(Tesla)

The Navigator: The not-so-hidden cost of “free”

The ‘free’ approach can prove nettlesome when growing a self-sustaining business.
There is no such thing as a free lunch, as the old truism goes. For more than a century, the auto industry business model has been to sell it and forget it. Once you drove off the lot in that shiny new machine, you were on your own, aside from warranty repairs for defects or compliance recalls. If you wanted to upgrade the functionality of your vehicle or even put fuel in to operate it, you paid out of pocket. Then Tesla seemed to turn that model on its head with free battery charging via its Supercharger network, and over-the-air (OTA) software updates.
 
But there was a problem with this new approach. Tesla has been notoriously bad at operating profitably and “free” energy and functional updates cost money. When you are trying to grow a self-sustaining business, giving stuff away on cars at lower price points quickly becomes incompatible. Thus, free electrons and connections are going away at Tesla.
 
The company is shifting away from some of the costly offerings that were more easily absorbed in higher-priced cars and a smaller fleet. Prior to the Model 3 (above) launch, Tesla offered all customers free access to its high-speed Supercharger network for the life of the vehicle. As the number of drivers wanting access to Superchargers has swelled, the company has adopted a pay model for charging, similar to the more limited plans offered by Nissan and Audi.
 
OTA updates have seemed like a great way to save money by avoiding costly dealer visits for non-hardware fixes. But they too have costs. Tesla formerly pushed new software to all vehicles by whatever connectivity was available, either cellular or WiFi. Every Tesla built since the Model S launched has had a built-in data modem.
 
For six years, Tesla didn’t charge for this connectivity. And the company still provides basic low-bandwidth connectivity for functions such as battery management as part of the purchase price, as most automakers do. However, data-intensive functions like downloading firmware or map updates now require $100 per year premium connectivity or else either a WiFi connection or service visit. As a result, some customers have been finding they haven’t received the latest AutoPilot enhancements because they may not have access to a good wireless connection if they park on the street or in an apartment garage.
 
This doesn’t even factor in the cost of the ongoing development of the software, maps and even hardware upgrades that Tesla has promised its customers. Those customers will increasingly find themselves having to pay out of pocket to maintain or improve functionality in their vehicles.

This is a sign of things to come, as the industry moves toward greater reliance on connectivity and automation. Automated driving will require fresh high-definition maps on an ongoing basis in order to function properly. As the technology matures, the overall system will need functional updates as well as fixes for security vulnerabilities that may put these vehicles at risk.
 
Ongoing development of vehicles that are already in service will no longer be a nice-to-have option.  This will be a mandatory process that has significant costs associated with it and customers will have to pay. Affordability of new vehicles is increasingly a thorny problem. It will only get worse if automakers try to bundle in the cost of updates upfront. Customers also won’t be happy if they incur a mandatory subscription fee when they buy a car.
 
The other option is to not sell these vehicles at all, but only make them available through mobility services where the support costs can be hidden in the fare charged for those services. This, perhaps more than anything else including liability concerns, is why only very expensive premium vehicles are likely to be sold with fully automated driving capability. The rest of us will be using automated vehicles owned and operated by a fleet somewhere on demand. Continue reading »
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