Supercharging letter from Tesla 8-13-2015

[NigelM]

Few folks suggested a poll; I started one here: Letter-gate-poll-Did-you-receive-the-Supercharger-please-less-local-charging-letter?

 

[ZachShahan]

It's easy to let your emotions run a bit high when Tesla does something fairly disappointing like this. But I would be hesitant to suddenly change my view on what the company is doing.

If the economics of the superchargers becomes unrealistic, then Tesla will have to make changes. Maybe consider it a perk of being among the first 100k Tesla's on the road to get free long distance infrastructure. It seems highly unlikely that Tesla will change that aspect of the Supercharger program for the first buyers given what it was sold as and using Elon's statements in the past. That might change for future buyers, especially the Model 3 owners. Did anyone really expect millions of Tesla's on the road by 2020 being able to freely get access to a Supercharger on an unlimited basis at no cost? Places like Harris Ranch would need a parking lot the size of Walmart in order to fit the daily drivers up the I-5.

There may end up being some kind of subscription model or something based on usage for the lower margin Model 3's. This problem will sort itself out over time if they make adjustments to the Supercharger user costs as existing "Supercharger Enabled" pre-purchased VIN's get traded in or no longer used. But we're still probably a couple years away from that.

Reminds me when Netflix made the move of raising prices and splitting off the DVD business. It was as if the world was coming to an end for Netflix. I remember a coworker saying the price change was making him drop his subscription and sell the stock. Cue the move from $60 to $840 and other media companies are now struggling to deal with the loss of revenue as a result of Netflix. Tesla is selling less than 0.1% of the global auto market and their goal is to get to 0.5%. There are going to be growing pains and thats what happens when you are one of the first customers.

No one said shifting consumers from ICE to electric was going to be easy. But whoever sent out the poorly worded e-mail to non-abusers was an idiot.

Excellent context. And since I haven't seen it mentioned yet, there's a JB Straubel presentation from January (iirc) where he answers questions about the Supercharger policy and basically said (iirc) that it makes sense from Tesla's perspective with such a small number of cars on the road to stick with this Supercharger model for the next few years (than mess with another accounting and technological challenge). Basically, it is a simple system that saves Tesla time and resources while offering a big perk to Tesla owners (rather really fast charging away from home). But my take is that he implied the model would change with the Model 3. I'd have to go find my article on that (and possibly watch the prez itself again if I didn't quote/paraphrase that part well) in order to confirm the end conclusion. But I remember for sure that he implied the system would change eventually, as I think we all realize it needs to.

 

[stopcrazypp]

That's silly.

Let's see, I have 5k miles now in 2 months. I took about 2900 miles of roadtrips (4 roadtrips so far). So that's almost 60% of my travels. Given, it's summer and we drive more. Over the course of a year, I'd guess my roadtrips would come out to maybe 30% of my overall travels.


I wouldn't have gotten a Tesla if that were a requirement (10% of all travel be roadtrips). That would also discourage a non-negligible amount of potential buyers.

To be clear, I'm not talking about setting a hard limit per car. I'm saying if Tesla is able to control supercharger usage to primarily for long distance/roadtrips (via letters like this one, throttling, or other means), the average will work out to ~10% of travel. Some will travel more, some less, but the average consumption will be sustainable.

However, under the assumption that daily charging is covered, the average consumption would not be sustainable at only $2000 per car (actually $500 as smac points out). This is because daily + long distance charging pretty much covers all travel (100%). With whatever means Tesla can change this assumption, they really should do so if they hope to keep the superchargers "free" (and it seems they have made it a company-wide goal to do so recently).

 

[smac]

Tesla has had a number of "it seemed like a good idea at the time" moments. Just look at the threads on new limits and fees on Ranger service.

Completely agree.

Well, whatever it was, Elon has stated that the cost of Supercharging is built in to the price of the cars.

Yes and I think that statement was a bit disingenuous. An estimate for the predicted cost of the cars was modeled in, then a portion of the revenue notionally set aside, to be drawn out over the next 20 years.

This meant gross margin in day one per car looked healthy, but there is future liability for SpC provision which must be covered by that revenue in future years.

