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Anyone insulted by the arbitrary battery upgrade cost?

Anyone insulted by the arbitrary battery upgrade cost?

Am I the only one that is somewhat insulted by the obviously arbitrary cost differential between the 40, 60 and 85 kWh pricing? I realize this is TM trying to maximize their profit, which is all well and good, but wouldn't it be more appropriate if the cost difference was at least somewhat tied to the actual material costs of the components?

This is akin (to me at least) to the oil companies charging $4.00, $4.15 and $4.30 for Regular, Mid and Premium gas, when I've been told that the refining cost difference is a few pennies per gallon. It rubs me as "we can gouge you because we can".

I really want the 60 kWh battery but think $10K is too much. What price would get you to upgrade your Model S? For me it's about $5000. I have no idea what TM's incremental cost is, but they might actually generate a higher per-unit profit if they lowered the cost but more people upgraded. All they need is the data of what people are willing to pay to pull the trigger. Please post yours.

Thanks.

Timo | 21 août 2012

$10k is pretty close what Tesla needs to pay for 25kWh of batteries and assembly. In there margin is not big, so price is not arbitrary. At $5000 they would sell higher battery kWh:s in loss. Batteries are not cheap.

David M. | 21 août 2012

RickS_8756
A long, long time ago, Tesla priced the base Model S at $57,400. Also, a long time ago, Tesla said that the battery upgrades would be about $10K for each upgrade. After all this time, they held to their original pricing for the base car and the battery upgrade cost. The only unknown pricing was for the other options, and that was disclosed at the end of 2011.

Keep in mind, that there is no other EV with optional battery sizes. Tesla could have only offered the Model S with one battery size (85kWh). If that were the case, a lot of people wouldn't even be able to afford the Model S. Or, if Tesla would have offered the Model S with only the 160mi battery, then a lot of other buyers would have passed, wishing Tesla had a longer range option (at any price).

With the 3 battery offerings, I think they got it pretty much right. We should be thankful that Tesla didn't have to include the cost and profit margin for independent dealers. If that were the case, we'd really have something to complain about.

Thumper | 21 août 2012

Not arbitrary, not insulted. Buy upgrades or don't, your call.

jkirkebo | 21 août 2012

I'd actually pay $20k for each upgrade since I need the longer range, so I'm pretty happy the differential is only $10k.

But it seems to me most people are getting the performance 85kWh model anyway ;)

Think of it this way: What Tesla make on the 85kWh model is what their profit goal is. Then they give a unproportionally huge discount for each downgrade so more people can afford the car.

Also the options pricing is very reasonable. $950 for upgraded sound and $1500 for air suspension ? Those two can easily cost ten times that from other makers.

Mark2131@CA-US | 21 août 2012

Rick,

If you can't stand the heat, get out of the kitchen!

Of course it's expensive! That the price you pay for early adoption. If it's too much, wait a few years!

Docrob | 21 août 2012

The word obviously is used here as it so often is to try and pass off a "fact" without needing to give any basis for it. What exactly makes it so obvious that the pricing differential is arbitrary and profiteering and not based in realities of material costs? Current Li-ion batteries are priced around $500-600/kwh and Elon has previously said his medium term aim is to reduce that to $200/kwh. If we accept $600/kwh that means the additional 15 kwh from 45 to 60 should add $9000 to the cost of the battery, which means they are making a paltry 10% profit margin on the battery upgrade. If the largest pack benefits from economy of scale and you get the additional 25 kwh at $500/kwh that should add $12,500 to the cost so Tesla is probably taking a small hit there. It seems that the battery parade costs match extremely closely what the material costs of the larger batteries are and are not arbitrary at all.
http://green.autoblog.com/2012/02/21/battery-cost-dropping-below-200-per...

Timo | 21 août 2012

Except that they do 40, 60 and 85kWh, so if the battery price is $600k/kWh they lose money: 60-40 = 20kWh * $600 = $12000.

I think Tesla does get their batteries a bit under $400/kWh though. That & control electronics and assembly costs makes these battery upgrades almost zero margin job.

