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Prepaid battery replacement

Prepaid battery replacement

Some one crunch the numbers! It throws the whole " you have to spend 40k on a new battery" argument out the window.

EcoHeliGuy | November 29, 2012

It's not per paid. They quoted a replacement price, which means a Core was included in the math.

I have no idea how much the replacement pack really costs. What matters is the car owner only pays $10000 of of pocket when there older battery core is taken into account.

Take that Fox News (really TMZ should buy fox)

Sudre_ | November 29, 2012

I would imagine you also get the same battery. If tech improves you will not get the 120kWh battery.... well you could but it would cost extra.

prash.saka | November 29, 2012

@Sudre_, are you sure? Does this mean that a 60kWh battery will be replaced by another 60kWh battery? So, is there no way to upgrade/downgrade batteries after 8 years?

~ Prash.

jchangyy | November 29, 2012

@prash. I would like to know that as well before I sign.

tork | November 29, 2012

I believe Tesla has stated before that you can get a different battery. So you can gain additional mileage in the future. What you cannot gain if you get the 85Kwh for example, is supercharging ability

lolachampcar | November 29, 2012

can someone please provide a link to the release or other source for the replacement option?

DouglasR | November 29, 2012

Again, it nowhere said that this is prepaid. I assume it merely a guaranteed price, which you can pay after eight years of ownership. By that time, there should be other, better, options, but you will be able to make the choice when the time comes.

This gives me great peace of mind to know that there will be a replacement battery at a reasonable cost. However, I fully expect to replace my battery with the new 170kWh version (of course, at a price of $20k). ;)

Sudre_ | November 29, 2012

prash.saka, I would think you can upgrade you just have to pay the $10k difference (or whatever the price diff is in the future).

IMHO
An 85kWh battery buys an 85kWh battery
A 60kWh battery buys a 60kWh battery
A 40kWh battery buys a 40kWh battery

I really doubt you are going to be able to cash in a 40kWh core and get a 120kWh battery for free.

lolachampcar | November 29, 2012

ah, it was covered in the price increase blog......

dstiavnicky | November 29, 2012

I'm actually quite amazed that Tesla would predict / sell battery packs for the 'distant' future. I would guess this is more of a marketing ploy for the neigh-sayers as it attacks the issue of controlled-cost battery replacement while confidently stating that Tesla is here for the long run.

The way I see it we are seeing the infancy of mass market electric vehicles. And if it's anything like my days at Apple Computer, the technology moves so fast that I would more likely expect to pay half price for twice as much battery in 8 years from now. (see also LED/LCD TV's example.)

Nothing stays the same.

ChasF | November 29, 2012

+1 @dstiavnicky
Couldn't agree more.

Ad van der Meer | November 29, 2012

The 85kWh costs $20k extra, but the replacement 85kWh battery is only $4k extra over the 40kWh replacement battery.

EcoHeliGuy | November 29, 2012

Again it's a replacement counting the Core exchange, exchange old depleted 40kwh for new 40kwh plus $8000,
Exchange old depleted 85kwh for new 85kwh plus $12000

The pack doesn't cost $12000. It costs the core exchange plus $12000., and it has nothing to do with upgrading.

And it's paid in 8yrs, 9 yrs, 10 years, if you feel you need to change the battery out after the warranty has run out. Not an added option now

gagliardilou | November 29, 2012

The cost is a lot less than I anticipated and consider it great news. If in 8 eight years (or more, it said any time after 8 years, so if you kept your original battery 12 years then took the upgrade?)you get a new battery for $12,000 that totally helps with the higher price paid for the car. As long as you dont get bored driving the same car and can keep the car interior/exterior looking good, it certainly can be the last car you purchase - if you want it to be. Thats a huge bonus.

Getting Amped Again | November 29, 2012

Yeah it's a good deal unless everyone else is putting banana peels into a Flux Capacitor!

(There needs to be a Bored Model S Reservation Holder thread for useless posts like this.)

stephen.pace | November 29, 2012

I'd like a bit more detail on the 85kWh battery replacement.

