Prepare your preconceptions about car buying to be thoroughly rocked.
From online ordering to corporate-owned stores to taking reservations years in advance, Tesla has been challenging our preconceptions about the ways in which we buy cars. A lot of it's great, but some if it's uncomfortable as they try new things. Take today's news that new Model S 70 and 70D cars actually have a 75kWh battery, but if you want that full capacity and the extra 19 miles it brings, it'll cost you another $3,000.
Based on how we've bought new cars for years, and how we buy everything else, it's a cognitive disconnect. It might feel slimy or skeezy or like something you own is being held for ransom. But the truth is, this is quite potentially the future of how we'll buy not just cars, but many other things.
Your Model S has a 75kWh battery, but you can only use 70kWh — that's all you paid for.
It's there, it's just not yours to use.
There are two reasons for this upgrade charge. The first is that Tesla wanted to simplify their production lines by eliminating a battery size that they had to produce and keep on hand. The Model X is available with only 75kWh and 90kWh batteries, and it shares a drivetrain and battery architecture with the Model S. So cutting the 70kWh battery from stock means a simpler production line.
The second reason for the charge is around pricing perception. A base Model S 70 starts at $71,500, and charging for the additional 5kWh would bring it close to $75,000. By not charging for that 5kWh, Tesla is keeping the price of their flagship electric sedan down.
That's a point worth repeating: even though Tesla is shipping Model S 70s and 70Ds with a battery that has 7% more capacity that you can't access, they're not charging you more for it. It's a weird bit of mental gymnastics: you own the Model S with a 75kWh battery, but only get to use 70kWh-worth because that's all you paid for. It's there, it's just not yours to use.
Give Tesla $3,000 and they'll wirelessly update your car to access that extra battery capacity. You paid for a large pizza, but the delivery guy brought an extra large pizza — you can eat a large's worth of pie, but if you wan to dip into that reserve of extra large, you're going to have to pay for it.
This isn't the first time that Tesla has shipped a software-limited battery. Tesla had planned to offer a 40kWh battery pack option in 2012 and early 2013 when the first Model S cars were entering production, but they saw surprisingly low demand for that capacity. They were faced with a question: do they cancel the line of 40kWh packs and demand that customers pay up for the 60kWh, or do they make the 40kWh battery packs at an even greater loss and just deal with it?
Tesla took a third option that no other automaker would have considered: they didn't make any 40kWh batteries and customers that had ordered such cars instead got a Model S with a 60kWh battery that was software-limited to 40kWh. That meant that Tesla took a financial hit on those batteries (but perhaps less so than a production run of 40kWh), but also streamlined their early production processes. And for customers driving around with a software-capped Model S 40 they had an offer: $10,000 and we'll unlock the entire 60kWh pack.
They took the same route that they're taking today: a simplified production line and stocking requirements and an optional upgrade for customers without changing the base cost. You didn't pay more, but if you want to we can open it up a bit.
This is also the exact same approach taken with Autopilot: every Model S today comes equipped with Autopilot hardware (a camera, forward-facing radar, and a suite of ultrasonic sensors), but it's not enabled by default. Activating the Autopilot feature is a $3,000 charge for an over-the-air update. Some may have balked at the price, but few balked at the concept. The 70 vs. 75kWh battery deal is the same concept, just applied to accessing the full capabilities of a component instead of an entire system being turned on.
Every Model S comes with Autopilot hardware, but it's not enabled by default. Activating it is a $3,000 charge.
So then the question circles around to if the $3,000 upgrade charge is worth it. The Model S 70D gets 240 miles to a charge, and enabling the full 75kWh battery bumps that range to 259 miles. That's $600/kWh or $158/mile. Maybe that extra 19 miles makes all the difference in a regular drive for you, so it's totally worth it.
But consider the upgrade from the Model S 70D to the 90D. There's a $13,000 difference between the two, with the 90D picking up 20kWh in the battery department and extending its range all the way to 294 miles. That's $650/kWh or $240/mile, though the 90D does offer faster acceleration and a higher top speed on top of the extended range.
And, let's be honest, $3,000 to add 19 miles of range to a car like the BMW i3 (114 miles range) or the Nissan Leaf (107 miles range) would be considered a godsend. Suddenly, $3000 to make your 70D a 75D doesn't seem so bad.
I suspect that eventually Tesla will phase out the 70 and 70D options entirely, offering only the 75kWh and 90kWh as choices for the Model S just as they do for the Model X. Maybe they'll be joined by a higher-capacity 100kWh battery — or maybe the 90D and P90D are actually 100s once you open up that battery pack. Okay, that seems unlikely.
But the bigger story is how this changes the conversation around automotive. You're no longer paying for the hardware, you're paying for the functionality of the hardware. It has the potential to be a tectonic shift in automotive, just as app stores and subscriptions and in-app purchases have rocked the software industry — just go and try to buy a copy of Adobe Photoshop or Microsoft Office. Go ahead.
Tesla pioneered in-car purchasing with the 40-to-60kWh upgrade and Autopilot activations. They're even offering one-month free trials of Autopilot to Model S owners that haven't taken the upgrade. The 70-to-75kWh upgrade is the next step in that — Tesla simplifies their production processes, and they've no doubt gamed out the expected uptake rates for the upgrade and will either come out even or possibly ahead of where they would have been selling both true 70kWh and 75kWh battery packs.
From Tesla Stores to in-car upgrades, Tesla's changing the way we shop for cars. It's going to take some getting used to, but in the end this will be the shape of things.