Sudre_ | 21 août 2012

RickS_8756, "....I have no idea what TM's incremental cost is, but they might actually generate a higher per-unit profit....."

Wait... backup.... You have no clue what they can make the battery for but they can make more profit by sells the upgrades at a loss? That reminds me of a company that was trying to mass produce solar panels.... what ever happened to that company anyway?

Getting Amped Again | 21 août 2012

Well unless any of you guys are Tesla engineers, you don't have a clue what they are paying for the cells. The LEAF battery was estimated to cost $375 per kWh TWO years ago, so $300 is possible right now.

I was just curious what most people thought about the pricing structure, and whether the upgrade cost matched the functional benefits you obtain (range and performance). For me it doesn't, and I can afford any car I want (Mark2131).

It's a better discussion after the early adopters are through the system. You guys are hilarious - TM is not losing money on battery pack upgrades.

Docrob | 21 août 2012

Well unless you are a Tesla engineer you also don't have a clue what they are paying for their cells. Therefore we can agree that we are simply speculating and that your comment that the price difference is "obviously arbitrary" not related to material costs is completely without factual basis. Whether or not the extra costs are worth it to the end consumer is a completely different question , however your main point that they are obviously gouging by charging excessive prices for the battery upgrades is patently baseless because as you've pointed out only Tesla management know what they have paid for their cells.

electricblue0303 | 21 août 2012

Knowing it is not apples-to-apples, I paid $10k for 24kWh + $650 for BMS 2 years ago. I had to do a lot of the labor to install and BMS guys donated much time to work out bugs (Beta testing). My batts included freight charges from China (they simply don't make them in US).

Brant | 21 août 2012

I agree they are not likely to be loosing money on any car they sell regardless of the configuration. They are a publicly held corporation not a charity. I would disagree with the notion that they are attempting to "gouge" their customers though; they are in no position to do so. This is a "luxury" afforded to companies that hold a monopoly or sell "inelastic" goods with little competition.

Theresa | 21 août 2012

Rick, Have you ever taken a economics course? Selling for less does not help cover fixed operating costs. Selling for more aids that even if less are sold. I really get tired of hearing the whining about price gouging. If you don't feel it is worth it then don't buy. Tesla doesn't have a monopoly on transportation vehicles. And if gas is gouging you then go buy a horse! Or a bicycle. Or ride public transportation. Or move closer to where you need to be and walk.

As a small business owner I hear all the complaints about how I should be running my business from all the people who don't and never have owned their own business. In order to remain in business and pay all the taxes and other overhead that comes with running a business yo need to make a profit at some point.

Etographer | 21 août 2012

Since you asked my opinion...As a capitalist I love it. They have the right to charge what they want to for whatever reasons they have chosen. They will succeed or fail by the descisions they make. As a consumer, I vote with my wallet. If I don't like the value for the price, I don't purchase.

My Dad always said "Something is worth what another is willing to pay for it." In this case, for me, it is worth the extra 10,000 to be able to drive on a 60kw battery but not the extra 20,000 to drive 300 miles on a charge. I would like to have the 300 mile capability, but I am not willing to pay for it.

Offended....No.

Grateful that they have stuck their neck's out so far? Yes.

It's a gamechanger and there is hidden value in this vehicle. With every car purchased, our country will demand less fuel. As demand for fuel diminishes, so will our trade deficite. I simply can not wait until I can drive by my first gas station.

Cheers,

Eric

Crow | 21 août 2012

Gouging doesn't exist in a balanced market. They don't have a monopoly on something you need to live. If the value for the upgrade isn't worth the price, don't buy it.

BTW, price has nothing to do with cost. Price is what someone is willing to pay for value received.

Vexar | 21 août 2012

@Sudre: that solar panel company appears to have been visited by Jawas who bought up all their robots, drove down the road, and sold the robots to Tesla.

Electric Machete | 21 août 2012

Rick, you have offered a baseless accusation about price gouging. The responses you read were based upon nothing more than logic and reasoning.