Now this might sound like I'm nit picking, but these accounting tricks matter. What I can see happening is this future recognition of realized revenue figure is turning into an ongoing and building reduction against the headline revenue numbers and can't be obfuscated into general operating expenses. This is bad news because it effectively hurts two of key metrics (revenue growth and gross margin).

It will be interesting to see what the next SEC filings look like. If the provision has gone up, or the accounting basis has changed.

(Apologies for getting technical)

 

[Andyw2100]

When I look at the text, there is a lot of marketing speak but there are four phrases that I highlighted and numbered, that don't look accidental. They look like they were inserted by the legal team.
This is what I think these phrases mean:

[2] As a frequent user of local Superchargers: We have identified you as a frequent user of local superchargers. Superchargers are free for long distance travel only. Therefore your usage does not comply with our policy. [They could have said, "if you are using local Superchargers frequently." Instead they made it clear a non-compliance was identified. This is not a careless phrase. It is intentionally clear.]

Interestingly, if this language was inserted by the legal team, whomever inserted it needs help with his or her writing.

This is the sentence in question: "As a frequent user of local Superchargers, we ask that you decrease your local Supercharging and promptly move your Model S once charging is complete."

That sentence is actually saying, "since --I am-- a frequent user of local Superchargers, we ask that you...

There are two problems here--one large and one small. The small problem is that the writer switches from I (singular) to we (plural).

The much larger problem is that the writer is actually trying to say, "Because you are a frequent user of local Superchargers, we ask..."

But that's not what the writer wrote. To make my point more clear, look at the following sentence: "As a struggling member of Tesla's Communications department, I ask that you please donate to our 'send a writer back to school' Kickstarter campaign." With the sentence structure used in the letter, and in my example, the "As a (fill in the blank)" is describing the person or people doing the asking, not the person or people the request is being made of.

So on top of all the other criticism being properly heaped on this letter, I will add my own: it is written very poorly.

 

[silver surfer]

Zach,

Having read almost all of your reviews of Tesla (car, company, Elon), I am looking forward to your commentary on this issue. Reviewing other websites and forums, it seems that Tesla is LEGALLY obligated to honor the terms of their offer of "free use of SC system" because it is a binding contract between the buyer and Tesla. Just because Tesla was not specific as to what "free" or "unlimited" means does not mean they can redefine those terms after the contract (the sale) has been finalized. Your article should be a good one!
And, yes, I got one of those letters because my wife and I like to have a weekend dinner out at our local mall that happens to have a SC. We don't top off but I guess if you use a SC more than twice per month you are considered to be abusing the system. Yes, we're angry for being made to feel guilty about "abusing" something that we paid for. And I paid for the priveledge of using the SC system. Its like eating at a buffet restaurant. Once you pay, you can consume until you no longer can eat. The restaurant makes more money on some people because they may eat like birds and may make less profit (or none at all) when feeding a crowd of teenage boys.
Looking forward to your respnse

 

[Panu]

When I first read about free supercharging for the life of the car I couldn't understand how it would be possible. Then I came to conclusion that whenever you buy a new battery for your car that battery will include the cost of supercharging for the next 10 years or so. I presented the idea in this forum before and everybody disagreed. I still think that's how it's going to work. It's quite easy to include $500-$2000 supercharging fee in 25-30K battery price. Of course the same thing can also be done by paying you a bit less for the battery you trade in.

 

[ZachShahan]

I can see this kind of fear putting people off from Supercharging, with "better not risk it" thinking. Frankly, I can see this letter alone already making a lot more than daily "abusers" think what kind of Supercharging would be acceptable to Tesla and what they might view under the now suddenly extended-seeming umbrella of "frequent local Supercharging". Maybe that is the intention, of course, we don't know what is Tesla's motivation on this one since they've stuck to the notion they are merely clarifying old policies a little.

If Tesla feels they can't sustain their previous free model, then IMO they would do better coming up with clear guidelines (and grandfather old buyers in as applicable) before Supercharging anxiety becomes a real thing. I don't mind Tesla setting limits for new buys, or even charging for Supercharging for new buys (my own next Tesla included), but I do fear a random-seeming process will hurt both users and the company. Just be upfront and clear about it and it will be fine. Don't - and it won't be.



