mine, as in supercharging costs don't affect margins noticeably.

 

[Canuck]

Well, though I will likely bow out soon...? I was really just reserving my right to say, "I told you so!" to all the folks that desperately believe Tesla Motors must become 'The NeXT EXXON!!!' to survive. I submit there is no need for the Supercharger network to be a profit center. They already generate profit, by getting more people to buy the cars.

It has nothing to do with being a profit center. It has everything to do with making it work and avoiding congestion. I don't see money as the issue, but rather efficiency, and I think nwdiver and ohmman raise some really good ideas about keeping it free to use, and also free of congestion. I'm all for free for long distant travel. I'm against locals charging (unless they have no other option -- then I believe they should be granted an exemption). But I keep going back to the fact that Tesla hasn't said "Free Supercharging" which raises a red flag for me. Why not just say it and get more orders? Maybe because Tesla hasn't even decided this issue yet? Or maybe because they have and Supercharger "capable" and Supercharger "enabled" are two very different things. Who knows? I sure don't and neither do you.

As to the "I told you so!", I've never been concerned about being wrong. I don't know any successful person who hasn't been wrong, and the most successful people I know have been wrong multiple times. I'd never have been able to afford a Model S (and much more) if I hadn't been wrong and taken risks. It's persistence, and changing one's opinion when convinced of a better one, that I admire most. Saying "I told you so" is schoolyard language to me. No one posting here knows and I almost think Tesla is hedging their bets and playing it by ear too.

“The more I learn, the more I realize how much I don't know.”
― Albert Einstein

 

[ohmman]

Pardon the interruption, but as one of the mods for this section, I just want to tip my hat to all of the participants in this heated discussion. You've been able to have strong opinions, argue them, and keep it very civil. Keep up the decidedly abnormal Internet discourse!

 

[Jersey Shore Tom]

The $500 is an accounting figure, and probably bears little resemblance to the actual lifetime cost per car Tesla incurs.

Check with an accountant or lawyer, but I believe making material misrepresentations in SEC filings is a good way to get an invitation to Club Fed.

 

[Ben W]

LOL... I can see people running out of a restaurant half-way through their meal to move their car before Tesla starts fining them so there will be 5 empty stalls instead of 4... sounds like a great idea to maintain customer loyalty

I've left a meal to move my car when the SCs were busy but I didn't mind because I was being courteous... but to levy a fee when it doesn't matter would be absurd. That's what happens when you apply a blanket solution to a 5% problem.

You've run out during a meal to feed a meter when there were plenty of other metered spaces open, I presume. Is that absurd? It adds a lot of complication to special-case these things, and would lead to way too many edge cases where someone will feel slighted. What if you're parked not-charging in a mostly-empty SC stall, having dinner a 20-minute walk away, and suddenly 10 cars show up at once?

Sure, you could try to make rules. Stall-hogging is free unless all stalls are full. (But then you might be reluctant to pull in to the last open slot because you'd suddenly be costing money to all the stall-hoggers around you.) Supercharging fees are waived if you drive 100+ miles within 24 hours of charging. (I kind of like this one, though the waiver might have to be made up for by higher fees otherwise.) No supercharging within 20 miles of home. (What if you live 19.9 miles away and your neighbor down the block lives 20.1 miles away? Is it fair that he can charge there free all the time while you can't?)

If pay-per-use supercharging saves me $2k upfront, and it's a simple straightforward system, I'd happily accept the slight inconveniences associated with it. But that's just me I guess.

 

[dhanson865]

This is splitting hairs. If Tesla is selling their car for $35k with "free" included supercharging, then it makes a huge difference to the success of the company whether their actual marginal costs per car for SC is $500 or $1000 or $2000, all else being equal

You are still misusing the word cost. There is a marginal profit per car or a marginal loss per car. There is no such thing as marginal cost in this case (because the cost of the infrastructure is independent of the car price).

It not only doesn't have a huge difference it isn't even a noticeable difference.

