Tesla Model S Price Increase Coming, But For New Buyers Only

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2012 Tesla Model S, brief test drive, New York City, July 2012

2012 Tesla Model S, brief test drive, New York City, July 2012

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Much of economics is simple: Makers of desirable, popular products can raise their prices--to some degree.

One example: Tesla Motors [NSDQ:TSLA] confirmed in a blog post yesterday that it would raise prices on its 2013 Tesla Model S all-electric sport sedan in the next two or three weeks.

But, Tesla hastened to add, that will apply only to new orders placed after a certain date--not to the prices of more than 13,000 Model S cars on which buyers have already placed deposits.

Reservation holders who have deferred the process of finalizing their configuration will have, the company says, a "fair, predefined time frame" to finalize their car's configuration and complete their order before they become subject to the higher prices.

The 2012 Tesla Model S is by far the most successful product launched by any of the new venture-funded startup carmakers, a universe that includes not only Tesla but also Fisker Automotive, Coda Automotive, and a few tiny companies with products far from the mainstream.

Part of the price increase may come from making certain standard Model S features or equipment into extra-cost options, Tesla said, though it did not give any examples.

The price increase serves two purposes: It lets Tesla lock down more sales and understand how those cars will be configured before they're built, and it boosts the incremental profit per vehicle of future sales.

As Tesla gears up its production toward the goal of 400 Model S cars per week, it is likely consuming a prodigious amount of cash.

Not only must it fund its current operations, it must complete development of the Model X crossover, start work on a new, smaller model line, and continue to open more Tesla Stores and service locations.

All of that costs money.

Milan's Tesla Store Opens up

Milan's Tesla Store Opens up

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Converting deposits to sales, and--even more importantly--realizing the maximum profit from every sold vehicle becomes vitally important if the company is to survive financially. And a price increase helps the company move toward that goal.

It's worth noting that Tesla has precedent for such an increase; in 2008, with the recession getting worse, CEO Elon Musk told buyers who'd put down deposits on its Roadster sports car that they would have to pay more for the cars they'd ordered but not yet received.

The scene in which Musk makes the announcement at a tense meeting of Tesla depositors is recorded in last year's documentary, Revenge of the Electric Car.

But Tesla, it seems, has learned from its mistakes: This time, as noted, the price increase applies only to new buyers.


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Comments (18)
  1. Sounds like it is a good thing that I am already a depositor and on that order list.

  2. hmm, how will this affect the European waiting list, as they have not released any price for the Europa
    will there also be 2 different prices, dependen on when you have signed up

  3. Not a critical issue at all, IMHO, but I can't wait to hear from a certain bitter someone who called me a hater over a year ago when I stated that Tesla would raise its price by SOP... Not by SOP, of course, but close. Not a knock on Tesla itself, either, my comment referred to a lot of open points for EVs going forward. It's almost impossible to accurately predict costs years in advance on new tech. If Tesla has updated its costs and needs to charge a little more, then so be it. The reviews have been mostly stellar and if enough consumers agree, then no problem.

  4. "One example: Tesla Motors [NSDQ:TSLA] confirmed in a blog post yesterday that it would raise prices..."

    That's wasn't a blog post. It's more of an entry in a FAQ. George Blankenship described it here: http://www.teslamotorsclub.com/showthread.php/11214-Coming-Soon-The-Tesla-Bulletin-Board

  5. John - Good article. Price increases are an unfortunate sign of the times, but I don't think many thought the current price structure would last beyond the initial crop of orders. I'm curious though what standard Model S features or equipment could be converted into extra-cost options and still have a base Model S marketed as a premium vehicle.

  6. Curious move. Maybe Tesla needs all the cash they can get their hands on but since reservation holders are unaffected this won't help short term cash problems in the current ramp up phase of production. Also, less than $900 million in accumulative losses so far should be no problem if the 20K units/year at 25% profit pan out the way Tesla predicts. To shift that 20K units/year the car needs to be priced to move I would say, but maybe the "Apple factor" is starting to weigh in for this highly praised product.

    OTOH, things will get more expensive of course with new dollars being "printed" as if there is no tomorrow.

  7. Chris O; how can you think imposing a deadline on savings would not help. its Tesla's way of saying "put up or shut up" realize that anyone on the fence will be putting up cash now for delivery in 6-8 months or more. Sounds like a great way to raise capital

  8. It all depends on how Tesla estimates it's sales perspective I think. If they figure they will have no problem getting the 20K sales they are aiming for in 2013 even if a certain percentage of reservation holders decides to decline, this "incentive" to make them order anyway will actually cost them money. Reservation holders might have been substituted by better paying new clients.