There's a nick available: AnxietySupercharger. Any takers?

I think you've probably nailed it here, and I hope Tesla is working hard behind the scenes to come up with a new and clear policy if this is indeed a big strain on their finances that they didn't anticipate (because hey somehow assumed people wouldn't abuse "free supercharging for life" -- which is a whole 'nother matter I don't want to jump into). People need to be grandfathered and grandmothered in, and the policy needs to come out explicitly enough to make it 100% clear to new buyers, of course. In the meantime, Tesla could (and probably will) have to say more about this, since the letter was a huge mistake.

Of course, I think the underlying problem in the case of the letter was that 1) somebody screwed up the algorithm, 2) the people who worked on the algorithm didn't communicate clearly to the people writing the letter that these were by and large not "abusers," or 3) there are just a handful of people getting the letter who shouldn't have (and they are almost all on this thread). My wild guess is a combo of 1 and 2.

I hope Tesla isn't facing a lot of stress from use of the Superchargers and the issue is being blown out of proportion, but since JB said less than a year ago that this model would be the best solution for a few year, at least, it would be bad news if the problem quickly snuck up on them.

 

[Max*]

To be clear, I'm not talking about setting a hard limit per car. I'm saying if Tesla is able to control supercharger usage to primarily for long distance/roadtrips (via letters like this one, throttling, or other means), the average will work out to ~10% of travel. Some will travel more, some less, but the average consumption will be sustainable.

However, under the assumption that daily charging is covered, the average consumption would not be sustainable at only $2000 per car (actually $500 as smac points out). This is because daily + long distance charging pretty much covers all travel (100%). With whatever means Tesla can change this assumption, they really should do so if they hope to keep the superchargers "free" (and it seems they have made it a company-wide goal to do so recently).

Understood.


Let's make a few assumptions: Average driver in the US drives 15k miles a year (I think). Over 20 years (life of the car), that's 300k miles.

Let's make the math simple and ignore charging losses.

Let's assume he's using the SpC network solely. Going with 350Wh/Mi assumption per year, he has used 105MWH in his lifetime. Let's assume that Tesla gets billed at $0.49/kwH (commercial rates), that would mean the person used $51k of Tesla's dollars.

Even if a person roadtrips an average of 10% of the time, that's still $5k worth of electricity. That's a lot more than $500.

 

[ZachShahan]

Zach,

Having read almost all of your reviews of Tesla (car, company, Elon), I am looking forward to your commentary on this issue. Reviewing other websites and forums, it seems that Tesla is LEGALLY obligated to honor the terms of their offer of "free use of SC system" because it is a binding contract between the buyer and Tesla. Just because Tesla was not specific as to what "free" or "unlimited" means does not mean they can redefine those terms after the contract (the sale) has been finalized. Your article should be a good one!
And, yes, I got one of those letters because my wife and I like to have a weekend dinner out at our local mall that happens to have a SC. We don't top off but I guess if you use a SC more than twice per month you are considered to be abusing the system. Yes, we're angry for being made to feel guilty about "abusing" something that we paid for. And I paid for the priveledge of using the SC system. Its like eating at a buffet restaurant. Once you pay, you can consume until you no longer can eat. The restaurant makes more money on some people because they may eat like birds and may make less profit (or none at all) when feeding a crowd of teenage boys.
Looking forward to your respnse

Thanks a ton. Hugely appreciated.

Honestly, I think this is a very complicated story, which is one reason why I'm spending hours in this thread, I guess. There are two hug factors here, imho, beyond the communications issue. One of Tesla's biggest competitive advantages is its Supercharger network. When I move back to Florida and "have" to get a car again, I'm leaning toward a Model S, but a big draw is the Supercharger network, since I want to travel around the US with my European-born wife & daughter. This is an anecdote, but many, many people are drawn to Tesla because of this feature, each for their own specific reason. The biggest fear is that this system is wildly unsustainable. If that's the case and Tesla quickly corrects in a legitimate fashion, good. If it takes too long to correct or turns the loving public and many of its owners against it because of a botched change of policy, that would be very bad, imho. I'm a TSLA investor, and am planning to put more money in before the X launches, but if Tesla made a big mistake when thinking about how people would use *free* Superchargers and estimating the cost, that makes me quite nervous as a long-term investor. I think what all of us here really want is for Tesla to clarify its situation and policy... and clean up its communications work.

