One of the big takeaways from Tesla’s annual shareholder meeting this week was that future owners of the electric-vehicle company’s $35,000 mass-market Model 3, unlike Model S and Model X owners, will have to pay to use Tesla’s extensive Supercharger fast-charging network.
Supercharger access has always been free, but for the past year Tesla has been discouraging owners from using it for anything but long trips to get them through the “range anxiety” that even Tesla’s 200-plus-mile electric vehicles provide.
With the Model 3, which will be far less profitable for Tesla, the gloves are off.
According to CEO Elon Musk, those owners should charge at home and at work. The Superchargers will be off-limits unless owners pay up.
This is the beginning of a new era for Tesla, one in which the automaker really starts to act like an old-school car company (and car dealer — it’s both because it doesn’t franchise its retail stores).
Car companies and car dealers sell you a car, but they make the real money on service like oil changes, tune-ups, brake jobs, and so on.
If they owned and operated gas stations, they wouldn’t give you the fuel for nothing.
So as Tesla leaves the luxury space, where it had to coddle its persnickety, early-adopter customers, and enters the mass market, it has to figure out ways to both build the Model 3 more cheaply than the S or the X and get owners on the hook for follow-on payments.
Heading in a different direction
The catalyst here is that Tesla now wants to fulfill 375,000 preorders for the Model 3. But if the 3 is priced at or close to $35,000 (snazzier trim levels could go for a lot more), Tesla’s profit margins on the vehicle will be meager compared with those of the other vehicles in its lineup, which cost about $100,000 on average and have given Tesla an enviable gross margin of over 30%.
Raking in over $10 billion in sales will be great for Tesla’s cash flow, but if the economics of the mass market hold, Tesla will be very lucky to make a 5% margin on the Model 3. On smaller, mass-market vehicles, automakers sometimes do well just by breaking even, seeing them as a gateway to the more expensive, more profitable cars and trucks in their portfolios.
For Tesla, asking Model 3 owners to pay for Supercharging could be part of a “bundle” of services, which could easily include over-the-air software updates (that are now free) and incremental powertrain software improvements, as well as more limited warranty packages (battery and powertrain is now unlimited on miles for the Model S and the Model X).
So there you have it. Owning a Tesla used to be like belonging to an exclusive club, with some choice perks.
But that club is about get a lot bigger — and some of the perks won’t be free anymore.