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IDk anything about promises vs this but... the key point for me, here, is subscriptions. Both software & subscription based business models have proved way bet

IDk anything about promises vs this but... the key point for me, here, is subscriptions. Both software & subscription based business models have proved way better than just selling stuff. Tesla's business is increasingly proving that its in these businesses. If Tesla can normalize >$200 software subscriptions, this changes the game. For example, there is an interesting & contested economic question about planned obsolescence in cars. Once a long lived product reaches maturity/saturation, demand plateaus or depletes. Refrigerators, for example, are a different industry once most houses have one TVs too. Some theories of the great depression, for example, have market saturation as a primary culprit. In the 30s, planned obsolescence was transparently promoted as a depression ending plan^. Orwell, writing 1984 after the war, predicted continuous low level warfare, a means of destruction to counterbalance production. It was widely thought that saturation points were the weakness in modern industrial economics. In any case, Henry Ford's engineering ideal of simple, built-to-last cars lost out to GM's annual design changes... demand based in fashion & trivial novelty, rather than utility. Today, Japan absolutely enforces obsolescence for cars. EU countries, often via environmental taxes also push old cars off the road to encourage new ones. Many cars are built to last 100kms/10yrs. Between insurance, tax, biannual roadworthiness tax and such, the most economical way to own a car is a cheap, new one. Anyway... contrived obsolescence is just the most on-the-nose way of keeping the ball rolling. One of many. There are also new markets. There's fashion, like it or not. There's technological improvements, at least during some periods. Any can work. In any case... subscription and software business models could change some real imperatives in the auto industry. Building cars to last is possible, manufacturers just haven't had the incentives to. If the number of Teslas on the road becomes a multiplier for a meaningful revenue source... the incentive to build long term becomes significant. Turns a linear trajectory to a saturation point into an exponential. To the extent that this succeeds, the auto industry is going to be all about the fleet, rather than the factory door, soon. As always, affordability will not be the endpoint. ^https://upload.wikimedia.org/wikipedia/commons/2/27/London_%281932%29_Ending_the_depression_through_planned_obsolescence.pdf https://upload.wikimedia.org/wikipedia/commons/2/27/London_%...

zwaps 5y ago
The reason for doing this is, of course, a different one. Tesla, much as any other recent company, has opened their post-90's Economics textbooks and has seen that two-part contracts allow to extract much more welfare (money) from the customers. The car industry already got wise early on about price discrimination by employing bundling. Now this is combined with subscriptions to create IC/IR two-part contract menu. Add customer data, and you're golden. Edit: Just to be clear, this may be efficient. It just isn't beneficial to the consumer.
- dalbasal 5y ago
  Agreed on the "post-90's economics" and "data is the new oil." In fact, a lot of Tesla's current market cap is tied to customer data. It's an "unavailable at any price" ingredient of their (prospective) self driving end goal. It also allows them to credibly claim that they'll eventually have a great insurance business/etc. A moat. I was just commenting on a potential feature of this post-90s market. In the "Model T" economy, the sweet spot was somewhere between "no one can afford your product" and "everyone already has it." Ford in the 20s. Demand. Efficiency. durable products. In the post WWII economy, the sweet spot was about optimising efficiency (modern trade deals/routes grew around auto industries' efficiency needs) and fashion-based demand. Cars as a means of self expression and such... fleet turnover rates determine market size. Disposable products. The economy we're stepping into, revenue will come from sources other than just making & selling cars. That means we might see much longer lasting cars. Maybe by 2031 we'll know if 1931 theories of market saturation and planned obsolescence are true.
  - zwaps 5y ago
    I largely agree with your reasoning, but I emphasized the profit incentives as driving the decision to choose two part tariffs, because I think whatever happens next will also be driven be these concerns. Firms will also have realized that there are indeed two parts to such pricing schemes, and that is not by accident. If the market can collude on disposable products now, it may be able to do it when everything is a fixed-/variable contract. Why? Well, it simply is profit maximizing, especially for those who have troves of customer data. Indeed, we know that it is only under uncertainty that firms may as well post a single price. Now that we can track all or customers, we surely want a combination of outright sales and variable cost subscriptions. That is, as long as people have heterogeneous preferences for things. Instead of longer lasting cars, I simply expect cleverer and more extractive contracts to become the norm. Perhaps I am too pessimistic, perhaps what you say will come true to some degree. Perhaps we can turn Marx on his had... again. It's not profit that will continue to decline, it's consumer surplus - for many of the same ills.

zwaps 5y ago

The reason for doing this is, of course, a different one. Tesla, much as any other recent company, has opened their post-90's Economics textbooks and has seen that two-part contracts allow to extract much more welfare (money) from the customers. The car industry already got wise early on about price discrimination by employing bundling. Now this is combined with subscriptions to create IC/IR two-part contract menu. Add customer data, and you're golden. Edit: Just to be clear, this may be efficient. It just isn't beneficial to the consumer.

dalbasal 5y ago
Agreed on the "post-90's economics" and "data is the new oil." In fact, a lot of Tesla's current market cap is tied to customer data. It's an "unavailable at any price" ingredient of their (prospective) self driving end goal. It also allows them to credibly claim that they'll eventually have a great insurance business/etc. A moat. I was just commenting on a potential feature of this post-90s market. In the "Model T" economy, the sweet spot was somewhere between "no one can afford your product" and "everyone already has it." Ford in the 20s. Demand. Efficiency. durable products. In the post WWII economy, the sweet spot was about optimising efficiency (modern trade deals/routes grew around auto industries' efficiency needs) and fashion-based demand. Cars as a means of self expression and such... fleet turnover rates determine market size. Disposable products. The economy we're stepping into, revenue will come from sources other than just making & selling cars. That means we might see much longer lasting cars. Maybe by 2031 we'll know if 1931 theories of market saturation and planned obsolescence are true.
- zwaps 5y ago
  I largely agree with your reasoning, but I emphasized the profit incentives as driving the decision to choose two part tariffs, because I think whatever happens next will also be driven be these concerns. Firms will also have realized that there are indeed two parts to such pricing schemes, and that is not by accident. If the market can collude on disposable products now, it may be able to do it when everything is a fixed-/variable contract. Why? Well, it simply is profit maximizing, especially for those who have troves of customer data. Indeed, we know that it is only under uncertainty that firms may as well post a single price. Now that we can track all or customers, we surely want a combination of outright sales and variable cost subscriptions. That is, as long as people have heterogeneous preferences for things. Instead of longer lasting cars, I simply expect cleverer and more extractive contracts to become the norm. Perhaps I am too pessimistic, perhaps what you say will come true to some degree. Perhaps we can turn Marx on his had... again. It's not profit that will continue to decline, it's consumer surplus - for many of the same ills.