The logic behind over the air upgrades?

[timk225]

Some of the things Tesla is doing don't quite make sense to me. For example, this new version of the Model S with a 60 Kw battery, but it is really a 75 Kw battery, software limited.

Yes, it is easy to upgrade, but what about people who will not upgrade or will do it "later"? Tesla spent the money to put in extra batteries and they are not being used. Reduced profit!

Instead, why not go to a service center when you're ready to upgrade, I'm sure they can swap out a 60 Kw battery for a 75 with no problem. And having a 60 battery that is really only a 60 also means less dead weight to haul around.

This can be applied to other options too. Instead of all cars being autopilot capable, and Tesla spends the money to install everything when it may not be used or paid for, leave those parts out, and if someone wants to get autopilot, go to a service center and they can install the sensors and plug in some wires and then software enable it.

I think this is already being done with going from a 48 Kw to a 72 Kw charger in the car, a service center changes it.

 

[kort677]

really?
advocating the old way of doing things when a better way of updating things has been introduced by tesla?
the charger is a HARDWARE update that requires physical changes and cannot be done via software updates.

 

[Tiberius]

It's cheaper to make one configuration than two. Think about the extra batteries of different sizes they'd have to keep on hand (transportation costs, storage costs, more personnel, etc.). A LOT of money goes in to the logistics of this stuff.

Not everyone will upgrade but for those who do, almost no effort is required by Tesla, making it nearly 100% profit. Not only does it makes sense, it's actually pretty smart from their perspective.

The big question is how many people will pay almost $10k to unlock an upgrade that only cost Tesla $500-1,000 to include during manufacturing. I'm betting enough people will fall for it to make it profitable.

 

[proven]

From a few people I've spoken to, they are now considering a Model S because of the price drop, and they liked that they could have the option to upgrade the battery later if the A) found out they needed it, or B) wanted to upgrade after a few years and the range had degraded a few percent.

EDIT: There's another advantage of having a software locked battery. To extend battery life you are told not to charge to 100% regularly. With a 75 battery locked at 60, I imagine charging to "100%" is not nearly as bad for battery life since it's not really full. Of course this depends on what state of charge they establish zero and 100.

About autopilot... there is a very good reason they install the hardware on every car. Whether you use autopilot or not, the car is constantly sending data to the cloud to improve the system for everyone and to map out details along every route. It sends 10Kb of data per mile. The hardware was in the cars for a year before they even enabled autopilot as it was collecting data and learning.

 

[jerry33]

Some of the things Tesla is doing don't quite make sense to me. For example, this new version of the Model S with a 60 Kw battery, but it is really a 75 Kw battery, software limited.

Yes, it is easy to upgrade, but what about people who will not upgrade or will do it "later"? Tesla spent the money to put in extra batteries and they are not being used. Reduced profit!

Not really. The cost to Tesla isn't all that much different and speeds production--production changes cost real money, so the fewer switches the better on the production line. Having the option to upgrade later increases the selling price for the purchaser when they sell the car and provides more flexibility if their needs change later. Going to the Service Centre for a hardware upgrade is inconvenient and very expensive for both Tesla and the customer. Tesla doesn't have an excess of SCs or trained personnel so anything to reduce their workload increases the amount of needed service they can do and increases customer satisfaction. I can only see this as a win for Tesla and the customer.

 

[ecarfan]

Tesla has obviously calculated that it is less expensive and more efficient to make one battery pack that they can sell as either a 60 or a 75, factoring in that a certain percentage of the 60 cars will either be upgraded after purchase by the original owner or a subsequent owner, and that if a 60 is traded in for a new Tesla they can re-sell it as a 75 CPO car. It's actually quite brilliant.

Tesla has also calculated that it is better to put the relatively inexpensive AP hardware in every car, for the same reasons. The real value of AP is in the software, not the hardware.

I think Tesla knows what it is doing.

 

[csphili]

A few reasons.
1. Tesla isn't interested in taking back old, used 60 kWh battery packs that still have plenty of life in them. They already have a battery shortage and designing a car to require two battery packs during its lifetime is a good way to sell fewer cars.

