January 2009 Archives

Elon Musk Explains the Roadster Price Increase

| | Comments (0)
The following email was sent to Tesla Motors customers on Tuesday, January 20th.

From: Elon Musk, Tesla Motors
To: Tesla Roadster Customers
Date: Tue, 20 Jan 2009 12:45 pm PST
Subject: The Importance of Options

A much fuller account of the history of Tesla is worth telling at some point, but for now I will just talk about the essentials of why we needed to raise prices on options.  Fundamentally, it boils down to taking the tough steps that are difficult but necessary for Tesla to be a healthy company and not fall prey to the recession.

When the initial base price, for cars after the Signature 100 series, of $92k was approved by the board a few years ago, it was based on an estimated vehicle cost of roughly $65k provided by management at the time.  This turned out to be wrong by a very large margin.

An audit by one of the Series D investors in the summer of 2007 found that the true cost was closer to $140k, which was obviously an extremely alarming discovery and ultimately led to a near complete change in the makeup of the senior management team.  Over the past 18 months, observers will note that Tesla has transformed from having a senior team with very little automotive experience to one with deep automotive bench strength.  We now have executives with world class track records running everything from design to engineering to production to finance.

To bring the cost of the car down, we have reengineered the entire drivetrain, which is now at version 1.5 and will be at version 2 by June.  The body supplier was also switched out from a little company that was charging us nutty money and had a max production of three per week to Sotira, who supplies high paint quality body panels to Lotus, Aston Martin and others.  In the process, we had to pay several million dollars for a whole new set of body tooling, as the old tooling had been made incorrectly.  The old HVAC system was unreliable and cost almost as much as a new compact car, so also had to be replaced.  The wiring harness, seats, navigation system and instrument panel also had to be modified or replaced.

After reengineering and retooling virtually the entire Roadster and completely restructuring our supply chain, we are now finally coming to the point where the variable cost of the car (to be clear, this excludes fixed cost allocation) is between $90k to $100k.  With a lot of additional effort by the Tesla team and the help of our suppliers, we should be at or below $80k by this summer.  There is some variability here due to exchange rate shifts.  Although we gain an automatic currency hedge by selling in both Europe and the US, we are still vulnerable to the Yen, which is very strong right now.

Obviously, this still creates a serious problem for Tesla in the first half of 2009, given the $92k to $98k price of most cars delivered over this time period.  The board and I did not want to do a retroactive increase of the base vehicle price, as that would create an unavoidable hardship for customers.  Instead, apart from a $1k destination charge increase to match our true cost of logistics, we only raised the price of the optional elements and provided new options and a new model (Roadster Sport) to help improve the average margin per car.

The plan as currently projected, and which I believe is now realistic, shows a high likelihood of reaching profitability on the Roadster business this summer.  By that time, we will be delivering cars that have a base price of $109k plus about $20k or so of options (having worked our way through the $92k to $98k early buyers) at a rate of 30 per week.  We are fortunately in the position, rare among carmakers, of not having to worry too much about meeting 2009 sales targets, as we are already sold out through October and have barely touched the European market.

My paramount duty is to ensure that we get from here to there without needing to raise more money in this capital scarce environment, even if things don't go as well as expected.  I firmly believe that the plan above will achieve that goal and that it strikes a reasonable compromise between being fair to early customers and ensuring the viability of Tesla, which is obviously in the best interests of all customers. It's also important to note that the price increases will affect 400 customers, all of whom will take delivery after Jan. 1 and receive a $7,500 federal tax credit. We made the pricing changes to ensure the viability of Tesla in the long term, regardless of government incentives, but we hope the credit will offset the increase for most customers.
 
There is one additional point that relates to the government loans that Tesla is seeking for the Model S program, a much more affordable sedan that we are trying to bring to market as soon as possible.   A key requirement is that any company applying be able to show that it is viable without the loans.  If we allow ourselves to lose money on the cars we are shipping today, we place those loans at risk.  Mass market electric cars have been my goal from the beginning of Tesla.  I don't want and I don't think the vast majority of Tesla customers want us to do anything to jeopardize that objective.