    It's all guessing of course. There are many positive scenarios that warrant a price increase and some negative. I think it gives a rather puzzling signal from a company that tells us that plug-ins will only get cheaper, but it might be the smart thing to do right now.

  9. With 14,000 deposits already on the books, the price change will only effect a small percentage receiving their Model S in 2013. Considering that the 14,000 reservation number will grow in next few weeks with "followers" from North America that have been waiting to commit.

    2013 is interesting as Tesla will begin production of its' Model X which is alsso based on the Model S drive plateform. Model X production numbers may also be part of that 20,000 production capacity number? Additionally some of next years 20,000 production will likely make its way to owners in Europe & Asia as Tesla goes international. This points to the 2013 waiting list being past 3/4 full.

    It won't be long before Tesla begins taking deposits for 2014 deliveries.

  10. Brian your numbers are off...you smoking something man??,

    1) Article says 13K deposits not 14K
    2) No way in hell the model x will see it to production in the year 2013. Even Tesla says so on their website...2014 is their prediction and that's an optimistic timeframe.
    3)400 S models a week is goal...not including any other vehicle production.

    I guess you need to reread the article with two hands or something cause you misunderstood a lot...trytophan daze???

  11. Erik. Brian's numbers are accurate. In the Tesla Forum they keep a running total of reservations, most recent world wide net total is 15,672 - despite what the article says. TM has been pretty accurate with their estimates and time tables and if they say they begin production in late 2013 I am confident that it will happen. The S and X are basically the same car.

  12. Things have been handled much better since then, of course, & the timing of the Roadster launch was also during a horrendous period in the industry itself, but you're simply wrong about Tesla being pretty accurate with its time tables in the past.

    In 2006, it was a mid-2007 release. It didn't reach production until 2008 & instead 500 were made by June 2009. Those weren't significant delays?

    Also, you stated that "if they say they begin production in late 2013 I am confident that it will happen."

    That's not Tesla, that's Brian's comment. Tesla is still stating 2014. Not a delay, so launch when ready. Build on all the great reviews and word of mouth. Tesla learned & did a better job on the Model S. 2012 Tesla is far stronger than in 2008.

  13. Peter, no you AND Brian's numbers are wrong. Referring to my reply:
    1) Article stated 13k n Brian gave no source for his 14k number. This number is really irrelevant to debate because of the obvious nature of it changing, growing as more reservations are made.
    2) Apparently you and Brian are unable to check your facts before making a statement as the Tesla website itself says 2014...not 2013....like robok2 said below correcting you.
    3) And because of number #2 above, this is still correct.

  14. And for you Peter, a new number for your simpleton thinking...
    --4) Model S n model X yes share a very similar drivetrain but they are not n will not be "basically the same car." The Hyundai Sonata n Kia Optima are basically the same car(drivetrain, size, components, etc.) but with styling n trim differences. The X is an suv and will have huge falcon wing doors. The way the X drives, operates, and looks will be significantly different then the model S. Of course the first X will be offered at least two model years after the first model S too which may bring additional technological n drivetrain differences.

  15. @ Brian Henderson: good point, the 14K+ and quickly growing waiting list could well help explain a price raise so early in the day while it can still be done without scoffing reservation holders. Also putting a break on reservations in the US may be in order; there is other markets that can't be made to wait for ever. This could well be a luxury problem and Model S success probably means that Model X production will come on top of the 20K units/year projected rather than as a partial substitute.

  16. Unfortunately - this is not the case. I am a reservation holder. Was told when I signed up that delivery was in about 6 - 9 mos and I would need to commit /configure in about 4 - 6 months. My deposit is refundable until I configure. NOW I get a note from Tesla that I will need to commit by end of Jan to avoid the price increase but no indication that delivery will be any faster. Once I commit, my deposity is no longer refundable and I am trusting that they will deliver. I signed up with a 4-6 month window but now they are changing the game. How many of us will decide that the risk to our 5K is no longer worth it? Sorry, Tesla, but you have not done enough to warrent "trust" that my $5K is truly safe. I am out

  17. Makes complete sense that a new, sought after product with a waiting list of over 13K people, probably over 30K waiting within a few months, is going to be at a higher price early in 2013. Of course this price increase is after the Model S has won the MotorTrend car of the year, gotten rave reviews from CR n many others.

    The only thing to discuss now about the price is how much higher....

    My guess: 10% higher for each trim line of model S. The car is still worth that much...especially when you consider that more bugs will be gone with the latter production batches of 2013.

  18. LOL, i guess they thought twice about pulling the same stunt they pulled on the Tesla Roadster reservation holders.

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