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Tesla's credibility

Tesla's credibility

A Persian carpet store near my house once had a "Going out of Business" sale. When I saw the big signs all over its windows I thought I might be able to get a good deal on a carpet. Nothing caught my eye. I noticed a year latter that a store at the same location had another going out of business sale. I assumed that it had changed ownership and the new owners had run into the trouble. Then it happened a few more times. The going out business sales were a sham. The ownership stayed the same. To me their credibility went to zilch.

What does this have to do with Tesla? I bought a Model S instead of a Model 3 in part because Tesla announced that the lifetime free supercharging was about to be dropped. I timed my purchase to take advantage of the window Tesla gave buyers to retain the free supercharging. I think the reversal, of what clearly had been an announcement to boost sales before the end of the last quarter of 2016, feels like actions of the Persian carpet dealer. It undermines Tesla's credibility.

I draw a distinction between the big price drop on the 60 KWh to 75 KWh upgrade (from $9K to $2K) and the reinstatement of the free supercharging. Some buyers were upset by the price drop after they had paid the $9K. Tesla has every right to lower its prices. Each buyer has to decide whether this upgrade made financial sense given their driving patterns and how they value the extra time at superchargers by the smaller battery capacity required on long trips. If someone decided it was worth the $9K, then they got what they paid for. What is different about the reinstatement of the free supercharging is that Tesla used the announced end of the free charging to temporarily boost sales.

I am not claiming that I have been harmed by others subsequently getting the free lifetime supercharging. My claim is that Tesla will be harmed in the long term. On pricing they need to think long term instead of focussing on end-of-year financials. Elon Musk has described Tesla's pricing policy as being tied to the cost of production. He claims that Tesla prices to have a 25% profit margin. That is a sound long term strategy. However, it was obviously not followed in the case of the pricing of the software limited 60 KWh as there was no cost of production difference between the 60KWh and the 75KWh.

I do not know who within Tesla sets the prices on over-the-air upgrades, options on new orders, and services such as supercharging and the extended warranties. Admittedly, the lifetime costs of providing some of these items may be hard to figure but Tesla's decisions seems to be driven by marketing rather than cost. In spite of Elon Musk's often repeated mantra of going back to first principles of economics and physics in making decision, the company seems to be weak on economics expertise. (disclosure, I have a PhD in economics). For example, their pricing scheme for superchargers, with a per kilowatt charge and a congestion charge, struck me as a particularly inept application of the what economists call the optimal two-part tariff problem.

Whether they set a price at the optimal level is secondary. What is more important is that their pricing policy maintain the company's reputation. Otherwise buyers will feel like they are dealing with a sleazy carpet merchant.

EVRider | 21 mai 2017

"I bought a Model S instead of a Model 3 in part because Tesla announced that the lifetime free supercharging was about to be dropped."

So you decided to spend twice as much money (or more) on a Model S to avoid spending (maybe) a few hundred dollars a year on supercharging? Tesla is not the only one with a credibility issue. :-)

lilbean | 21 mai 2017

Haha!

Boonedocks | 21 mai 2017

EVRider | May 21, 2017
"I bought a Model S instead of a Model 3 in part because Tesla announced that the lifetime free supercharging was about to be dropped."

Makes zero -0- sense.

$35k+ more for your purchase vs/FUSC wouldn't pay off in many lifetimes

GHammer | 21 mai 2017

"Free" is a psychological construct. Nothing is free. Free is as elusive as perpetual motion.

mntlvr23 | 21 mai 2017

Horrible analogy

For the Persian Carpet Store analogy to be relevant, Tesla would have to have to
1. Announce that they were going out of business - or something else similarly drastic
2. Announce discounts as much as 50-90% on the entire product - rationalized by announcement #1 - and
3. Stay in business after the sale under a different name.