You replied to these responses by saying that none of us are Tesla engineers and therefore don't know what the costs of the upgraded battery packs. Immediately after this statement you suggest a price point of your own that conforms to your argument.

The people here don't want to argue with you, they want to help you. They are not hilarious, they are smarter than you.

brianman | 21 août 2012

@Theresa
I'm with you.

"I know this guy that will sell it to me for less."
"So then buy it from that guy."

"Your company charges too much for X."
"Great, start a new company and sell X for less. I'm about due for retirement sometime soon anyway."

olanmills | 22 août 2012

Expressing that your personal valuation for the upgrade as $5000 is fine, but claiming that a $10,000 price is arbitrary just because it's more costly than you think it should be is nonsense unless you know internal Tesla knowledge that the rest of us don't.

Clearly there was at least a some amount of arbitrary rounding to arrive at round number like $10,000 for both levels of upgrade.

And for all we know, maybe the pricing was completely arbitrary. Maybe Elon or someone else woke up one day and said, "You know, let's let's just set the battery prices $10,000 apart."

I don't think anyone here believes that though. The price of the upgrade must be some mix of factors that include material cost, operation cost, desire and/or requirement for a certain level of profit, and consideration of market/customer (ie if the battery upgrade was $500,000, they know few people would get it and maybe it would harm their reputation, but if it was only $100, they know everyone would be willing to pay more).

$10,000 is not such an exorbitant amount that I would accuse them of price gouging unless you actually know some details about Tesla's business that we don't.

Getting Amped Again | 22 août 2012

Well my post was really a question of whether most people had a cost vs. benefit level that would make them upgrade to the next higher battery, and what that incremental cost would be. For me it's about $5000, but I only drive about 50 miles a day. I thought there might be a lower price where TM actually made a greater profit per unit because more people would choose the upgrade. It's data that I thought would help TM understand the elasticity of the upgrade demand. Now the pricing is controlled by the product cost, but as cell pricing drops eventually it will be determined by the market (what people are willing to pay).

Instead I got called "stupid" and a "whiner" - thanks guys. I guess I should have worded my post differently because very few posts contained the information I was trying to elicit.

jbunn | 22 août 2012

I think it's your gift for communication that got this reaction.

You must be a joy to work with.

jackhub | 22 août 2012

Given the sophistication of Tesla I can't imagine they have not done the research to develope price/demand analyses on the Model S options. In the pricing environment, costs come into play only to determine if a supplier can meet market demand with a price that will allow a profit. Ask GM about that. Or American Airlines.

As for insult, I don't feel at all bad that Apple charges three times what it's competitors do for a smartphone. They have done their price/demand analysis on the iPhone. They are pumping us for all it's worth! That's one way they have become the largest corporation in the world measured by capitalization. That's the way the game is played.

Brian H | 22 août 2012

Elon and others at TM indicate they are projecting about 8%/yr cost-capacity increase. The first 2 chemistry upgrades were somewhat better than that, at around 15-17%. In any case, in about 6-7 yrs we can be pretty sure you'll get twice the bang for the buck, with the chance that some much larger boosts recently in the labs will make it to market.

This whole area is one of maximum uncertainty. But as I suggested earlier, the best plan is probably to expect rapid obsolescence, and so the current battery should be exploited to the full, with expectation of a major upgrade for not much money at replacement time. Which also implies that battery trade-in/re-use etc. is likely to be limited, tho' not nil.

Getting Amped Again | 22 août 2012

Thanks jbunn@hotmail.com, another insult! You have no clue what kind of person I am, but alas I am no longer working.

Getting Amped Again | 22 août 2012

Wrapping this up:

1) Looks like I was wrong in my assumption that the battery upgrade pricing structure is arbitrary. Most-likely TM's cost is in the $6-$9K range, although some suggested they are losing money on the upgrades, which I doubt. The $10K number just seemed arbitrary to me, but it looks like it's in line with their cost.

2) The pricing of the other Model S options are in line with the rest of the premium automobile market - agreed.

3) I probably should have just done a survey of who is going to buy a 40 or 60 kWh car, and at what price they would upgrade their choice. That's what I was really after.