2. People who are willing to pay for the 75 are not, for the most part, going to choose the 60. At least that's the idea. Offering a new, lower-priced option should bring in buyers who would not otherwise be buying a car and increase the total number of cars sold. Even if people choose the 60 over the 75, they should still sell more cars because the price point is lower. See Tesla's mission statement.

3. Putting a third style of battery pack into production requires a bit of R&D (given new cells), together with supply chain complexity, which isn't likely to recoup the cost of the difference. The cell-level cost difference between the 75 and 60 watt packs would be less than $2250, given that Tesla personnel have claimed their cell cost to be well less than $150/kWh. This will decrease further in the future. If 1/4 of buyers choose the upgrade, the cells are paid for.

4. The cars will have substantially higher value if re-sold as CPO inventory in the future. Given Tesla's brand loyalty and the fact that the overwhelming majority of cars are traded in on new Teslas, together with the fact that Tesla can perform the upgrade for free and sell all CPO cars as 75's, it's reasonable to assume that the company will receive revenue far in excess of the relative cost difference on 60kWh cars in the long term.

5. The 75 kWh pack has higher maximum amperage and greater longevity than the old 60 kWh pack. This would probably be the case with a new 60 kWh pack as well. That means that Tesla is delivering a better car at a lower price point. Many customers know this, and it will likely be reflected to some degree in sales.

It's also worth noting that Tesla's profit margin on these cars is far, far in excess of the marginal cost of those last 15 kWh worth of cells. Given the expected increase in total sales, the likelihood that a sufficient proportion of the net increase will order the upgrade, and the likelihood that Tesla will recover further revenue in the CPO market, it's very likely that this is a profit-increasing move for the firm.

Looking at things from a different standpoint, the cost of physically replacing a battery pack would be the total market price of a new pack, which is likely more than the upgrade price, and very certainly greater than the cost of 15 extra kWh. If 1/5 of consumers upgrade, (5*15=75) Tesla achieves the same end result with fewer total cells and delivers a superior product to those who do not upgrade. That threshold should be easy to hit well before you consider the CPO market.

TL;DR, should be a profitable move and good for consumers.

 

[zenmaster]

Instead of all cars being autopilot capable, and Tesla spends the money to install everything when it may not be used or paid for, leave those parts out, and if someone wants to get autopilot, go to a service center and they can install the sensors and plug in some wires and then software enable it.

Would such a field-upgradable design cost Tesla a lot more money than a built-to-order design? Tesla certainly would require field serviceability for repair work. However, they might wind up with added manufacturing expense for any changes to facilitate option retrofits: assembly, component, harness, connectors, CPU/controller and its interfaces, and all required wiring. I'm all for doing this for this any any option if it doesn't significantly increase production costs.

The AP option might be something Tesla would leverage to get people to upgrade to a newer model car however.

 

[timk225]

really?
advocating the old way of doing things when a better way of updating things has been introduced by tesla?
the charger is a HARDWARE update that requires physical changes and cannot be done via software updates.

That's what I said. The service center changes the charger as it is a physical part.

 

[182RG]

Yes, it is easy to upgrade, but what about people who will not upgrade or will do it "later"? Tesla spent the money to put in extra batteries and they are not being used. Reduced profit!

Tesla didn't spend the extra money, per se. They spread the hardware costs across all buyers.

Consumers like the path of least resistance, and tend to be relatively impulsive. The upgrade is one way. It's real easy to add "75 kWh" to a shopping cart, and swipe your card vs. scheduling an appointment (delays), and ordering the parts (delays), and having the work performed (delays).

I think it's brilliant marketing.

 

[ChadFeldheimer]

really?
advocating the old way of doing things when a better way of updating things has been introduced by tesla?
the charger is a HARDWARE update that requires physical changes and cannot be done via software updates.

Well, to be fair, the car's SW is capable of limiting charge rate. Tesla could install the dual chargers in all cars and enable the faster charge rate via SW. Yet they chose not to.