1) Can this be purchased anytime? Or can you wait until you need it? I seem to recall the Roadster version was advanced purchase, but I could be wrong.
2) If prepaid, what happens if you total the car--is battery replacement transferable?
3) What happens if a larger battery pack is available at time of replacement? Are we stuck with an 85kWh pack? Or could we move up to 100kWh pack if it is available for a (nominal) fee?

I'm planning on keeping my car for 10 years at least, but I could see keeping it longer if things are still working well and I could get an even larger battery.

Brian H | November 29, 2012

It's PREPAID.
GB's blog:
We have received many requests for a Battery Replacement Option. We are happy to now offer this option for all three battery variants. This option will provide you a new battery anytime after the end of the eighth year at a fixed price. Prices are as follows: $8,000 for the 40 kWh battery, $10,000 for the 60 kWh battery, and $12,000 for the 85 kWh battery. You will be able to purchase this additional option through your MyTesla page in the near future.

It's an option you purchase "in the near future". Similar to the Roadster $12K battery replacement option offered for a while.

From TM's POV, having the money for 8 yrs is worth about 40%, and battery costs should drop about 40% in 8 yrs, so the present $12K (e.g.) would enable TM to replicate an 85kWh battery by then and break even on it.

Brian H | November 29, 2012

OTOH ... re-reading it, it sounds like it may mean that those are guaranteed prices "8 yrs or later", but you must buy the option now (for some price TBD). But if you don't opt in up front, you take your chances on battery costs 8 yrs+ in the future.

DouglasR | November 29, 2012

I dunno Brian. I think it could be read either way. You're right that offering it "in the near future" is unnecessary for something that won't be needed for at least eight years. On the other hand, he doesn't say that we need to buy it within, say, 90 days after getting the car. And he doesn't state an option price. Surely he doesn't expect people to pay $12,000 today for a new battery in 2020!

How exactly did the Roadster program work?

markapeterman | November 30, 2012

From TMC post:

It looks like MotorTrend got some additional info regarding the battery replacement option:

http://wot.motortrend.com/tesla-model-s-prices-bumped-by-2500-to-59900-b...

It mentions that the battery replacement would carry forward to subsequent owners, and you have 90 days from delivery to decide whether to exercise the prepaid option.

MandL | November 30, 2012

If you could afford $10K to prepay for a replacement for a 60kWh battery I think you'd be better off just getting the 85kWh in the first place.

gagliardilou | November 30, 2012

@G.A.S.

You're so right and it was definitely funny!We need these types of post to amuse ourselves!

gagliardilou | November 30, 2012

Seems to me that if they are guaranteeing a price of $12,000 8 years from now that if you do not take the offer, your cost will definitely be higher (even if the cost of the battery is lower than $12,000 to produce at that time)because they are not going to upset all the people who did prepay right? Then how much higher would it have to be to not upset the guy who prepaid 8 years earlier? I mean if it cost $14,000 in 8 years is that worth paying 12 now? To make 5% on your money,that would be $400 a year times 8 or $3200. If the price was not at least $15,200 8 years later, you would not make 5% on your money paid today. If the battery is $20,000 in 8 years, then it is well,well worth it. Thoughts?

markapeterman | November 30, 2012

Buy $12k in Tesla stock instead - you may be afford a new car instead of a new battery in 8 years...

markapeterman | November 30, 2012

"be able to afford"

gagliardilou | November 30, 2012

Another thought is what if someone else makes a battery that goes 1000 miles and cost $5,000 for Tesla's car? Would tesla void warranty? Maybe this is a way Tesla keeps people buying their batteries? I know this one is out there but its just a thought.

gagliardilou | November 30, 2012

@markapeterman

Totally agree.

blackscraper | November 30, 2012

The price list seems a good deal. IMHO, I'd think TM has a very positive opinion on the future pirces of batteries. This sounds really great to me, an EV supporter.

nickjhowe | November 30, 2012

@markapeterman - absolutely!

lajollan | November 30, 2012

I would like the option to pay for a replacement battery at the time I need it. How about everyone else? Paying 8,10 or 12k upfront for something you may never use, (car sold, totaled, whatever) seems like a bad investment decision. Not to mention cost of battery going down over time like other technology and improving over time, I just do not see the point in paying upfront. Does anyone actually see the cost of the battery replacement being higher in 8 years?

stephen.kamichik | November 30, 2012

Invest the $12k in TM stocks. In eight years the stocks will probably pay for a new TM vehicle.