(And just to clarify again, when it comes to the letter, I'm still putting most of the blame on the algorithm or the comms between the algo team and the email team. If the intend is to dissuade abusers from abusing, the letter is actually alright. The problem is that the net was cast way to wide for such strong wording.)

 

[dsm363]

Isn't 49 cents per kWh a really high rate?

 

[blakegallagher]

Understood.


Let's make a few assumptions: Average driver in the US drives 15k miles a year (I think). Over 20 years (life of the car), that's 300k miles.

Let's make the math simple and ignore charging losses.

Let's assume he's using the SpC network solely. Going with 350Wh/Mi assumption per year, he has used 105MWH in his lifetime. Let's assume that Tesla gets billed at $0.49/kwH (commercial rates), that would mean the person used $51k of Tesla's dollars.

Even if a person roadtrips an average of 10% of the time, that's still $5k worth of electricity. That's a lot more than $500.

They should install solar sooner rather than Later!

 

[Max*]

Isn't 49 cents per kWh a really high rate?

Isn't that what the peak rate in CA is during the day?

Residential average is 11c/kwh.

OK, found this, $0.13/kwh for commercial. Not sure how true or accurate it is: California Electricity Rates | Electricity Local

So that so that's still $1,300 instead of $500 that they assumed for roadtrips. Or $31k for daily charging.

- - - Updated - - -

They should install solar sooner rather than Later!

Solar has upfront costs. So it'll take a while to recoup the costs. So it wont be "free" for a while.

 

[ZachShahan]

Ultimately, Tesla is going to have to go to a subscription or pay per use model for Supercharger use. They will have to. There's just no way to keep "free superchargers, for life" a valid and workable idea as volumes of cars on the road build into the hundreds of thousands.

And you know what? I am fine with that. The Supercharger network is a valuable resource. I would pay to have access to it. I think one of the genius moves that Tesla made was building out an infrastructure that allows them to collect revenue beyond the initial point of sale; this is something that other car companies have tried (largely unsuccessfully) to do before (see, e.g., OnStar).

I just hope that when they do roll out paid access to the Supercharger network, they do it in a sensible way that doesn't piss people off. This letter? Not a great start, as the 220+ comments in this thread attest.

100% agree with these comments.

- - - Updated - - -

This thread is re-convincing me that Superchargers should never have been free to use. Make people pay for what they use. And if $2K is really built into the price of the car, then the car could have been cheaper too, making barrier to entry in Tesla ownership less.

However, I do think a different pay model could be used. Instead of pay at the pump, it could be a subscription service where you sign on and then get billed for monthly usage (no flat fee, just billed for electricity used).

I don't think it was a mistake at all. I think it has done wonders to grow Tesla's brand, sales, and owner happiness and loyalty. I just think a limit needs to be placed on it in a timely fashion. And, yes, if Tesla had initially said, the first 20,000 (40,000... whatev) cars will have "free supercharging for life," that might have been a better route. Of course, the demand/supply "problem" would be greater, but it would also prevent numerous problems.

 

[TexasEV]

Zach,

Having read almost all of your reviews of Tesla (car, company, Elon), I am looking forward to your commentary on this issue. Reviewing other websites and forums, it seems that Tesla is LEGALLY obligated to honor the terms of their offer of "free use of SC system" because it is a binding contract between the buyer and Tesla. Just because Tesla was not specific as to what "free" or "unlimited" means does not mean they can redefine those terms after the contract (the sale) has been finalized. Your article should be a good one!
And, yes, I got one of those letters because my wife and I like to have a weekend dinner out at our local mall that happens to have a SC. We don't top off but I guess if you use a SC more than twice per month you are considered to be abusing the system. Yes, we're angry for being made to feel guilty about "abusing" something that we paid for. And I paid for the priveledge of using the SC system. Its like eating at a buffet restaurant. Once you pay, you can consume until you no longer can eat. The restaurant makes more money on some people because they may eat like birds and may make less profit (or none at all) when feeding a crowd of teenage boys.
Looking forward to your respnse

