Now obviously there has been a bit of discussion about 4680 software upgrades that unlock more
range.
We have heard 4680 Model Y owners say they expect range upgrades to be offered, and others
who claim insiders say there will not be a range upgrade.
Also not all the numbers add up quite right yet.
Either way, I think you can be forgiven for believing either is a possibility still.
However, despite where your opinion may sit
on whether Tesla may offer these upgrades now, it's always possible they may offer them
in the future.
Now one possibility is that the cell to vehicle pack, requires a minimum of 828 cells for
its structure.
Eventually Tesla's chemistry in the jelly roll will become so energy dense, they will
end up being mid to high 300 hundreds in range.
Even if they eventually move to a slightly less energy dense manganese cathode.
Because of having a minimum of 828 cells in the pack.
Do you see?
Tesla have to eventually have a 4680 Model Y with a range that exceeds the existing Long
Range.
And eventually the price point would get too high for equivalent value.
Tesla's 4680 cells are simply too good.
They offer more value than the market can afford.
If this is the case then they can limit the specifications with software.
As to make versions that more people are able to afford.
The thing is, despite this tremendous added
value, it is done at a reduced cost.
With Tesla's faster improved production lines and techniques, accompanied by the industry
lowest cost EV cell.
Tesla have made a lower cost, higher value vehicle.
This is what every company aspires to make, an improved version that more people want,
and are willing to pay more, that costs less to make.
However, this isn't an Apple iPhone, or even an Apple Mac.
i.e. products that just about literally anyone can afford, if they really wanted them, and
made the sacrifices.
No, these are cars, which are the most expensive consumer item, the vast majority of people
buy.
Therefore as high as desire may be for some, it will come down to affordability for many.
Ok so Tesla may have made cars that are too good, that everyone wants and not enough people
can afford.
They missed their market, this missed the market clearing price.
Supply and demand will not meet.
And that will be one of the hurdles Tesla will have to face for some time, trying to
match supply with demand with a lot of variable product pricing.
If Tesla had the full product that could be limited with software this might become a
major solution for Tesla's pricing model, to fit in with their lack of supply relative
to demand.
Tesla have two variables, value and cost.
Tesla can add value to the product by increasing range, and Tesla can adjust the price accordingly
to meet market demand.
In fact depending on times in the economy
or different times demand may fluctuate, Tesla could simply adjust their entry level pricing.
So if Tesla's demand is getting really high, then Tesla would simply stop offering the
280 mile version at $60,000, and software lock the cars with 300 miles, except the car
is now $65,000.
This way, when Tesla raises their prices, like they did in the past, to adjust for demand,
well now when they do it, there is extra value added to it too.
This should keep consumers happier, as in effect the price of the vehicle is static,
it is the entry level amount of range that is the variable.
For most consumers the important part is getting a Tesla, not a car that does 350 miles.
280 miles is still pretty practical for most people.
And of course they can always upgrade it later, if it's not.
Unlike some other car that you might buy and discover it doesn't have enough range, you
are stuck with it, or have to likely sell it at a loss.
If you buy this Tesla and have buyers remorse because it's not quite the car you wanted,
then you upgrade it.
Besides even 280 miles of range is an impressive figure for a cross over anyway.
There isn't really anyone else who can hit that level, except the upgraded Mach E, which
they couldn't make profitably.
Yea, that's something we always need to remind ourselves, especially when anyone ever talks
about the competition.
So what?
I could personally design a car with an even higher spec than the Mustang Mach E, that
also lost money on every sale.
None of the competition are selling at a profit.
I have also been hitting up the BYD shills on Twitter, none can prove BYD makes a profit
with their BEV business.
I even had a genuine chat to some of them.
So just remember that, Tesla is the only BEV manufacturer to make a net profit.
Not only that almost all the others selling their EVs with subsidies, and still losing
money.
Sorry, I digressed there, I just don't feel this is understood enough.
And yes, that does include Hyundai too.
Ok, so Tesla can get more sales by initially lowering the price, limiting the product,
and the customer can unlock the product to its full potential when they can afford to,
if they so choose.
In the meantime though, Tesla offers software upgrades already, you can obviously order
FSD.
And when you do FSD subscription numbers, then the numbers get nutty, without even including
Robotaxis.
It's easy to see that over the lifetime of the vehicle, there is more income potential
with FSD subscription compared to the actual profit in selling the vehicle initially.
Having such variable pricing, with a variable product, is going to make going forward so
much easier, especially in such new industry, with a lot of potential volatility ahead.
This gives Tesla even more protection, or an even larger buffer, to get through any
potential tumultuous times.
And then compare that to the competition.
I am honestly not intentionally picking on the competition, I use them for a comparison
to show how far ahead Tesla is.
So all the competition lose money on their cars, meaning they have no buffer of any sort
whatsoever, whereas Tesla has 3.
Tesla is firstly limiting the capabilities of their product, with software locking.
We even know they are doing this right now with the Austin Model Y, Tesla offered an
acceleration upgrade, temporarily.
Tesla limited the value of the product with software, because they knew there would be
enough demand for the regular acceleration as it was.
