“One of Job's business rules was to never be afraid of cannibalizing yourself. " If you don't cannibalize yourself, someone else will," he said. So even though an iPhone might cannibalize sales of an iPod, or an iPad might cannibalize sales of a laptop, that did not deter him.”
― Walter Isaacson, Steve Jobs
You said what I just said, in far fewer words. Scroll through the rest of this message if you don't need that point driven home.
If those high end specs {for the Model 3} are for real, then Tesla will need to get to work to keep the model X and especially S an attractive proposition.
True, but why would they care (need to do this) in a timeline that avoids a dip in S and X sales? Besides the fact that many people who would prefer to buy Model 3 today who are already buying S/X instead would stop doing so, there's also a group who could afford S/X who wouldn't see the increased value and the 3 would cannibalize those as well. The first group is a win -- they are happier at that price point. The second group is a semi-loss, but I say so what? If S and X sales stop for a while, then everyone can focus together on making the Model 3 a good car for inexpensive amounts, and then Tesla will learn what differentiates the higher end models through one-on-one discussions with them about how they wish the Model 3 had this or that ("this type of chair" or "this type of legroom"), sort out what it is they want most, and then go to the drawing board on updates for S and X. We already know that Model 3 is coming out next, and no real huge time will be spent on new S and X models until after the 3 has been working out pretty well, then they'll get back to S and X. For the plan to go forward, I expect that Tesla expects that S and X will essentially stop selling except in small numbers for a while. A skeleton team can start putting out feelers to engineers and suppliers that looks at the various quality increases. Imagine this:
* Interior room: need more or not?
* Leg room?
* Head room?
* Shoulder room?
* Cargo room?
* Front grill elimination?
* Middle row folding seats?
* Cargo cage?
* Towing? Need more or not?
* Additional colors?
* Software to charge during low cost times using utility time-of-market integration?
* Software that also limits charging to when solar power is available?
* Smoother ride?
* Quieter ride?
* Most aerodynamic (smallest?) legal mirrors possible with camera side and rear view as primary rear/side viewing?
etc. etc.
For each item they come up with, and they must have a list a mile long by now, they can put a few factors in:
1. What is the engineering, design, development, testing cost?
2. What is the material cost to build?
3. What is the tooling cost to build?
4. What is the maintenance cost?
5. What is the education cost?
6. What is the sales cost?
7. What value do buyers put to this feature?
8. What income could we make off this feature?
9. How many people would not get the car if it had this feature because of cost, complication?
10. How many people would get this car if it had this feature because of cost, complication?
Let me use an example. Mercedes S class currently has an active suspension product called Magic Body Control available on its top-end cars, but you have to special-order it because it is very unpopular. Why? Because, it is prone to breaking down, and the "perceived value" to buyers is so low that it doesn't garner the $5K extra cost wealthy buyers could pay for. Why get a feature that I don't know the value of that just causes me to have to go into the shop all the time to have it fixed, and will cost $30K in repairs over the life of the car? Now, I can crow about how anybody who can afford $35K per car on this feature who might ever have a bad back will have to weigh the difference between back pain and $35K expenditure, fact is, most people would rather spend a few days in bed and a few doctor visits and gamble with a debilitating problem later in life than to spend $35K on something, and that's only the long distance drivers. Most people aren't even long distance drivers, so the cumulative effect of bumpy rides isn't that severe, even if they do have the money. So, close to no one buys that feature, and Mercedes doesn't even include it standard on dealership inventory models (except for specialty cars like the Maybach and about a third of the S65's (i.e., double price cars where they expect every bell and whistle because they can burn money)). Tesla is going to do the same thing. They will leave out a lot of the features that are too expensive, too unreliable, too pricey, etc., and go for the features that sell the most.
If massage chairs don't produce enough profit, don't engineer them. If massage chairs do produce enough profit, engineer them. (Both S and X, and not 3.)
If more legroom doesn't produce enough profit, don't design for that. If more legroom does produce enough profit, design for that. (I'm thinking Model X middle and rear rows, and the 3 -- poor people frequently come in big bodies.)
If more cargo room doesn't increase profitability the way we want it to, then don't sacrifice other features and costs to get there.
If almost no one needs towing, then forget about increasing that ability.
If additional colors would increase sales, then find the colors that would make these models look nice and offer those.
If quieter ride would give this car the differentiation that would make a lot more people buy it, then put in the engineering necessary to fasten panels down better, more sound insulation, isolation, etc. etc.. It would cost more, but if that's what would make people feel like it's better, then sell it that way. If the people who have good ears or care about noise wouldn't be enough to increase sales after the cost increase, then don't worry about it.
Here's one that might catch some people's attention: what about installing micromotors on all panel joints that every time you park would re-align every panel and exterior fixture to have perfect alignment, so it always looks nicely fit? They could have tiny little step motors geared to hold every panel just so. They would have to be structurally engineered, perhaps little highly threaded screws attached to reduction gears. How many connection points do these panels have? What membranes would need to be used to seal between moving panels that can move that much? How much room would these microadjusters take? How much would they cost? Let's say it increases the total weight by 100# and the total cost by $5,000: is that worth it to have perfectly aligned panels on your $100,000 model S or X? Tesla can ask, and if they like, answer, this question, and decide whether it's worth installing this feature on their cars.
What of carbon fiber battery packs, carbon fiber bodies? What of see-through pilars? Pilars that have curved display screens on every pillar so you can "see" through them because they transmit a proper image from the driver's view point of what is behind them from cameras mounted around the car?
How much would it cost to turn every chair into a swivel chair so you can turn it into a meeting room? Would someone who can afford a $180,000 car want to behave like trailer trash and do a meeting in a stuffy tiny little tin box where the cops could come shoot you up for "hanging out" on the street (albeit in your car), when you clearly have enough money to afford mansions and palacial offices? No, they are not going to offer swivel chairs, today. But, when Hotz, Google, Mobile Eye, Apple and Ford all partner with Tesla to finally do autonomous driving, then yes, swivel chairs all of a sudden make more sense, and the question and cost-sales comparisons can be asked again. And again.
All of this can be done AFTER Model 3 completely cannibalizes Model S and Model X sales, and then a new set of Model S and Model X can be made, that is much better, and will garner the limited market share for upscale vehicles. So, Tesla can still sell their 20,000/year - 120,000/year premium vehicles while targeting half a million/year to a million/year of the mainstays (the Model 3, pickups, minivansuvcuvwagons, trucks, etc.).
