Tesla cars made to travel further during hurricane Irma
How did Tesla make some of its cars travel further during Hurricane Irma?
The electric-car giant Tesla assisted their customers during Hurricane Irma by remotely boosting their vehicles’ battery capacity.
Although this was a generous act on behalf of the electric car company, this act of kindness actually highlighted the fact that Tesla has apparently been selling identical cars at different prices?
As some Tesla drivers were fleeing Hurricane Irma last weekend, they unexpectedly received an extra 30 or so miles in range thanks to a silent free upgrade from the company.
The move, confirmed by Tesla, followed a request from one Florida driver for the limit on his car’s battery to be lifted.
Although the cheaper Tesla model cars which were introduced last year, have the same 75KwH battery as the more expensive models, the software limits the battery to just 80% of range.
Tesla owners can ask for a battery software upgrade for several thousands of dollars, which can be done online, basically meaning, you can make the changes with just the flick of a virtual switch.
Economist Alex Tabarrok, has said that this is an example of price discrimination, which is the art of selling superficially worse versions of the same or similar product for less, so this is nothing new.
Dr Georg Tacke, a consumer pricing expert and the chief executive of global consultancy Simon Kucher, said:
“The only thing that has changed is that companies can now change the offering during the life cycle of the product,”
“As more software gets into our hardware, the more we are going to see this.
In a paper on the subject published by MIT in 1996 entitled, Damaged Goods, economists Raymond Deneckere and Preston McAfee showed how limiting products to make them cheaper could actually, in the short term, could actually end up costing a company more.
For example, back in 1990, the computer giant, IBM, launched their LaserPrinter E, which was a cheaper version of its LaserPrinter, with the only difference being, chip modification that slowed the printing speed to five rather than 10 pages per minute.
In this particular instance, Tacke explains, manufacturing two genuinely different versions of a product costs a lot more money. The challenge is to predict the willingness to pay of customers while making them feel as if they have benefited from value or better features.
“If you have one product and the price is too high, people don’t buy it. But if it’s too low, you don’t exploit some customers’ willingness to pay,” he says.
“So you differentiate and, yes, that means damaging the product in some way.”
Considering this, companies such as Tesla Motors see a market for “remapping” modern cars, which is simply tweaking their software to unleash hidden performance. These are just software tweaks and not so much the production of different products. It works in a very similar way to a video game cheat, without touching the engines.
Mobile phone and household appliance makers use similar marketing ploys to differentiate products and sell more overall.
But should we feel cheated by this sleight of hand? “Get used to it,” says Tacke. The key to pulling it off, he adds, is to manage expectations and to do the research to get the prices right.
Tesla customers driving the cheaper cars knew what the payoff was. And the company had the last laugh; it no longer offers cheaper cars with the “damaged” battery, because most people bought the upgrade anyway.