maybe the OP could say that it was more like
1. A computer store advertised a sale on a particular computer, with the sale ending on a certain date, then
2. He went back to the store a couple of months later and found a different but similar sale on that same computer - how dare they do that after ending the first sale

nothing to see here, move along

mntlvr23 | 21 mai 2017

Perhaps the OP would like to buy an ICE vehicle, and deal with their pricing paradigm, where the dealership would be very happy to sell a certain vehicle to an old lady or new graduate for full price, and then the next day sell an identical vehicle to their next door neighbor who is seasoned at negotiating for $5K less, and then the next day have the manufacturer start offering $10K off on the same model, then a couple of months later sell full price again to another elderly lady.

mntlvr23 | 21 mai 2017

Hammer +1

mcdonalk | 21 mai 2017

Postings this long should have an abstract or summary at the beginning.

carlk | 21 mai 2017

Frankly no one gives a damn about what are reasons you bought the S. You signed the contract yourself and paid the car with you own money. A person with a Ph.D. should at least know to take responsibility of his own actions and decisions. I would not come out to advertise how stupid I am if I were you.

Haggy | 21 mai 2017

It's reasonable to think that Tesla changed their mind because they saw a negative effect on sales, while the cost to keep unlimited supercharging is relatively low. Most people who get it retroactively won't charge more than they would have anyway. Those who use double the average amount would have paid $80/year in expensive states. The average user will likely still use about 400kWh/year.

If I drove from Silicon Valley and back every weekend each year, I'd pay perhaps $900/year for Superchargers, assuming I start off with a full charge and have a destination charger at the other end. If I expected to keep the car for 30 years, it would still be a bad deal to get a Model S with free supercharging instead of a Model 3.

If I were considering a different car instead, the only real alternatives right now use gasoline, and the savings would be tremendous compared to that.

Even a person who made a trip like that once a month, who would be considered a heavy supercharger user, would save perhaps $750 over the course of a three year lease by having unlimited supercharging.

The example of a person making that trip each week, assuming a certain amount of local driving at the destination and at home would probably drive about 50,000 miles per year. So even somebody who relies on supercharging for 100% of local driving but drives more typical amounts would likely save under $600/year, factoring in that they don't start trips with a full charge from home. And that's in expensive states.

Rsandy | 21 mai 2017

For me the S and the 3 were not a two-for-one price difference. The S came with $10K off in tax credits and rebates ($2.5K from Rhode Island and $7.5K for the Feds). The Rhode Island money is a fixed pot that will be exhausted soon. Whether the Fedeal tax credit would be around when my Model 3 showed up was very uncertain at the time I made the choice. The S was $56K base net of the rebates and the 3 would be $35K base. In deciding on an S I considered the extra room and its track record and recommendation by Consumet Reports. Buying a brand new model can be risky. An announcement of a $2K price increase plus the removal of the free super charging tipped the balance toward the S.

If a decision is otherwise close a small factor could make the difference. I estimated how much I would drive on long trips and came up with the supercharging being worth $2.5K over a ten year planning horizon.

I regard a reliance on name calling as weakness in a argument. It doesn't address my case that Tesla pricing decisions have been driven by short term marketing considerations and that some of those decisions hurt their credibility.

I said, as clearly as I could, that I was not damaged in any way by Tesla changing its mind and offering free supercharging after it announced that it was dropping it. What I would like to see is arguments on why zig zags and chasing end of quarter totals does not hurt Tesla's credibility.

The responses about carpet stores and computer stores are at least about pricing and credibility. The carpet seller analogy was meant to highlight the issue of the sleeziness of announcing a price increase or equivalently a feature drop and then rescinding it. Carpet sellers at bazaars are a cliche for sleazy dealing. It was not intended as an exact analogy.

SCCRENDO | 21 mai 2017

I may be confused on this but the unlimited charging is not being offered on the Model 3. It is only the Model X and S as far as I understand.

Should_I | 21 mai 2017

Your argument doesn't hold water. If Tesla does this end of quarter repeatedly then yeah it makes sense, given the one time so far though stating this is outright absurd.

I am not yet an owner but I see the free supercharger as an incentive to get people to make the leap to electric.

I don't think it can last it has to end at some point and as said maybe they saw an unexpectedly large impact on sales and decided it was premature.

lilbean | 21 mai 2017

Haha! True!

