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It’s no secret that I’ve been salivating over some features in the newer Tesla cars since they came out. At the top of my list are All Wheel Drive (I live in New England…), Autopilot (I’m a geek and love the technology and also drive a lot) and some smaller things like automatic high beams (I live in a relatively unpopulated area where I get to use high beams a lot).
Tesla has increasingly been pushing for me to upgrade my Model S (only 2.5 years old at this point) to a newer Model S with the new functionality with emails like the one below:
This bothers me for a couple reasons:
- Tesla has repeatedly said they’re supply-constrained. They are supposed to have plenty of demand. So why chase existing owners repeatedly with a proposal that doesn’t seem to make sense? As an investor in $TSLA, this has me concerned.
- The economics of the suggestion don’t make sense to me and presume cost doesn’t matter. If they need existing owners to upgrade/trade up, then the fact that the trade up doesn’t seem to make sense also has me concerned as an investor.
Let’s look at the economics of two scenarios from my point of view. These are specific to my car and my situation but I suspect other Model S owners will find similar reasons that the suggestion doesn’t make sense.
Scenario 1 – Upgrade now to a new Model S
If I were to get a new Model S I’d want one with at least as much range as my current Model S which makes the S90D the only choice. I do not need things I don’t have today like air suspension, upgraded sound or more speed. But I do want the things I missed like all-wheel drive and autopilot.
Had I purchased late in 2014 (versus early in 2014) I wouldn’t have any appetite for a Model S (or Model 3) at this point.
Configuring a new Model S along these lines ends up with a car that costs about $110,000:
The “Full Self-Driving Capability” is probably one of the most questionable choices here and could be skipped to add later. My main concern on this (which seems to be unanswered) is if you get all the hardware upfront and it’s just a software upgrade or if hardware needs to be added or would be missing. I would want all the possible hardware upfront. I would go through the same thought process if it was a Model 3 or Model S though.
My current Model S at 70,000 miles and 2.5 years old (but otherwise in perfect shape) is valued at around $49,000 by Tesla for a trade in. It could be a bit less now since the trade in quote is several months old.
So, to upgrade now it would cost me about $60,000 out of pocket or financing to upgrade my car to the latest model.
This excludes the benefits of tax incentives which may or may not be available for Scenario 2 below.
Scenario 2 – Wait for Model 3 and Trade in my Model S
While the pricing and options for Model 3 remain undisclosed, everything written about the Model 3 implies it will have all the same available capabilities as the Model S but many of them will be available as add-on options.
The Model 3 appears to be 90% of the size of the Model S. This is good as the Model S is too long and too wide anyway. The Model 3 still seats 5 comfortably, especially if they’re on the smaller side like my family. The Model 3 will have the features I want like all-wheel drive and autopilot and will even have other features available that I do not want like Ludicrous mode.
If we go by the historical pricing of the Model S and X, generally, a fully loaded version of a Tesla vehicle car is just over twice the base price. For example, the most basic Tesla Model S 60 today is $66,000 and a fully loaded P100DL is $160,000 (2.4 times the base). Since I would not want a fully loaded Model 3, I’ll use twice the base price for the calculation.
If the Model 3 indeed starts at the stated base price of $35,000 and we double that to a “reasonably equipped” version, we get an estimated price of $70,000.
My trade in would be worth less after another year of driving, so let’s assume my trade in drops from $49,000 to $40,000.
So the net out of pocket/financed cost would be $30,000, or half the cost of upgrading now. That is a pretty wide gap!
Downsides to the Model 3 SCenario
The downsides to me seem to be very few:
- A trunk versus hatch in the Model 3 — I’m not a fan of the trunk but I could live with that and I hope that Elon listened to the feedback on that front.
- Unlimited Supercharging versus 1,000 miles worth per year — The cost difference is likely to be minimal if you have to pay for more.
- Potentially missing the Federal Tax Rebate cutoff — this would only cover 1/4 of the $30,000 gap.