4) Thanks to you that had factual, non-personal replies.

Michael23 | 22 août 2012

I would have been fine getting the 60 if it weren't for performance model.

Volker.Berlin | 22 août 2012

I probably should have just done a survey of who is going to buy a 40 or 60 kWh car, and at what price they would upgrade their choice. That's what I was really after. (RickS_8756)

Statistical survey:
http://www.teslamotors.com/forum/forums/which-battery-are-you-getting

Some reasoning and arguments:
http://www.teslamotors.com/forum/forums/which-battery-300-230-or-160

Getting Amped Again | 22 août 2012

Thanks Volker.Berlin, good information there.

Docrob | 22 août 2012

If the point of your post was to discuss what the value of the various range options was to the end users then you probably shouldn't have opened with a completely different, baseless and highly judgemental question. As for the value, it's a completely subjective measure, someone who regularly does a 180 mile drive will find immense value in the 60kwh upgrade as without it there car is not really fit for purpose. Others who do one 800 mile trip with all the family to the snow each year and the rest of their driving is <40 miles would find it cheaper to buy the 160 mile battery and rent an SUV once a year for the ski trip. This I believe is one of Teslas strongest points, by offering a range of battery options the car can be customised to maximise the value to customers or minimise the costs.

MB3 | 22 août 2012

@Volker.Berlin

I don't have permission to access the second link. This is not the first link where this has happened to me. Does this happen to anyone else, and is there anything I can to do to fix it?

olanmills | 22 août 2012

@mboedigh, reservation holders and owners can create threads that are only accessible to other reservation holders and owners. These threads are not visible in the topic listing, and if you happen to link directly to the thread, non-reservers/owners will see some kind of 'not authorized' message.

In order to access these threads you must be signed in with an account that a reservation or registered car is tied to.

@Rick, I'm not trying to insult you with this post. I'm going to explain why you received the kinds of responses you did. These types of responses are not characteristic of this forum, but you received them for very particular reasons, and it's not simply because you said something negative about Tesla or the Model S. There are plenty of threads on these forums that are critical of Tesla in some way or another.

If your original post only consisted of your third paragraph, that would have been great, and would have generated some good discussion.

Reasonably, you are upset that people have insulted you, but it's because in your first two paragraphs, you made assertions that are somewhat insulting because you had no facts to support them, and you assumed that it was so obvious, that no one would disagree with you.

You said that it is an "obviously arbitrary cost differential" and accused Tesla of price gouging. Here you are suggesting that Tesla is being malevolent, that they're using underhanded business tactics to make more money than they deserve. This is an insult (albeit to a company, not a person here on these boards). You used the word "obviously" instead of providing facts that would support your characterization. Tesla set the upgrade price at $10,000. You are implying a certain motivation behind this behavior, but did not provide evidence of this motivation. Instead, it seems you think it is "obvious" and perhaps because you consider the price so high, you feel that most others would readily agree and perhaps because Tesla is a company for profit, we would all feel the same way.

Furthermore, it is actually insulting to other forum members too. By stating that the "fact" that the pricing is "obviously arbitrary", you are already putting yourself at odds with anyone who does not think the pricing is arbitrary, and then people will not want to have a nice discussion with you. I do not think the pricing is arbitrary, yet you claim that this "fact" is obvious. So what I am I supposed to take away from that? Is it that I'm too stupid to understand how arbitrary the pricing is? I must be, or at least, that's what you must think of me if it's so obvious to everyone else.

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Now, addressing your third paragraph specifically, I agree. That's exactly what I thought when the pricing was first announced. $10,000 feels like too much money for the ability to drive 70 miles further and accelerate a little faster. I also thought that $5,000 would have been a price that I am more comfortable with.