Tesla is obligated to provide free access to supercharging, but that doesn't specify how fast it is,or where they're located, or how long you may have to wait for a spot to become available. People can either use it responsibly (meaning for travel and for occasional local use, but not as their primary source of charging instead of using a 240V outlet at home overnight if they're able to do so) or Tesla could find it's no longer worthwhile to continue expanding capacity, or decide to throttle the supercharging rate of frequent local chargers to discourage their use that way. Polls on this forum show it's a very small percentage of people who abuse the availability of a supercharger near their home. If you're not one of those people, keep using this shared resource responsibly and chill out about the email that shouldn't have been directed to you. If you are one of those people, stop talking about legal and rights and contracts, and think about changing your behavior so you don't screw it up for everyone.

 

[AB4EJ]

The fact that some people who have received the letter used a SC only once or twice tells me that the algorithm that Tesla used to select the recipients is simply wrong; once or twice doesn't constitute "frequent use." Surprising, considering how strong Tesla seems to be on other software development (but development of software to run in the vehicle is completely different from this, which was based on a database query).

I haven't received the letter yet (probably because I don't yet own a Tesla). Or maybe I will, because last week I drove thru the Rocky Mount SC in my Mercedes just to have a look at it. Maybe that will also trigger the defective algorithm.

Anyway, I would put this down to growing pains for their Communications department and or IT department, and hope that they take a lesson from this and do better.

 

[RDoc]

Let's make a few assumptions: Average driver in the US drives 15k miles a year (I think). Over 20 years (life of the car), that's 300k miles.

The average life of a car in the US is 11.5 years.
For a Tesla, the battery is going to have to be replaced after awhile, say 150K miles, or every 10 years @15K mi/year. I'm not sure what effect this is going to have on average life for Teslas, are people going to spend $20K on a 10 year old car with 150K miles on it?
If they do, there's another opportunity for Tesla to allocate a significant chunk of money to support supercharging by just making the battery a bit more expensive, say charge $21K rather than $20K.

 

[Max*]

The average life of a car in the US is 11.5 years.
For a Tesla, the battery is going to have to be replaced after awhile, say 150K miles, or every 10 years @15K mi/year. I'm not sure what effect this is going to have on average life for Teslas, are people going to spend $20K on a 10 year old car with 150K miles on it?
If they do, there's another opportunity for Tesla to allocate a significant chunk of money to support supercharging by just making the battery a bit more expensive, say charge $21K rather than $20K.

Not according to Tesla's SEC filing. 20 years was stated, so that's the number they used in their math.

 

[RDoc]

Not according to Tesla's SEC filing. 20 years was stated, so that's the number they used in their math.

I have no doubt that some Teslas will go 20 miles or longer, in fact I own a 24 year old car I drive every day. However, 11.5 is the average number according to DOT.
http://www.rita.dot.gov/bts/sites/rita.dot.gov.bts/files/publications/national_transportation_statistics/html/table_01_26.html_mfd

 

[Max*]

I have no doubt that some Teslas will go 20 miles or longer, in fact I own a 24 year old car I drive every day. However, 11.5 is the average number according to DOT.
http://www.rita.dot.gov/bts/sites/r...ortation_statistics/html/table_01_26.html_mfd

I believe you, but that's also primarily for ICE not EVs. I also agree that the battery might not last 20 years before serious degradation, or the drivetrain (lol).

I'm just trying to figure out how Tesla got to the $500 supercharging cost number, so I used their numbers to show that just the cost of electricity for roadtrips seems to be higher than $500. That's not including the cost to build out the infrastructure.

Yes, I made a mistake with commercial cost for kwh, fixed in post #293. But that's still a lot higher than what they're expecting (based on their own numbers).