Elon Musk
CEO & Product Architect

The New Tesla Prices

| | Comments (0)

Here is the new pricing table updated with the information in the letter sent to Tesla Roadster owners on January 16th. This is an unofficial compilation for comparison purposes, based on my understanding and interpretation of the old and new packages, options and prices. Please post any corrections in the comments.

The email describing the new options and pricing did not detail the cut-off between the old pricing and new pricing, but I believe the new pricing applies to all 2008 model year Roadsters which had not already entered production. I will update as details become available.

Note that there are significant changes from the options communicated to owners nearing production earlier in the week.

The following options were previously available and are now available at adjusted prices and in different bundles:

  Original ($) Current ($)
SolarPlus Windshield (included) 400
High Power Connector (included) 3,000
Forged Alloy Tesla Wheels (included) 2,300
Painted Hardtop 3,200 3,200
Metallic Paint 500 1,000
Premium Paint 1,000 2,000
Paint Armor approx 1,400 1,495
Premium Interior 1,800 1,800
Floor Mats 125 150
Mobile Connector (120V/15A & 240V/40A) 350 N/A
Mobile Connector (120V/15A) N/A (included)
Mobile Connector (120V/15A) Additional N/A 600
Mobile Connector (240V/30A) N/A 1,500
Upgraded Stereo Head Unit
with Navigation System
1,200 N/A
Bluetooth 100 N/A
Sat Radio 400 N/A
Premium Speakers 800 N/A
Homelink door opener (included) N/A
Electronics Group
(includes above 5 items)
N/A 3,000
Destination Charge 950 1,950


The apparent change in the 240V mobile charger from 40A to 30A may be to satisfy regulatory requirements. I will update this when I find out more from Tesla.

These are new options not previously available:

  Price ($)
Executive Leather Interior 6,000
Premium Carbon Fiber and Leather Interior 9,000
Clear Carbon Fiber Hardtop 5,000
Clear Carbon Fiber Accent Group 9,000
Performance Tires 850
Custom Tuned Adjustable Suspension 4,000
Battery Replacement 12,000
Extended Warranty
(2yr/24,000 miles, excludes battery)
5,000


At this time, we don't know what the performance tires are or how they compare to the current and previous standard tires. I will update when we learn more.

Price Increase

The price increase for owners who had previously locked in their options depends on which options were chosen and which previously standard options the owner is willing to give up. Here are some examples:

Increase Scenario
$ 1,000 New base model, losing alloy wheels and SolarPlus windshield, and replacing HPC with 120V/15A mobile connector.
$ 6,700 The previous base model configuration with no options added, which includes the HPC, the SolarPlus windshield and the silver forged alloy Tesla wheels; also gets 120V/15A mobile connector.
$ 9,350 Fully loaded model from previously available options, mobile connector reduced from 240V/40A to 240V/30A.


Revision History

  • Jan 17 2009 13:44 PST: revised table of examples to include original base model.
  • Jan 17 2009 23:32 PST: confirmed that Homelink transmitter was standard equipment.

Tesla Increases Prices on Locked-In Orders

| | Comments (0)

Update: Tesla Motors announced the new options and pricing to all owners on Friday, January 16th. I've posted an updated analysis.

Tesla Motors is in the process of rolling out price increases to their customers who have pre-ordered a 2008 model year Roadster which has not yet entered production. Customers whose cars are about to enter production, after a two-year wait and a fourteen-month delay, are right now getting phone calls in which they are told they have to accept this price increase and re-select options before their car can go into production. This price increase applies to all 2008 Roadster orders starting with VIN 210.