Bighorn | 21 mai 2017

The fact that the Model 3 probably will not have unlimited free supercharging makes this argument moot, does it not?

SCCRENDO | 21 mai 2017

@bighorn. That was the point I was also trying to make

oragne lovre | 21 mai 2017

@OP,

Your argument is fallacious since you assume that unlimited free supercharging will apply to model 3; thus your questioning Tesla's credibility being unfounded.

ratchet | 21 mai 2017

I am not in the same situation as OP. I did not start getting serious about owning a Model X until January of this year, placed my order in early February, and took delivery in April. Lifetime Free Supercharging was not available (except to purchase CPO) and it didn’t bother me because of my short commute to work and limited distance driving. However, I was pleasantly surprised to find that Tesla retroactively offered the deal to current (and near-future) owners. I felt their decision was probably based on slowing sales of Model S and X due to pending production of the Model 3. So, what can Tesla do to improve sales while maintaining the exclusive, premium status of the Model S and X? If they reduce the price or offer rebates, they violate (permanently) the MSRP pricing approach. They did recently add in “free” High Amperage Charger on the Model X 100D but that was only during the one week prior to adjusting the price of all models. Other tinkering with options and bundles would potentially undermine the “credibility” of the firm. What is left that would be perceived as an incentive while minimizing cost to Tesla? How about Lifetime Free Supercharging? As stated above, the revenue collected from a typical Model S or X driver would be minimal compared to the cost of the vehicles and, IMHO, shows that Tesla can still provide incentives that resonate with most drivers. Kudos to Tesla (even though I won’t likely get much out of the deal).

lilbean | 21 mai 2017

OP, how does that foot taste?

Rsandy | 21 mai 2017

That the model 3 will not have the free supercharging is constant. It was the case before Tesla announced that it would be discontinued for the S and X and it was the case after Tesla announced that it would be reinstated for the S and X at least until December 31st, when the referral program runs out. Tesla's explanation for the reinstatement is that current owners find the free supercharging one of the best reasons to recommend buying one. Since it represents so little money (I put it at $250 per year) does that explanation make sense? When Tesla decided to drop the Model 60 the explanation was that it would simplify the ordering process. It was just two check boxes among maybe a hundred on the ordering page, one check box for the rear wheel drive 60 or another for the four wheel drive 60. Who comes up with these explanations?

I expect Tesla to constantly upgrade the quality of its cars. The base S just got a power lift gate as standard and the glass roof. If you order a Tesla you can be certain that if you had waited a while to order the car would have gained some new features. What I do not expect is an announcement that a feature will be removed and then see it reinstated.

If Tesla said they wanted to maintain a quality differential between the base S and the 3 and that reinstating the free supercharging was part of that effort then I would feel that they were being upfront with their potential customers. If they said they had made a mistake in dropping the free supercharging then I would feel that they were being upfront as well. Instead they put it into a temporary referral program which just extends the uncertainty. No one outside of Tesla knows if it will be continued beyond December 31st. Toward the end of the year that uncertainty will make some buyers wonder if they should buy an S while the free supercharging is still available or buy a 3. Again, if their decision is close after considering all the other factors, then the free supercharging could tip it.

One of the many charms of buying a Tesla is that the pricing is simple and everyone pays the same price. Announcing a future price increase (in the form of removing the free supercharging), then reversing the price increase for current owners making a new purchase for the rest of their lives and for however many Teslas S and X models they might buy and for new owners who get a referral code, but dropping that reversal for new buyers after December 31st is the NOT simple and NOT everyone pays the same price. That is why it hurts Tesla's credibility.

carlk | 21 mai 2017

lilbean Looks he wants more of that.

Rocky_H | 22 mai 2017

Wow, some of you are being really irritating and rude. I concur with the OP.

This is not very similar to regular changes and adjustments in prices or features. Tesla was announcing that the era of free unlimited Supercharging was going to be coming to an end permanently and encouraged people to get their orders in soon to slip in under the wire and take advantage of this before it was gone forever. A lot of people did that.

Now, barely a couple of months later, "Psych, suckers--it's back! Heh heh heh"

Yeah, that does hurt their credibility.

