Another issue is how to transition. Nobody wants to be the last person to buy the older version at full price. Should Tesla temporarily lower the price of final runs of an older version so that the new version comes in at full price? Or should the new version be temporarily priced higher to smooth over the transition. Basically if you had an order in the works while Tesla announces a major improvement, what options should Tesla give you? You may always have the option to refuse delivery of you older version car, but it would be a very poor customer experience to have to do so and forfeit your deposit. I don't know what the right answer is, but you can see the bind for both parties.
I've thought about this quite a lot... hadn't figured out where to share my thoughts. Repeatedly we've seen Elon and Tesla are after something different than solely optimizing shareholder value... that's why we see them do "unconventional" things so often.
I think there's a good chance we see them do something unexpected with this issue of transition. Tesla can do something other than making it simply a matter of luck whether you just miss out on a step change improvement. Much like Elon's service philosophy of not making money off your customers if your product fails to perform, I think if they saw a way to, he and Tesla would want to remove the roulette table aspect from the timing of when you buy your high tech Tesla product (i.e just before or after a big improvement).
There are probably various ways this can be done, here's one I thought of...
after the fact, smoothing out the transition with ~"rebates" to people who just missed out on the more favorable pricing funded by slightly lowering the price improvement for those who do order after the better pricing takes effect.
For example, let's say it's every 3 years that there is a substantial refresh of their vehicles. For simplicity, let's pick a simple example of added value that may or may not be an improvement that we will see (i.e. this is just for illustration, not an opinion on whether the hypothetical improvement I'm using in the example will or wont happen)... let's say various improvements in gross margin allowed Tesla to lower the price of the 85 kWh battery Model S $3K as of February 1, 2015. Let's further assume they expected the new battery pricing would continue for 3 years. Tesla could lower the price $2.5K rather than $3K for those who order after 2/1/15. The $500/order Tesla has held back from those ordering under the new pricing after 2/1/15 could then be distributed back to those who just missed out on the new pricing in the form of a "rebate".
Given Tesla is a technology company, and takes all their orders themselves, I think they could manage to identify, for example, all who just missed the 2/1/15 transition by 3 months or less, 3-6 months, and 6-9 months. From the $500/order savings they are holding back from 2+ years worth of orders post 2/1/15, they could offer those who missed by 6-9 months an $X rebate (perhaps $1K), 3-6 months a larger $Y rebate (perhaps $1.5K), and those that missed by 3 months or less the biggest rebate, $Z (perhaps $2K). This is just a rough estimate of the dollar amounts, and time ranges Tesla might smooth out in such a transition with no net change in profits to Tesla. To be clear, this would not be at Tesla's cost, it would just be Tesla stepping in to more equitably share the improvements they are making to the value of the car. In fact, I wouldn't want them to use the term "rebate"... it's not about cars sitting on a lot... it's about taking a bit of the "what's around the corner" anxiety out of the nature of purchasing a technology product, and even worse feeling a bit down about a car that's only a few months old.
I realize even with this simple example, this may sound over complicated, and over what, a 1-2% of the car. I would say, as to complexity, one it's probably less complicated than their recently described "elf"/"pit crew" service model of picking up your car fixing it and returning it the same day without your knowing, and, two if Tesla kept this to major changes in value every few years it could be manageable. As to this being a bit much all over 1-3% of car's purchase price, I'd point out that it is more about human psychology than money. Most Model S buyers don't really need the $1-2K this sort of scenario might return them, but psychologically no one likes to feel like they just "missed out." This would make for
happier customers,
and it would
substantially benefit Tesla not to have the public frequently wondering if they should hold off on their purchase another year. Moreover, when we get to the Model 3, $1-3K is a real financial issue to those buying a car in its price range, added on top of the same psychological "missing out" issue it is for those buying the S/X.
The hypothetical scenario of a $3K drop in 85 kWh is simple because there is a clear monetary value. For other large changes that don't have such an obvious monetary value, Tesla could just make an estimate of the improved value to the customer and use it to establishment adjustments to pricing.