Letter to the SEC

Because we do not spend money on traditional advertising and consider our Supercharger network as our only major marketing effort from a business perspective, we recorded a portion of the costs related to our Supercharger network to cost of automotive sales and another portion to selling, general and administrative expense. This allocation was based on expected usage levels at Supercharger locations. Generally speaking, Superchargers located on more frequently traveled routes with eight or more charging stations were those that we estimated would have a higher utilization rate and are recorded to cost of automotive sales. Supercharger stations expected to have low utilization rates serve more as a marketing function for Tesla and we recorded these costs to selling, general and administrative. As of December 31, 2013, we allocated 40% of our Supercharger network costs to cost of automotive sales and the remaining 60% to selling, general and administrative. Notably, this methodology did not have a material impact to our reported automotive gross margin. Had we included all Supercharger costs within costs of automotive sales for the full-year 2013, our automotive gross margin would have decreased by approximately 0.1%.

At least annually, we review the utilization of our Supercharger network and adjust our cost allocation, as appropriate, based upon changes in utilization trends.

 

[Jersey Shore Tom]

If pay-per-use supercharging saves me $2k upfront

I don't think pay for use is going to save you $2K upfront. I believe the cost for Supercharging will be baked into the $35K base price just like it was baked into the price of your P85.

 

[Ben W]

Check with an accountant or lawyer, but I believe making material misrepresentations in SEC filings is a good way to get an invitation to Club Fed.

I'm not saying they're doing anything illegal. I just imagine that they're able to use various accounting mechanisms to legitimately displace some of the marginal SC costs to other places where it doesn't have to count as part of the $500 figure. I've seen a lot of analysis (including my own) suggesting that $500 is an unrealistically low estimate of the total marginal cost, and little plausible analysis showing that it's actually a correct representation. With my 3-year-old Tesla I've used at least $300 in SC electricity already (assuming $0.15/kWh), on track to use $1000+ over the life of the car. You'd need a LOT of drivers barely using the system at all to make up for the significant number of heavy users who use the SC's even a lot more frequently than I do.

 

[Jersey Shore Tom]

One thing I haven't seen in the various Supercharging discussions is a call for future Model S and Model X Teslas to have some sort of pay for use plan. Why is that?

 

[Red Sage]

The chance that the $35k base car will include free unlimited supercharging for life is precisely jack squat. Without pay-per-use there would have to be a ~$2k a la carte option (as the S60 had) to enable the unlimited supercharging. Thus the minimum cost for a SC-enabled Model 3, under the unlimited model, would actually be $37,000.

OK. Maybe I should have asked, "Why?" instead. Because the way you list this makes no sense whatsoever. I have already explained, at least a few times, exactly why I believe that the amount for Supercharger access would be only $500 -- either included within the cost of a $35,000 or as a fee to pay for the option. Why do you believe that today, four years after the introduction of the Model S, a whole year after the Model S 60 was Discontinued, and with every single Tesla Motors product that has been released since having Supercharger access standard -- the Model ☰ will require a whole $2,000 fee to activate the feature? Why? Why would Tesla Motors want to strongarm that much out of their Customers for a hardware design that has already paid for itself many times over? Why would Tesla Motors need that much dough over and above the cost of the car itself when at these rates of manufacture economies of scale will actually drive their internal cost down? Why would Tesla Motors want that much more money when the expansion of the Supercharger network has been fully funded thus far by Generation II vehicles alone and is destined to be doubled in active charging spaces by the end of next year? Why?

Because they sure as heck aren't going to run out of money. They aren't going broke. Their cars are all still selling. And there is no indication that they will stop selling for any reason for years to come.

Why are you so insistent that people pay $2,000? Give me a reason. Not an assumption. Not doom and gloom.

You've already admitted it would not be a profitable endeavor to pay-per-use. You might as well admit that it is contrary to the mission of Tesla Motors. And we have already shown evidence that pay-per-use is not the intention of Tesla Motors.

So...

Why?

 

[nwdiver]

You've run out during a meal to feed a meter when there were plenty of other metered spaces open, I presume. Is that absurd?

If I helped pay to install the parking spot and no one needed it..... how is it not absurd?

No supercharging within 20 miles of home. (What if you live 19.9 miles away and your neighbor down the block lives 20.1 miles away? Is it fair that he can charge there free all the time while you can't?)

If pay-per-use supercharging saves me $2k upfront, and it's a simple straightforward system, I'd happily accept the slight inconveniences associated with it. But that's just me I guess.

Gotta draw the line somewhere... if it's 20 miles then yes... I wouldn't care...

