“I'd rather be optimistic and wrong than pessimistic and right”
- Elon Musk

TL;DR

Elon Musk transformed his Autopilot payment model to subscription-based.
Financially, this didn’t help.
Long-term, it will familiarize people with self-driving and his technology and may help him financially in the future.
For us, we can try some of the following to spark new business by altering our pricing models:
1.        If possible, offer your product/service at a lower price and as a subscription or payment plan.
2.        Offer a low-ticket version or alternate product/service to get people in the door. After familiarizing themselves with you and your services, offer the higher-tier services.
3.        Use ‘bump’ products to increase the customer lifetime value of your customers. After the initial purchase, offer upgrades or other products and services that enhance or improve what was just purchased.
4.        Make sure that everything is easily implemented. Too much friction and your customers will not stay for long.

As you know, Elon Musk has been pushing for self-driving cars. In fact, in a recent statement during Tesla’s first-quarter earnings call (10-Q) a month ago, Musk reminded us Tesla’s main aim is “to solve autonomy.”

Although the reports from the earnings call looked grim, I’d like to highlight a decision Elon made a few years ago that will assuredly be beneficial in the long-term for him, Tesla, and the world. Let’s talk about Tesla’s sidestep to open self-driving to the common man.

Tesla is not so much an automotive company as it is a SaaS company (Software as a Service). The main difference between selling cars and software is Tesla’s ability to turn on and off functions for the end user, depending on how much they’re paying. This allows more people from a broader range of economic backgrounds to enjoy Tesla cars without having to pay for all the bells and whistles.

The cheapest upfront cost for a basic Tesla Model 3 hovers around $40,000 as of this writing, and a new offer is expected to be sub $30,000 coming soon. You can think of this upfront cost as the “Setup” fee—if you want to compare Tesla to most SaaS providers. Then the upgrades you can purchase later resemble monthly billed SaaS features. These are called “Recurring” fees in the SaaS world.

Tesla is innovative in many ways, but probably the most innovative is its reliance on software. For better or for worse, the car drives on software. Car updates, bug fixes, and even recall repair pushes are sent out by Tesla over the air. Plus, updated navigation and internet features like live traffic and music downloading are pre-built into the car, but don’t “come standard”. All it takes is a couple clicks of a button to turn on these features, paid automatically through the app. Offering these 'bump' products post-purchase increases the likelihood of buyers adding these features compared to offering them upfront.

Self-driving mode is indeed included in this list. What used to cost five figures upfront (part of the Setup fee) is now offered as a monthly subscription.

So, why is this a good move? By lowing the threshold for everyday users to trial the software at a less invasive and off-putting price, more people are exposed to the feature. More people acclimating themselves to the upgrade means more potential business for Tesla. But this doesn’t necessarily mean it was a profitable move.

Elon had to trade money-in-the-pocket for volume and long-term use. By lowering the price threshold, he, in effect, made self-driving a low-ticket offer. The only way to make money on low-ticket subscriptions is to up the volume and pray that people stay on the subscription long enough to make up the difference. As every amateur economist (and indeed, high school grad) knows, the laws of supply and demand come into effect with every price or supply change. Elon is banking that the volume of demand for self-driving at a lower price will outpace the earnings he would have made at the higher price. So, will this strategy pay off and what can we learn from it?

It's been about three years since the inception of the subscription model for self-driving, and Elon recently doubled down. Just last month, he slashed the prices in half for the feature, thus lowering the threshold even further. Why? In an interview, he revealed that he wanted to make the feature, though not perfect, more available to users to normalize self-driving. I’m paraphrasing, but the strategy is this: Lower the price to hook people only to later raise the prices. Whether users now will be grandfathered at today’s prices into more advanced versions is anyone’s guess.

Now, is Elon merely looking to increase profits with this subscription model? I don’t think so. In fact, from his 10-Q report, he has lost profits. However, he’s time and again made business moves that didn’t make sense from a money point of view. He’s invested billions of his own dollars into endeavors that many scoffed at. He’s a visionary, and the twists and turns of this grand narrative don’t necessarily align with what’s fiscally responsible (for now). Instead, we, as the societal shareholders of his journey as well as its beneficiaries can only ride the wave he’s making and hope that where it takes us is where we want to go.

As for me, I think that even if he doesn’t make money on subscription-based self-driving, he has the foresight to begin implementing the building blocks of a more tech-driven society—one that will see him as a forerunner. It’s a good move. It shows that even if he doesn’t make a profit, he believes in the future of his ideas and technology.

But for you and other business-savvy professionals, we need to learn that sometimes our products and services, how we pitch and position them in the market, or our target audiences aren’t necessarily to blame for get lackluster results in terms of marketing.

To get the most out of your marketing, you have to speak to people’s abilities. You may have an awesome product, but the pricing strategy may be deflecting potential customers. Here’s what we can learn from Elon:

1. If possible, offer your product/service at a lower price and as a subscription or payment plan.

2. Offer a low-ticket version or alternate product/service to get people in the door. After familiarizing themselves with you and your services, offer the higher-tier services.

3. Use ‘bump’ products to increase the customer lifetime value of your customers. After the initial purchase, offer upgrades or other products and services that enhance or improve what was just purchased.

4. Make sure that everything is easily implemented. Too much friction and your customers will not stay for long.

Sometimes we have to play the long game. And in business, that’s a good strategy. Sacrificing long-term paying systems for short-term gains can hurt your reputation and cause you to not build scalable strategies and products/services that continue to provide revenue for you over the long haul. Take a page out of the Elon’s SaaS model’s handbook and brainstorm what you can do to spark new business or invigorate old business. It’s certainly worth a look.

Now, even though there’s nothing technically original about Tesla’s new SaaS model, it’s still a subscription software that happens to come with a car.

If you're ready to transform your business using the latest in digital marketing strategies, book a call with us at Angel City. We'd love to discuss your business and your goals.

https://explodingtopics.com/blog/saas-startups
https://www.bloomberg.com/news/articles/2024-04-24/tesla-tsla-keeps-unlocking-less-fsd-software-revenue-than-hoped?embedded-checkout=true
https://blog.appsumo.com/ten-year-anniversary/
https://www.tesla.com/support/upgrades
https://electrek.co/2024/04/12/tesla-slashes-full-self-driving-monthly-subscription/
https://fortune.com/2024/04/23/tesla-elon-musk-electric-vehicles-waymo-uber/