These 2008 model year customers were given a base price of $92,000 and required to make a substantial deposit at a small start-up company with no experience in producing cars. Those early deposits of $30,000 to $50,000 were used along with investment capital to fund the development and early production of the Roadster. Around the time that Tesla delivered their first production car in February of 2008, they opened orders for 2009 model year cars at an increased base price of $109,000 to reflect both increases in their cost projections and also the then-proven ability of the company to produce cars.

Customers whose cars are going into production this month were required to lock in their option selections in September. All customers with orders for 2008 model year orders, some 600 cars, were required to lock in their selections by November of last year. Tesla Motors is unlocking those selections, raising the prices, and requiring owners to reselect their options with the higher prices.

This is coming as a big surprise to owners being informed of this given that they locked in their options and price months ago. A casual reading of our contract sure makes it sound like once we locked in our choices we were committed to buying the Roadster with those options, and Tesla Motors was committed to delivering that package for the price we agreed to.

Here is the table of original and current options and prices as provided by Tesla Motors on January 14th, 2009.

  Original Price Current Price
Base Vehicle $92,000 $92,000
SolarPlus Windshield (included) $400
High Power Connector (included) $3,000
Mobile Connector $350 (included)*
Hardtop $3,200 $3,200
Metallic Paint $500 $1,000
Premium Paint $1,000 $2,000
Premium Interior $1,800 $1,800
Floor Mats $125 $150
Navigation System $1,200 N/A (see stereo bundle)
Bluetooth $100 N/A (see stereo bundle)
Sat Radio $400 N/A (see stereo bundle)
Premium Speakers $800 N/A (see stereo bundle)
Stereo Bundle N/A $3,000
Destination Charge $950 $1,950
New Options
Performance Tires N/A $1,150


The most obvious price increases are from the unbundling of the high power connector (HPC) and a $1,000 increase in the destination charge. The HPC connects the Roadster to home power for rapid charging. Previously, the HPC was included in the price of the Roadster for early orders. (Tesla had previously unbundled the HPC for 2009 model year orders.)

A second big change is the removal of à la carte audio upgrades. Previously, owners could choose to separately upgrade the speaker system and head unit (including a navigation system). With the upgraded head unit, owners could choose to add support for Sirius satellite radio and/or Bluetooth mobile phone integration. Now all of these items are available only as a single bundle for $3,000, which is $500 more than the total system cost originally. The option of spending just $800 for the built-in premium speaker system is no longer available, a disappointment to owners who wanted the factory speaker look with an aftermarket head unit.

There's also a subtle change in the mobile connector. Previously, owners were able to order a mobile connector for charging away from home. The promised mobile connector was to be compatible with both 120-volt and 240-volt connections using a variety of outlet adapters. Tesla later discovered regulatory hurdles to selling a 240-volt connector, so now owners have only a 120V/15A connector that takes about 37 hours to charge a fully depleted battery pack. Said another way, the mobile connector charges at a rate of about 6 miles of added range per hour of charging. Tesla is now including that 120V low-power mobile connector at no charge, with no timeframe or cost estimate for the 240V/40A mobile connector.

According to Doreen Allen, Tesla Motor's reasoning for the price increases is that they are working hard to get to being profitable on each Roadster delivered, and that the federal tax credit of $7,500 which became effective on January 1, 2009, means that the net effective price of the Roadster decreased at the beginning of this year. Additionally, the à la carte audio options were creating too much complexity in production and had to be consolidated to be sustainable.

This owner finds it particularly galling that he and his wife got the message from Tesla that our car is being held from starting production until we agree to these sudden, retroactive price increases on the same day that Tesla Motors published a blog Tax Incentives: Why the Roadster costs less than its sticker price.

On a personal note, we complained a lot, but in the end picked a set of options and agreed to pay the price increase because we want Tesla to be successful and we want our car as soon as possible. It didn't seem worth it to spend a week complaining and arguing about it, not when our car was ready to go into production.

About this Archive

This page is an archive of entries from January 2009 listed from newest to oldest.

November 2008 is the previous archive.

August 2009 is the next archive.

Find recent content on the main index or look in the archives to find all content.