I think Tesla decided they wanted to maintain the unlimited mile warranty on the 60kwh model, and to that end it probably turns out cheaper to use the 75kwh pack. They also know the percentage of prior 60 owners who have traded in for a 70/85/90, so they have a solid guess on how many customers would upgrade after delivery and have priced accordingly. I suspect using an OTA battery capacity upgrade path (versus a trade-in) is advantageous for both the customer as well as Tesla.

 

[ucmndd]

From a few people I've spoken to, they are now considering a Model S because of the price drop

I've heard this a lot and frankly I don't understand it. A $4,000 price drop barely moves the needle in the overall cost equation on a $70k car.

 

[JeffK]

I've heard this a lot and frankly I don't understand it. A $4,000 price drop barely moves the needle in the overall cost equation on a $70k car.

But have you seen crazy people who buy stuff just because it says that it's "on sale"

 

[182RG]

I've heard this a lot and frankly I don't understand it. A $4,000 price drop barely moves the needle in the overall cost equation on a $70k car.

Psychology

 

[proven]

I've heard this a lot and frankly I don't understand it. A $4,000 price drop barely moves the needle in the overall cost equation on a $70k car.

Every bit helps for some people.

 

[ChadFeldheimer]

I've heard this a lot and frankly I don't understand it. A $4,000 price drop barely moves the needle in the overall cost equation on a $70k car.

For the past few quarters, Tesla has offered $1000 off towards the end of the quarter via its referral program. Seems to work, as they continue to renew the program.

$1000 (or $4000) isn't what it used to be. But it's still a decent chunk of change. There is non-zero elasticity in this market.

 

[quantumslip]

Everyone seems to be up in arms over this because it feels so foreign and "wrong". In reality this practice is actually common in the tech industry, especially around CPUs and GPUs. See: Product binning - Wikipedia, the free encyclopedia

The main difference here is that unlike binning (where parts of the hardware may be defective), the entirety of the product is OK and hidden behind a software lock. I believe in fact that depending on product demand Intel may actually sell otherwise fully capable CPUs as lower-binned products if they don't have enough of the "defective" units.

In fact, now that I think about, this is somewhat similar to the difference between NVIDIA's GeForce and Quadro line of cards. The main difference? Software. In fact, if you really wanted to you could "unlock" those features via a video card BIOS flash (I don't know if that works anymore). But you don't see people up in arms over the supposed lack of professional features that aren't available in the GeForce cards.

 

[ucmndd]

Everyone seems to be up in arms over this because it feels so foreign and "wrong". In reality this practice is actually common in the tech industry, especially around CPUs and GPUs. See: Product binning - Wikipedia, the free encyclopedia

You're right that it's very common in the tech industry but I don't know that chip binning is the best example as that includes correcting for a large manufacturing / QA variance inherent in semiconductor production.

Perhaps a better analogy is one I came across recently, buying a fibre channel switch from Cisco. They sell an "8 port" switch, which is really a 48 port switch with 8 ports activated. Want more later? Just buy more port licenses (at a cost not insignificant to the base price of the switch). I also have an IBM storage controller with two CPUs, but one is software disabled. Want more IOPS? Pay the license upgrade (again at a cost not insignificant to the overall cost of the array) and you've magically "upgraded" to a more powerful box.

 

[crazybarracuda]

A coworker has a car that just got out of warranty and he just had an issue where it wouldnt start. dealership found the issue was a software update needed to me made to fix the issue. $250 later his car is updated. dont forget the towing fee of $50. i for one would like my car to be fixed over the air rather than having to take it to a shop to just do software upgrade

 

[liuping]

I've heard this a lot and frankly I don't understand it. A $4,000 price drop barely moves the needle in the overall cost equation on a $70k car.

The different between an unlock-able 60 and a 75 is $8500 (or $9000 later), which I think is enough to move the needle for many people that were on the edge.

The advantages of being able to charge to 100% daily without any damage to the battery and faster supercharging makes then new 60 much more appealing than the old 60, and makes the range less of an issue from more people.