Upfront $$$ is required.... as you've said yourself a per use fee isn't going to discourage travel so the money to support superchargers for cars sold in 2020 needs to be collected in 2020. There's no evidence to support the notion that a reasonable use fee would have an effect on the superchargers required. Local 'abuse' has been described as negligible and certainly isn't >10% let alone 50%. The Valet service Tesla is implementing is clever and would be a rounding error compared to the cost of the network as its only require a few days a year at a few locations so there's really no need to goad people into moving their cars.

Subsidizing the $35k 3s with $60k 3s isn't a bad idea but then you place a quota on higher optioned cars. If too many people opt for the $35k car then the network can't be expanded.

One thing I haven't seen in the various Supercharging discussions is a call for future Model S and Model X Teslas to have some sort of pay for use plan. Why is that?

- S/X owners already funded the network with ~$2k baked into the cost of their car

- Elon promised 'free long-distance travel' for life.

If a pay per use fee is applied in the future it's unlikely this will apply to current S/X vehicles.

 

[Red Sage]

This math is not quite right. You're assuming that EVERY ONE of the 2%'ers in the car market will buy a Tesla, which is an impossible assumption. Also, Tesla aims to sell >500k cars per year within a few years. They will have to break well out of the 2% bracket to achieve this figure.

It is exactly correct. Based upon the terms of the conversation, he said that 'we' are only 2% of the market. I took that to mean people who are interested in electric cars and that actually make informed decisions before we buy. The market is open every year. 2% of participants is by default, people like us. And the informed among us will always get the best product. Not just 2% today, or yesterday, but 2% each and every year, of 17,000,000 people is going to be 340,000 buyers. Math works.

 

[Ben W]

You are still misusing the word cost. There is a marginal profit per car or a marginal loss per car. There is no such thing as marginal cost in this case (because the cost of the infrastructure is independent of the car price).

It not only doesn't have a huge difference it isn't even a noticeable difference.

Letter to the SEC

That's a fascinating letter, thanks for posting. Do you have a link to subsequent year's versions of the same thing?

One sentence stuck out at me, which I'm trying to parse: "We have also considered how we price certain options that include and exclude supercharging capability." My interpretation is that they're saying the 85kWh upgrade pricing already provides most of the profit to cover the supercharging network, so they don't need to allocate much else to it, which explains why the $500 figure is so low.

FWIW, Tesla spent $25.6 million on the SC system in 2013, and sold about 22,000 cars in that year. By my math, that's over $1,160 per car. (And that doesn't even include the cost of electricity.) Obviously the full story is not as simple as just dividing these two numbers, but I'm just saying.

 

[Ben W]

People often forget that those of us who even consider cars like the Tesla or whatever car fits our interests are a minority in the market. We are what marketing people dub as the 2 percenters because we only make up about 2% of the market.

It is exactly correct. Based upon the terms of the conversation, he said that 'we' are only 2% of the market. I took that to mean people who are interested in electric cars and that actually make informed decisions before we buy. The market is open every year. 2% of participants is by default, people like us. And the informed among us will always get the best product. Not just 2% today, or yesterday, but 2% each and every year, of 17,000,000 people is going to be 340,000 buyers. Math works.

I took it as HanSolo described, in bold above. Not everyone who is in a position to consider a Tesla will buy one. (Sad but true.) Hopefully many will, but not all, and probably not even most. (Tesla's current market share in the luxury car market is about 26%. This will hopefully grow, but 100% is a pipe dream.) Of course, I'd love it if they did, and all the other premium car companies evaporated! But then who would we have to make fun of?

 

[dhanson865]

That's a fascinating letter, thanks for posting. Do you have a link to subsequent year's versions of the same thing?

Obviously the full story is not as simple as just dividing these two numbers

There is no subsequent years version of the same thing. It was a one time question and answer exchange between TSLA and the SEC.

You are right, picking two numbers and dividing them without having all the math is worthless. It's how trolls make articles on other websites. I have little patience for such math.

The simple next step is to ask yourself how many years will a supercharger last? Why would you divide one years worth of cars into something that will last several years if not decades?

The troll answer is to say more cars will be sold and I'll just divide cars per year vs supercharger expenses per year going forward.

The enlightened answer requires having insider data for all the years and assigning some estimate of longevity to the sunk costs.

Since I don't have the inside data I can only say see my prior posts. If you continue to argue the point using math based on fallacies after having the concept explained then I have to assume you are disingenuous. I hope I'm not wasting my time feeding a troll.