- Missing out on another year of driving with AWD/Autopilot — Yes, but I’m still enjoying my Model S!
Waiting on Tesla
Each time Tesla contacts me as they did above and tries to entice me to upgrade I ask them why it would make sense and outline the logic above. Each time they ignore my reply and probably move on to another potential “victim.” I think that Tesla should at least respond to their current customers and have an answer to a very reasonable question.
Are they proposing something that makes sense or not? Is there something I’m missing? Do they know something about the Model 3 that I don’t? If it’s a reasonable suggestion then tell me why and now so you can get a decision.
Tesla has a great product and promising business, but I think in this area they are missing the basics — a product and its price must make sense for the buyer. For existing Model S owners, a newer S versus a Model 3 may not make sense. Their recent price hikes in the Model S have not helped their position either.
Is there enough product differentiation between the Model S and the Model 3?
From where I sit right now, no, there isn’t.
Are you a Model S owner getting the same emails? Are you a new buyer thinking about the S versus waiting on the 3? I’d love to hear your thoughts on this in the comments below.
Update
Tesla responded this time. I looked through my notes and found it was the same guy who ignored me the last time (which was on September 1, 2016). So at least they responded this time. They called out the uncertainty of the Model 3, the wait, and the lack of the Supercharging for life capabilities. Overall it wasn’t a strong answer.
Another interesting bit of information was the trade in offer. They’re now offering me $41,100 for my 71,700 mile, April 2014 Model S85. The last offer was in January 2016, about 18,000 miles ago and was for $49,200. At that pace, the trade in at the time the Model 3 comes out will be closer to $30K than my original estimate of $40K.
It also makes the case for a newer S now even worse.
I get these emails regularly too. One I got was two weeks or so after the first one. I find it annoying.
Except for my Roadster which I drove for 3+ years and then sold, I’ve always kept cars for around 10+ years. I buy what I like and I’m happy with it until it falls apart. I rarely get temped by anything new. But when I go out looking for something new, I give in and buy top of the line or close enough, and everything I want in a vehicle.
I’m a technologist also, but I’m just not that interested in autopilot. I found it annoying to drive with here. I drive on “mental autopilot” anyways, so having my hand on the steering wheel and pedal without mentally thinking happens anyways. And somehow I want a minor thing to do or I just want to sleep or read a book but not pay attention to the road. Although I am a technologist I am not a gadget junkie, the device needs to have a purpose.
The Model 3 interests me only because it isn’t as wide! But I would miss the longer range. Now I’ll likely keep my Model S forever to enable free supercharging. I don’t work so a significant amount of my miles is supercharged solely because I am a road tripper to remote places, and don’t feel guilty in an electric vehicle.
My ideal car would be 10″ less narrow and have tires that can’t be curb rashed and have the seats fold flat and flush with the rear cargo area with a 400 mile range.
I should have said it but I’m also assuming I can get a Model 3 with about 265 rated miles of range (same as my S) for that $70,000 price.
The unlimited supercharging (or lack thereof) is a wild card and the pricing is unknown. While I do quite a few road trips, the bulk of my miles don’t require Superchargers so it isn’t a major factor for me.
I usually drive cars into the ground. I probably should have waited until Tesla offered AWD but I was out of time with the car I had at the time. Im still not sure if I’ll trade the S in or just keep it but I still wonder about the whole S vs 3 positioning.
Oh, AWD would be a hard choice if you need it. I don’t as it is a once or twice a year thing at the most for me if I go to the Sierras, and have a second car that is AWD for that.
With climate change too, I’m not even sure we will get much snow in the Sierra’s anymore. We have not really had a fall yet as it has been really warm here all September, October and November.
Perfect post! I’m going through exactly the same, except my P85 is coming up on 4 years old. I just got the quote for a trade in, and although the price is holding up very well, I’m coming down on the side of waiting to see what Model 3 will be. I think I’d rather wait for 12-24 months to get exactly the Model 3 I want, rather than dump a ton more cash into a new Model S now and then regret it when Model 3 comes out.