David Trushin | November 30, 2012

Technically speaking, the banana peels didn't go into the Flux Capacitor. They went into the Mr. Fusion to power the Flux Capacitor.

Anthony H | November 30, 2012

@David Trushin

Correct. +1

hyjyljyj | November 30, 2012

@lajollan

+1

Schlermie | November 30, 2012

$12,000 at 5% compounded annually for 8 years is $17,729.
$12,000 at 10% compounded annually for 8 years is $25,723.

When Tesla priced the 4-year prepaid maintenance cost ($1900) vs. the $600 annual maintenance cost, the breakeven point was at 10% compounded annually, so if they used the same metric in pricing the prepaid battery option, they may be figuring on a $25,000 battery in 2020.

dtesla | December 1, 2012

(from http://idealab.talkingpointsmemo.com/2012/11/energy-department-launches-... about http://www.anl.gov/)

"Specifically, Argonne wants the Battery Hub to be able to make a battery with five times the energy storage capacity as the upper limit of current technologies, at one-fifth the cost, within five years, the so-called “5-5-5” plan."

The “5-5-5” plan sounds way to optimistic to me. But if they can do it, anybody who purchased the prepaid battery option would look very foolish.

jchangyy | December 1, 2012

How about "9-9-9" plan...I prefer 9 times the energy, at 1/9th the cost within 9 years. I think it would take more than 5 years. Sometims, tech doesn't improve as fast as one would like.

Getting Amped Again | December 1, 2012

It's the Herman Cain battery plan!

Captain_Zap | December 1, 2012

I do want to know what would happen to the pre-paid battery situation if the car were "totalled" or otherwise ceased to exist.

(Knock on wood, dashboard or insert any other ritual of your choice to protect oneself from tempting fate or creating a self-fulfilling prophecy in order to diminish the odds of this actually occurring.)

pvenkate | December 1, 2012

Here's an idea.

Since they are not committing to a minimum level of battery capacity over the 8 years in their warranty, and there is no concrete evidence of how much battery prices will come down in that time, I think It makes sense to price it like a stock option (the underlying entity being the Batteries), that the owner can buy at any time.

Let the market (i.e.. battery prices each year) decide the option pricing for them. That way, I can at least buy the option with an earlier (than 8 years) expiry, if my batteries start to degrade faster than expected say after 2 years or so.

dtesla | December 2, 2012

I want to take Schlermie's previous calculations to the next level. (And sorry for the very, very long post).

As Schlermie points out, by giving up your money today I give up the opportunity for my money to grow (This is called opportunity cost). But we (or at least I) also expect the cost of batteries to decrease over time. So the question is will the future cost of the money be worth more/less then the future cost of the battery.

We can create an equation to describe this question (note I'm using ^ to denote raising to a power). We can ask is $12k * x^8 < z * y^8, where x is your personal annual % expected investment money growth, z is the current cost of the batter (in dollars), and y is the annual change of battery cost. Lets rewrite the equation to simplify to ask is $12k * (x/y)^8 < z.

To help people I will poke in my personal numbers (as an example), but some of these are very personal... so I expect they will differ widely among the board. (Yes, you should do you own analysis)

x = 1.09: When doing my investment I try to have a mix of stocks, bonds, and cash to generate a 9% annual rate of return. Someone who invests in CD's would use 1.01, all stocks 1.1.
z = $40K: I am going with what I believe is the board consensus for the 85 KW battery.
x = 0.95: I expect batteries to decrease about 5% per year. Elon has claimed 8-10% decrease per year (i.e. .92 to .9). John Petersen of Seeking Alpha (anti-EV guy) expects 3% per year (i.e. .97).

Now we plug n' chug.
$12k * (1.09/.95) ^ 8 < $40k,
36k < 40k

So for the above case I should buy the prepaid battery option. Two more things. 1) Nobody likes to call the plan insurance, but this is what it is. You are paying you money today to reduce you risk tomorrow. That is what insurance is all about. The question is: Is the premium worth it. So even if your numbers say you shouldn't, but you don't like the risk you are taking, buy the insurance. 2) To take the analysis one step further (using the Monte Carlo method). x, y, and z will follow a probability distribution. So if you feel batteries will decreasing at .95 is twice as likely as a .93 decrease. Then take 2 times the .95 result + one of the .93 result and divide by 3.