However, since I have little idea of the costs involved, I can't really make a judgement as to whether or not $10,000 is an absolutely fair price. However, I still think it is within the realm of reasonable-ness, and I am willing to pay it because they're isn't really any other option if I want a longer driving range. (I'm getting the 85 kWh btw). If the price was $20,000 for each upgrade level, then I would only get the 60 kWh battery, as the price would be too high for me, personally, but I still would not have considered that an arbitrarily high price. Expensive? Yes. Price gouging? No, or more accurately, I wouldn't know. Yes of course, there would be some price at which I too, would claim that obvious price gouging is going on. If Tesla was charging $100,000 for each upgrade, and/or alternatively, we hear news that said Panasonic was selling batteries to Tesla for only $100, well then I too would be very unhappy and complain about it. But for now, all I can say is that I think the ideal price is $5,000, but I don't know enough to say that $10,000 is unreasonable.

It's interesting to consider whether Tesla could make more money with lower upgrade prices, but without much of an establish market or established competitors, I imagine that would still be a tough analysis. However, since I don't believe the price is completely arbitrary, I have to assume that Tesla did some kind of analysis to come up with the pricing that they did, and they have more expertise and more awareness over their material and operation costs. I think they're really the only ones who are in the best position to figure out what the sweet spot for the cost should be.

Keep in mind that there other reasons to price the batteries beyond just the unit cost and desired margin. For example, what if Tesla said, "If we charge $10,000 for the upgrades instead of $8500, then we'll be able to afford to make more 40 kWh cars" or perhaps, super charger access and twin charger availability becomes affordable for Tesla if the battery upgrade costs are $10,000. Who knows? (Tesla does)

Getting Amped Again | 22 août 2012

olanmills - did you read my post where I admitted I was wrong? The $10K price increment seemed arbitrary to me and I expressed that as my opinion. Now I think it's in the ballpark of being reasonable.

I agree I should have used the words "in my opinion" instead of "obviously" but that wouldn't have mattered to people like (not sinking to their level). I wouldn't personally insult anyone no how much I disagreed with them - these are just discussions about a car for crying out loud.

jbunn | 22 août 2012

Olan is very patient.

You may recall in your first reply after you started the thread, that you said unless we were Tesla engineers "we didn't have a clue." There are many skills here which you may not know about. I've been very impressed by the skill set of the folks here, and they are happy to share of themselves freely.

In the same mail you then asserted you can "buy any car you choose". Great for you! Some of these folks here can. Others cannot, and look at this vehicle as a high expense with a low operating cost. There are some here that are buying this because they don't want to pay 200,000 miles worth of gas on an ice. The fact is, we don't really know unless they say. And most people don't talk about it because it's rude.

Further in the same mail you called all of us collectivley "hilarious". I assume you find us laughable. You mock all of us then?

That was all in your first mail.

But I'm guessing at this stage in your life we are not the first people to have this conversation with you. If you are a high-functioning autistic person and have difficulty reading people, we can understand and will accomodate accordingly. If you're not, your feigning offense isn't saying much for your social skills.

And I'm not trying to offend you. You say you don't understand the reaction. I'm trying to tell you why.

Brian H | 22 août 2012

"Gouging", btw, only applies when there is an essential good or service which you are more or less obliged to get from one supplier, who then takes advantage of that. Only applicable in this case if the Model S is immensely, almost infinitely, desirable.

Volker.Berlin | 22 août 2012

Discussions about past discussions are among the most boring and annoying things that can happen on forums... Just sayin'.

brianman | 23 août 2012

Both olanmills and jbunn captured it well, and more politely than I likely would. Volker is once again right in his hinting that we've likely reached a threshold value with this thread.

Back to the "my spreadsheet says different than yours" threads...

Timo | 23 août 2012

@Brian H, in that case "gouging" is definitely applicable IMO :-)

(in the extend of me considering to buy another apartment just to get better garage to Model S, which my more practical mind considers to be ridiculous idea because I don't even need the car).

Docrob | 23 août 2012

Rick you say you would never sink to the point of personal insults, well as one of the people who wrote an early reply to your thread I found the comments that we "didn't have a clue" and that the discussion would be better without the "hilarious" early adopters personally insulting. Not trying to antagonise or prolong this just trying to give you an idea why your thread has garnered the reaction it has.