-----------------------------------

OK, now the real thing I wanted to ask @Rsandy about. You threw out this bombshell near the end and no one is addressing it:

Quote: " For example, their pricing scheme for superchargers, with a per kilowatt charge and a congestion charge, struck me as a particularly inept application of the what economists call the optimal two-part tariff problem."

Could you please explain more? I just read a little bit on the "two part tariff" problem, which I wasn't familiar with, and I don't see how it applies. Are you talking about how there is 400kwh included and then metered pay per use above that? I guess that would constitute the "lump sum" and "metered" portions of the TPT paradigm. There is no "congestion charge", so I don't know where you are referring to there. Are you thinking of the idle fee? That's not really charging for the resource; it's fining people for not using it, but blocking others from getting access to it.

KP in NPT | 22 mai 2017

I agree with some of that you're saying, Rsandy - I don't agree with your analogy but I do think this supercharger thing could have been handled differently.

No doubt it's a great thing they brought it back. I do fear though it's going to cause unnecessary complications down the road. Some owners have free for life, some do not. Some cars have free for life, some do not. Some new buyers will have free supercharging (if they have a referral) some will not. (Though I expect they will ALL manage to get a referral - I know some stores offered referrals from previous customers on their behalf earlier this year.)

IMO, It really should be S/X get it included and the price of the car, as it always had, and the 3 was PPU, with buyers given the option of configuring with an "unlimited supercharging" option. Continue with idle fees for all. At least for now, until the 1M on the road in the US and then there could be an reevaluation. That just seems simplest.

I kind of wonder if it was a mistake to announce the end of free supercharging. (I remember at the time thinking it was sort of a surprise.) And now they realize it and that this would be a good way to differentiate the S/X, while rewarding those who bought after 1/15 by grandfathering them in, and sweetening the referral program for all owners.

I guess I think we all should cut them slack because they are chartering new territory here. What they think might be the best way to proceed might not be the case and I appreciate them trying to do what's best. No other car company gives their owners free fuel. Or even cheap fuel.

Mike83 | 22 mai 2017

An important point no one has considered is that with the PV panels that Tesla owns and sets up for homes and industry the cost free e!ectrons generated along with the massive Supercharging Network expansion makes the economics of more owners getting free Supercharging a great corporate decision. As most people home change and the generation of free advertising makes this another smart move that some overlooked. This company is Tesla energy.

SamO | 22 mai 2017

The cost of Supercharging only drops over time. With the addition of sustainable energy production and storage, their energy network could actually become a nationwide grid. Tesla is already providing solar+batteries in Hawaii for $0.11. They'll likely be able to drive that price to $0.03-$0.05 over the next decade, thus reducing the cost of providing service OR driving that savings into the network.

"The Tesla solar farm and battery installation are just the beginning for KIUC, too. In January, the power cooperative announced a deal to buy power from AES after it builds a 28 MW solar farm coupled with a 20 MW, five-hour duration battery installation. The power purchase agreement will sell power to Kauai at 11 cents per kilowatt-hour, significantly below Kauai’s current average cost-per-kWh, which is close to 33 cents."

https://arstechnica.com/business/2017/03/kauai-is-moving-from-diesel-gen...

The only variable is legality of such an arrangement, not efficiency.

carlk | 22 mai 2017

Rocky_H
"Wow, some of you are being really irritating and rude. I concur with the OP."

Even when he compares Tesla to a sleazy carpet merchant?

carlk | 22 mai 2017

Rocky_H
"Wow, some of you are being really irritating and rude. I concur with the OP."

Even when he compares Tesla to a sleazy carpet merchant?

RedPillSucks | 22 mai 2017

@Rocky_H. I think you're missing what SCCRENDO and others have said. The free supercharger thing does NOT include Model 3, so if OP had waited and gotten a model 3, he would still not have free supercharger. I don't believe Tesla's credibility is hurt or that they were being disingenuous.

