Elon Musk doesn’t want to sell you a self-driving car – but he does want you to pay for one

Elon Musk has always been a master of the bold statement.

From saying he’s moving to Mars to telling us robots are going to kill us all to announcing he is taking Tesla private (before changing his mind shortly after), there’s never a dull moment with Musk.

With that in mind, last week he announced that he will stop selling Teslas to consumers once they are all fully self-driving.

At least that was the story that a number of publications ran with. But Musk was quick to clarify his response:

Still, even after this clarification, it’s clear to see Musk is planning to increase the prices of Teslas significantly.

Or, it could just be a good marketing ploy.

The “scarcity” principle is the oldest marketing trick in the book: act now! You’ll never see this product at this low, low price ever again.

Of course, you always do see said product at that price again, and usually at much lower prices down the line.

Still, it could actually be that Tesla is planning to move out of the consumer car market and into the self-driving taxi market.

I wrote about the possibility of this a few months back when Tesla first announced its robo-taxi plans.

From my piece:

Last week Tesla made some pretty big announcements. But the most intriguing of these was that next year it will launch a self-driving taxi service.

The key thing about this taxi service, though, is that Tesla owners will be able to rent out their cars as taxis when they aren’t using them.

If you know you won’t be needing your car for a few hours – say like when you get home from work – you’ll be able to let it drive off and become a self-driving taxi.

And you’ll keep 70% of the money it makes.

From Inverse.com:

    “Any customer will be able to add or remove their car to the Tesla network,” explained Musk. “Expect this to operate like a combination of the Uber or Airbnb model.”Tesla will take “25 or 30 percent” of the revenue generated from each ride, which is roughly the amount Uber takes out of each ride fare. But that doesn’t mean participants won’t be able to make a decent amount of cash while they’re sleeping.

    Tesla Network: How Much Money Could It Make You?

    Tesla estimates that customers can make about 0.65 cents per mile. The company calculated that if a single robo taxi driver 90,000 miles in one year it could make about $30,000. That would be most of the money back from the purchase of a $35,000 Model 3.

    These calculations were made using broad generalizations that could vary depending on how much someone needs to use their car. The company also states that loaning a vehicle at this rate would make it last about 11 years before it begins to significantly deteriorate.

Those figures, if accurate, would make owning a Tesla a very sound investment. After the first year, you would be making $30,000 (around £23,250) a year for doing nothing.

Even after service costs, that would still be a decent amount. And imagine if you owned two or three Teslas… you could retire on that kind of income.

Well, it seems that Musk has realised just how much income those robo Tesla taxis could bring in, and has decided to hike prices and take that recurring income for himself.

At least that’s what Electrek thinks could happen:

If all those things become true [Tesla builds a working self-driving car], then Tesla has a choice between selling a car for $40,000 once or keeping that car and operating it as a robotaxi and generating perhaps ten times that amount over the life of the vehicle.  If that’s the case, then the company would be foolish to sell the car and miss out on that future profit potential.

And Tesla shared some numbers showing that they think this will be the case.  At their recent Autonomy Investor Day, they showed a slide suggesting that an average robotaxi would be able to bring in $330,000 worth of profits over its useful lifetime.  In keeping with this projection, Tesla recently raised the price of the still-unreleased full self-driving option (just a couple months after temporarily lowering it in a pretty shady way).

So this is what Musk is getting at when he says that consumers have a limited time to buy a car.  All of a sudden, a $40,000 Model 3 would need to cost six figures for the equation to pencil out for Tesla, and consumers will likely balk at that.  This, then, would give Tesla little reason to retain a large retail presence and they would likely focus on offering robotaxi services or possibly fleet sales.

Theoretically, Tesla could still sell cars at high prices, but Musk’s laconic answer suggests that Tesla plans otherwise.  Tesla has already stated that they plan to buy back leased Model 3s and put them into service as robotaxis after the lease term is up.

So, is Musk really planning to hike Tesla prices so much they make no economical sense for consumers to buy, or is this just a smart marketing ploy?

Let me know what you think: harry@southbankresearch.com.

Until next time,

Harry Hamburg
Editor, Exponential Investor

PS if you want to know more about robo-taxis, driverless cars and electric vehicles – as well as how to invest in companies making them – you should grab a copy of Nick O’Connor’s book: The Exponentialist. It has a wealth of good information on all these topics. For more information and to get your hands on a copy, just follow this link.

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