I bet by now ThomasN wished he never asked someone to crunch the numbers.

dtesla | December 2, 2012

I have a question about the battery replacement plan. Lets say my battery gets to a personally unacceptable range limit after 7 years (i.e. not warranty issue). Will I be able to pay an additional amount to get my replacement battery early?

Michael23 | December 2, 2012

Interesting, but I'm not paying for this. No have 110k into this car already so not paying even more just to get a better price on a battery that might be cheaper in 8 years anyway. Is rather just get a new tesla with 120k battery.

DouglasR | December 2, 2012

The analysis by dtesla is interesting and helpful. I have a few additional thoughts.

First, when you buy insurance, you want to look at the financial strength of the insurer. TM is far from a AAA credit. In addition to the risk that TM will be unable to perform in eight years, there are other risks that the formula does not take into account (your car gets totaled, for example).

Second, different people have different attitudes about insurance. I generally do not buy insurance unless the event I'm insuring against will make a material difference in my life. For example, when I rent a car, I don't pay an additional $20/day to insure against having to pay the $500 deductible that my regular insurance doesn't cover. Insuring my house against fire is a different matter. When my Model S battery gets to the point where it needs to be replaced, I will weigh the cost of replacement and the value of the car at that time in deciding what to do. But the cost of a replacement battery will probably not be so high as to affect my lifestyle.

Another way to look a this question is to ask yourself: if TM today were to offer you an eight-year battery standard, and a 16-year battery as a $12,000 option, would you buy the option?

RDoc | December 2, 2012

Then there's the question of how much will you want a new battery in 8 years?

If an 85 kwh battery has 80% of its capacity at that point, it will still have an over 210 mile range. You're paying $12K today for an extra 55 miles of range in 8 years. If superchargers or other fast chargers, e.g. the SAE combo, become more available, the extra 17 kwh will be less valuable.

lolachampcar | December 2, 2012

Tesla took a complete unknown and put brackets around it while pulling cash forward. Sure its not great, but it is one less unknown.

I love the stock idea (depending on valuation). The upside is better with the exact same downside.

portia | December 2, 2012

+1 lajollan,
I am also not certain how to read that, I don't see any reason to prepay for a battery now, especially when mine is good for unlimited miles in 8 years, I would only need it AFTER 8 years!

Captain_Zap | December 2, 2012

I think that this might be another part of Tesla's EV myth busting campaign.

Range and charging time were major obstacles for EV adoption. Tesla took care of that objection with the Model S and the Supercharging network.

Another objection that the public had was the big unknown entity when it comes to battery life and the cost of battery replacement. Some feared that it would cost almost as much as the car itself when the time came. This pricing move eliminates that barrier.

There are many other myths, objections, rumors and stigmas that Tesla has wiped off the face of the earth. I bet there are more to come as well.

nickjhowe | December 2, 2012

+1 @Captain_Zap. I posted something similar before. Think this is more about trying to settle potential buyer anxiety than expecting people to buy the option.

dtesla | December 2, 2012

All good points above. I also like the option pricing idea.

When crunching the numbers these comments should be additional variables in the equation. For example if you feel Tesla < AAA rating may cause Tesla to never give you a new battery, you simply modify your personal equation to include this consideration:

And ask; Is (1/f)* ($12k * (x/y)^8) < z, where f is the probability that Tesla will be able to fulfill the contract (say 90% or .9????). This just means the amount you are willing to pay, to make this a good deal, will be less.

One variable mentioned prior to my original post (and I meant to add it to my original post) is the core/residual old battery charge. This must be considered since you are giving this credit/value to Tesla along with your $12k.... so

Is ($12k * (x/y)^8) + r < z, where r is the residual/core value of the old battery, other variable the same as before.

Personally after adding variables to account for the above comments, which mostly have negative impact to the value to pay for the contract. I think I will invest my money wisely and buy a new battery when (and if) the time every comes.

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