How could Tesla increase the mileage at the flick of a switch? The answer is that owners of the Tesla 60kWh version of its Model S and Model X actually have the same battery as the 75kWh vehicles but the battery has been purposely limited or “damaged” to provide only 60KWh of mileage. But why would Tesla damage its own vehicles?
The answer to the second question is price discrimination! Tesla knows that some of its customers are willing to pay more for a Tesla than others. .. Tesla must find some characteristic of buyers that is correlated with high willingness-to-pay and charge more to customers with that characteristic.
He cites Deneckere and McAfee on damaged goods as price discrimination. I think that Varian and Shapiro would prefer to just call it “versioning,” and of course their classic Information Rules is mostly about price discrimination in a world with low variable costs. And if you think that price discrimination is a new phenomenon in the auto industry, I’ve got an early 1960s Pontiac to sell you.
then the obvious question is, why not just use a cheaper/smaller battery
For one, because of economies of scale for having one production line and one set of parts: it’s much cheaper to produce one kind of battery.
Also, the battery in a Tesla is so bulky in terms of volume and mass that “switching out batteries” is a significant mechanical change, and having different batteries would require a lot of extra design, fine-tuning and re-balancing of hardware and software, but most especially, very expensive and somewhat redundant safety-testing-and-assurance work.
This particular instance isn’t really a good example of “damaged goods” price discrimination. Let me explain.
People tend to overlook two things. 1. Lithium batteries have a common problem, and 2. Tesla vehicles are unique in terms of running on adjustable software, and recording and transmitting huge amounts of performance (and other) data back to the company.
The problem is that lithium batteries wear out. You’ve probably noticed this with smartphone or laptop batteries: after only a few uses one will definitely notice some loss of maximum capacity, some loss of efficiency in discharge, and other problems. And it’s also a common experience after a year or so to experience really significant drops in capacity, which is why there’s a big market for replacement batteries.
That’s due to several complicated factors, but mostly the formation of crystal dendrites, and if you do some searching you’ll see it’s a huge and important research area, not just in terms of extending life, but also for preventing fires and explosions.
One can only do so much about this problem, but it’s been known for a while that optimizing the utilization and recharging profile can still help a lot. One can cycle the recharging amperage and do other tricks, and it usually helps to avoid draining the battery all the way down to zero charge.
Anyway, getting the optimization strategy just right is tricky. And, really, there isn’t one “right” way to do it, because people use their vehicles in slightly different ways. Some people are regularly commuting at lower speeds with lots of stop and go traffic and recharging at home every night. Other people are running longer distances at highway speed and maybe recharging at a remote station, or using lots more juice because running at night (headlights) in hot weather (air conditioner). There are different road and terrain conditions and climate patterns too.
So you really need a good research program to figure out what’s really the best set of battery management strategies to suit these particular lifestyles and use profiles.
And that’s just really prohibitively expensive to do before rolling out your first model.
If only there were a way to do all kinds of controlled experiments (or something analogous to “randomized clinical trials”) with thousands of alternative strategies on thousands of vehicles all over the country, with all kinds of use profiles, and batteries with all kinds of histories.
I mean, you’d have to be able to update the software remotely and record everything and send it all back to the company for some kind of big data analysis.
Wait a minute. Tesla can do that! And they do. And having those solutions will certainly prove to be an extremely valuable competitive advantage over other car companies vying to enter the market for this particular technology, which, after all, isn’t that complicated for an established car company. Indeed, electric systems are arguable much, much simpler than the entire internal combustion powertrain.
So, Tesla is not really “crippling” the battery. They are preventing maximum discharge to help preserve battery performance, and they are also running lots of experiments and collecting lots of information as they try to discover optimal battery management strategies. That information is worth something, and plays a part in the “discount” ordinary drivers get. Preventing maximum discharge is not really “damage”, it’s “prevention of damage”, and, yeah, there are always some people out there who will pay extra for the “privilege” of being able to drain their batteries all the way (and not producing much useful information), but at the cost of premature battery degradation.
Instead of crippling, Tesla was really engaging in a kind of “premium delusion” marketing strategy, in which is was useful (and profitable) not to tell people why they had extra capacity and let them come to the predictably wrong conclusion on their own that the batteries must be different. The fine print of the sales contract indicates the contrary, though I’m sure some legal eagles out there are working on a theory of fraudulent misrepresentation. Also, you don’t want buyers of the “standard” system to know they’ve really got a bigger battery if that is going to create an incentive for certain creative engineers to to try and “hack” the system to get access to it.
The issue with enabling the extra capacity by software for people trying to evacuate Hurricane Irma is one of legal liability. Tesla could have been held liable (at least for vehicle damage, and perhaps even for lives) if it turned out someone couldn’t use their vehicle even though there was technically charge left in the battery and were, say, just a few miles short of a safe area. Obviously their lawyers took a look at the situation and figured it was obviously worthwhile to enable the extra capacity regardless of what the public relations effect of this “discovery” would be.
I suppose what you really need is a “break glass in case of evacuation” option for the Tesla in which standard model users understand that the extra capacity is probably going to damage their batteries, but in an “emergency”, it would be worth it. Premium model users essentially broke that glass at purchase. This is similar to a setting on Israeli fighter jets that will destroy the engines with afterburners after an extended maximum burn, but which will produce just enough speed advantage to get them home safely after missions abroad if they are being pursued.
This reminds me of how Intel segments its CPU market with the “same” silicon. They fabricate a bunch of chips to a very high standard. Then the products are tested for quality control. Those that meet the standard are sold as the high end chips. Those that don’t meet the quality standard are clocked down and sold as lower end chips. The clocking down is not merely price and performance discrimination but protects against errors from the lower quality. There could be something similar going on with Tesla’s batteries, though if this is the case, Tesla would run the risk of exposing the user to error.
My understanding is that Intel produces more high end chips in the fab line than there is demand at premium prices so most of the chips sold at the low end are high end chips which is why people will overclock the mother board.
Software has been “packaged” like this for decades. If you buy, say, the Oracle database, you get the software and the license you paid for. The media you have typically contains all the software associated with the Oracle database engine.
The license specifies which features you paid for and which will be “turned on” for you. If you upgrade your license, you just get a new license file with additional features enabled, and not a whole new software installation.