Mike83 | 22 mai 2017
carlk | 22 mai 2017

This is nothing new for Tesla. It turns out there was a thread by yours truly years ago of this Tesla's dynamic pricing scheme when price of performance model was increased. Most people who responded thought that was a good thing too. Let the market to set the price instead of forcing a price that likely will not stick anyway.

https://forums.tesla.com/forum/forums/dynamic-pricing-scheme

Mapowing | 22 mai 2017

Was "free" supercharging that major factor to switch from a Model 3 to a Model S?? Understood your persian carpet analogy, but at some point you were probably over thinking it too much to make this purchase...

SO | 22 mai 2017

Don't worry. The difference of getting the Model S before Jan 15 is that you can transfer the free supercharging to another buyer. Cars ordered after that, cannot transfer the free supercharging to the used car buyer. So your car will have a bit more value than the ones made shortly after Jan 15.

Rocky_H | 22 mai 2017

@carlk, It is a kind of underhanded trick, so the comparison to a sleazy merchant seems apt.

@RedPillSucks, They were oversimplifying, by pretending that it was a single item on each side of an equals symbol:
Free Supercharging = $35K price difference.
That's not honest or what was being considered.

As many people have pointed out, there are MANY factors that go into a car choice. Size, performance, cargo space, seating capacity, features, etc. etc. Many people have pointed out that the Model S and Model 3 aren't supposed to be exactly the same car, just with different prices. There are a lot of factors that make up that $35K price difference. So someone may have been weighing how worth it would it be to maybe buy a Model S for the higher price?

Yeah, if one was talking about a year or two from now, neither model would have FUSC, so it wouldn't be a difference, but when Tesla announces that the unlimited Supercharger feature is ending permanently, it just puts another feature on the Model S side of the pro/con list that it's an extra feature they can get if they buy it before the end of the year. So obviously it's not the only factor, but it was an actual extra perk that had some value and was being promoted as never being available again.

carlk | 22 mai 2017

@Rocky_H Give me a break. So every company that changes price and option is just a sleazy merchant? Tesla has been doing dynamic changes from the day one to match current supply and demand situation. See the old thread I have the link above. Where have you been all those times?

sp_tesla | 22 mai 2017

carlk | May 21, 2017
Frankly no one gives a damn about what are reasons you bought the S.

Shark tank Mr, wonderful want to be Archie" Bunker!

carlk | 22 mai 2017

Little shrimp you have a Tesla now? Lol....

Rocky_H | 22 mai 2017

@carlk, Quote:"Give me a break. So every company that changes price and option is just a sleazy merchant? Tesla has been doing dynamic changes from the day one to match current supply and demand situation"

My quote: "This is not very similar to regular changes and adjustments in prices or features. "

Quote: " Where have you been all those times?"

I've been right here, and this is really NOT anything like those times. This was a fundamental thing of Tesla that they had said would have to come to an END at some point, and then they announced a firm date when it was coming to an END and encouraged people to buy before it ENDED, and then they got such a huge influx of orders that they announced an extension to the deadline before it ENDED. So they were really milking getting people to buy in this "going out of business" type of thing. And now that they got the big spike in sales, it's back and not ended anymore. If you can't see how that's vastly different than the random feature changes they make, I probably can't help you achieve that objectivity.

TeslaTap.com | 22 mai 2017

Wow - Tesla can't win. So many complaints when they took away lifetime supercharging with a huge advance notice. Now new complaints when they are nice enough to give it back, retroactively.

I hope Tesla stays with what they are doing. I'd hate for Tesla to become another obsolete automaker where the big change to a model is often adding new buttons with incomprehensible icons or a new font to the 1000 page navigation user manual.

carlk | 22 mai 2017

If you read my old thread dynamic pricing is the kind of thing that has been going on since the day one. Tesla always fast adjusting price/option to fit the market environment which is a great advantage it has. It even had the famous word "lever" that has been quoted millions of times. A new comer may have an excuse of being ignorant but someone who has been around for a while should know exactly how it works. The only way you can compare Tesla to a carpet merchant is it knew the cancellation of FUSC is temporary and it will be brought back after it sucked people into buying the car during the time period. If you think that's the case only because op says so then I don't have anything to argue with that.