Thanks Nick. Did you reserve a 3? That will probably factor in too. Those that didnt reserve already may wait an extra year. With Tesla claiming they’ll be shipping volume in the 2nd half of 2017 I suspect all 3/31 reservations may be filled in 2017.
To me, the Tesla sales promotion actions you describe are simply normal for a sales organization. And like it or not, the Tesla sales people are most likely pushed to sell more cars, perhaps not as much as other sales people but still are encouraged one way or another. As an example, my spouse gets phone calls from a Toyota dealer every couple of months asking her to consider trading in her Corolla, even though it is only 2 or 3 years old. Same idea as what you are experiencing.
So I would simply look at what Tesla is doing the same way you would any other sales pitch, and feel free to ignore it.
And by the way, I do not get those pitches from Tesla, at least not yet, probably my car is newer than yours and has AWD and Autopilot capability. Plus my car is leased and the lease has nearly 2 years to go. But I bet I will get those type of messages as my lease approaches its end.
One other point: I am not so sure it is a bad idea for Tesla to do this from a stockholder point of view, either. So what if a percentage of current owners trade in their cars? That can only help Tesla’s current sales. Possibly more important: If Tesla gets you into an S or an X now, you might cancel your Model 3 reservation, and they’ll make more money on the S or X than on the 3. And your cancellation may relieve some of the pressure on their early production of Model 3s.
Seems like a potential winner for them, little cost, and keeps the sales people on cold winter mornings when there is no one in the showroom!
Oops, a couple of typos in my comment above.
In particular, I meant to say “…it keeps the sales people busy on cold winter mornings…” Sorry about that.
I do agree that it makes sense for Tesla to do the standard things here and take a shot at it if they have the extra resources and time. If they are supply constrained though it makes you wonder about staffing levels if they don’t need the extra sales though.
Also, the main point is that the offer doesn’t make sense for existing owners. No harm in them trying, but it is generally a pointless gesture that is somewhat frustrating for the owner.
I have a 2015 Model S with the original autopilot hardware. Lane keeping and adaptive cruise control are the best parts of the autopilot system for me. I have no desire to have full autonomy, so upgrading to the new autopilot has no real attraction. If I were in your’s or Nick’s shoes, I would be very temped to upgrade now. Waiting for the 3 and missing out on unlimited Supercharging and possible the tax incentive would weigh heavy in my decision.
As for whether you/I would be happy with a Model 3 replacing an S, there are just too many unknowns. Not knowing the maximum range a big one. Price is another. I think you are right with your estimate of double the price to get one you would like. Getting an early production car has definite disadvantages, too. I have a good friend who put down $40K for an early Model X. Because of multiply problems, he is wishing he had purchased an S!
I have put a deposit down on a Model 3 but when it comes down to the wire, I’m not sure I will want to replace my S, get the 3 as a second car, or just pass on it. Right now I have a electric SmartCar as an around town vehicle and am looking for a replacement for it when the lease is up in a few months. We are a two driver family so both cars get used daily. It has been a fun car and we will miss it. In our small town, we actually get more comments on it than we do with the Tesla! A model 3 is overkill for a replacement for it.
Good luck with you choice!
Definitely a good point on the early Model 3’s. As someone on the East Coast I’m assuming the West Coast will filter out the very early issues. I’m also assuming that the Model 3 is simpler (no falcon wing doors and nothing really new they haven’t done before) so there are less chances for trouble.
Is the Model 3 that much narrower? I thought the width of the cars were dictated by the battery pack.
As an owner & investor, I hope you’re asking the company the tough questions. I’m not convinced that demand for the S is as high as Tesla claims and they’re dependent on their speed-demon owners buying the ever-quicker P cars which seemed to be released 1 or 2 times per year.
I think the DragTimes YouTuber has owned 5 Performance Teslas so far.