If Tesla offered that acceleration standard, then it would increase demand slightly higher.
Tesla have massive margins, obviously Tesla could reduce their margins and increase demand
through that.
If Tesla reduced their margins, it would in turn reduce prices, when prices are lower,
demand climbs.
And Tesla has it long waiting lists for vehicles.
This is a buffer for demand.
If Tesla's demand starts to drop, then they still sell just as many vehicles, it just
means the customers receive them earlier now.
Tesla's waiting list is simply more stored demand.
Now hang on, wouldn't it be a waste having
these additional cells in the car, that aren't even being used to run the car?
For starters remember, the cells are in there to support there vehicle, they are structural,
and required.
As for dummy cells, we have discussed this in the past, and they still have to be manufactured,
and would add to the complexity of the line.
But for a 280 mile range Model Y you might only need a 60 kWh battery, when Tesla's 4680
cells have evolved.
That could likely be achieved with just 621 cells.
An additional unnecessary 200 or so cells, doing nothing, aside from supporting the structure.
Is that a waste of money?
We are adding in additional 33% of cells in there.
Or about 200.
Well if it was $100/kWh for the cells, that would have cost an additional $2,000 to add
in those extra cells.
By the way, 4680 cells should end up costing quite a bit less than that, excluding inflation.
Still, even if we use that $2,000 figure.
We can say that there are $2,000 of cells in the vehicle that are not being used.
Not being used if it is with the standard range.
However, 828 cells, and the eventual 4680 efficiencies, 350 miles of range is not too
far a stretch of the imagination.
And we already know that consumers are more than willing to spend $66,000 on a 2170 Long
Range with 330 miles.
Therefore I think a $10,000 upgrade to 350 miles is likely about what we might expect.
And perhaps even a range upgrade in-between to 310 miles for $5,000 or something.
Well whatever it is, you get the idea.
There is perhaps $10,000 more profit to up sell on range and probably a bit more again
on acceleration too.
Anyway, let's say that perhaps a customer on average spends $5,000 extra on upgrades.
Now if you recall, we said the additional cells would have cost $2,000, and Tesla is
profiting $5,000.
That is a profit margin of 60%.
Therefore it is very profitable for Tesla to offer software upgrades.
But this is an economics show, so we have
to cover everything, like opportunity costs.
Just because Tesla are making great profits from these additional cells, that doesn't
necessarily mean they are allocated the most profitably.
So let's remove the necessity of having 828 cells in the battery for structure, and open
up the idea of perhaps 690 cells, which has been suggested in the past.
Assuming that was enough cells for the structure, then that's 138 fewer cells required.
Or 1/5 the pack size.
In other words for every 5 828 cell battery packs Tesla make, they could have made 6 690
cell packs.
Or obviously 20% more packs.
If these 690 cell pack vehicles, with probably about 280 miles of range, sold for $60,000
and had 40% margin, then that would equate to an additional $24,000 gross profit per
vehicle.
However, the opportunity cost would only be 1/5 so that's $4,800 missed opportunity for
Tesla by not selling vehicles with smaller batteries.
So actually when we subtract that from the potential profit of the software upgrades,
then Tesla would make $200 more profit per vehicle.
It's also less effort than making 20% more vehicles too.
But to be ultra thorough, then there really
is no better customer to Tesla than an FSD customer.
That is where the most profits will eventually derive.
And each Tesla makes the same amount of profit on FSD whether a 60 kWh battery or 80 kWh
battery.
Therefore, if we include FSD, then in the long run, Tesla is better off making 20% more
vehicles.
But that would also mean that Tesla only offers 280 mile range Model Ys from Texas.
Which I don't think will be the case, I think too many people will want a longer range version.
Which would then mean, that it is likely best for manufacturing to limit the range.
And then with all the pricing power they it also gives Tesla, I would say overall it would
be most profitable to limit the range with software.
Eventually we would expect a lower range rear
wheel drive LFP version to take up the lower end market for the Model Y.
I would expect the 4680 to move on.
It is accepted by every consumer, than when
you buy a car, you lose a lot of money on depreciation.
Yet we keep buying new cars every 5 years or so, despite knowing this, well becasue
we want to upgrade.
We need the latest features, we want bluetooth connectivity USB-C chargers and every other
latest feature.
Of course with a Tesla, it will update itself with over the air updates.
Therefore, you don't need to upgrade your car to the latest features, your existing
car downloads them for free.
Therefore that budget you had for a new car upgrade, well it could instead be used for
an existing car upgrade.
i.e. your existing car goes from a range of 280 miles to 350 miles.
Ok, that is all very interesting.
I guess it mainly comes down to whether the 4680 battery pack, has the ability to remove
cells or not, or whether they are fixed with 828 cells for structure.
Either way I think software limiting the range is good for consumers and good for the business.
You may look at it as Tesla being greedy trying to take profits, but although Tesla do not
have a demand problem, they do have a supply problem.
This definitely gives them more control in managing the supply issue with price and product
value.
Offering the most value, to the most customers, whilst upsetting the least.
But of course in turn funding the mission the best too, which is what it really comes
down to.