Haggy | 22 mai 2017

I remember when Disneyland advertised that I should take my family because I'd be able to see the Electric Parade for the last time at Disneyland. True to their word, they got rid of it...and moved it to California Adventure next door. Now they brought it back again even though they said they would not. I could have waited until now and taken my kids there in their 20s when they can see over other people's heads better.

I think I might have to sue them to get my money back for the tickets I bought back then, but I'm not sure which ones they were.

Tropopause | 22 mai 2017

Final word goes to Haggy! Thank you, sir.

lilbean | 22 mai 2017

I knew they wouldn't get rid of it. And they even sold the light bulbs. How silly.

Tropopause | 22 mai 2017

New-and-improved light bulbs are now used. That's the difference.

JayInJapan | 23 mai 2017

½ empty vs ½ full--I believe Tesla realized 1) that people still think of M3 as the next next version of their cars and 2) want to keep free supercharging for MX/MS to further differentiate the models; and 3) MS/MX orders are going down as we get closer to M3. You're not going to see many businesses admit to any of the above, and it's just my own speculation. I may be wrong.

This is not the first time Tesla has reversed business decisions; it won't be the last. As for credibility, I'm a bit disgusted by OP's carpet dealer comparison. I see no bad will on Tesla's part. Free supercharging is an awesome perk for many.

bp | 23 mai 2017

Even with sky high valuation, it's easy to forget Tesla is still a relatively early stage company - getting ready to introduce its first volume production product. It's not unusual to see early stage companies explore different product/pricing strategies as they look for a combination that works for their products, services and customers.

And, unlike the other vehicle manufacturers, Tesla doesn't restrict major changes to once per "model year" - instead changes are made throughout the year, whenever Tesla is ready.

The shift away from free unlimited supercharging was likely addressing larger than expected usage by some customers (primarily those living in multi-family housing where they can't easily get an overnight charger), concerns about the rapid increase in usage from Model 3 customers, and on trying to more effectively use the deployed superchargers. And the timing of the announcement was clearly aimed to encourage Q4 2016 sales.

The latest announcement may be based on a combination of experience/feedback from the move away from FUSC and concerns about providing clear benefits for purchasing S/X vs. Model 3.

Compared to the volume of the Model 3 - S & X vehicles will quickly become a minority - and most supercharger usage will likely come from the Model 3's, in about 12 months - and with increasing numbers of Model 3s after that, the impact of S/X charging on the supercharger network will quickly become less significant, especially as Tesla increases the number of supercharger locations and stations - and with the likelihood S/X will always have longer range than the Model 3 (or Y), needing less charging.

If Tesla decides to offer FUSC for Model S & X and have the Model 3 (and Y) pay for use could be a good model for Tesla.

The S & X are Tesla's higher margin models, and by including free lifetime supercharging, they raise the bar for competitors, who won't be able to offer free supercharging without their own charging networks.

Tesla's periodic introduction of changes can be frustrating to customers, especially after someone has just purchased a Tesla car. Though would we really want Tesla to delay changes and introduce them only once per year???

Rocky_H | 23 mai 2017

Still no explanation of how this fits in the "two part tariff" thing?

carlk | 23 mai 2017

JayInJapan Your speculation is as good as anyone's. I think that's most likely what it is. Tesla constantly adjust price/feature/value to best match supply and demand. Some people have the misconception that company set the price. The fact is only the market set the price. Tesla is just able to follow that better than other companies that's all.

sp_tesla | 23 mai 2017

carlk | May 23, 2017
JayInJapan Your speculation is as good as anyone's. I think that's most likely what it is. Tesla constantly adjust price/feature/value to best match supply and demand. Some people have the misconception that company set the price. The fact is only the market set the price.

You could not resist stooping and make it a great common sense +10 post.

You had to ruin it by throwing in your Archie Bunker personal subjective opinion, "Tesla is just able to follow that better than other companies that's all."

carlk | 23 mai 2017

Amazing the little shrimp sp with that tiny brain could still type a long sentence.

carlk | 23 mai 2017

Amazing the little shrimp sp with that tiny brain could still type a long sentence.

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