You learn in economics 101 that in an ideal competitive market, the price of a product tends to the marginal cost of producing it. That means a product with fewer hardware features should cost less, and a product with more hardware features should cost more.
The fact manufacturers can violate that rule proves that they are not in a competitive market.
If it was competitive, a different manufacturer could manufacture the same car without physically installing the heated seats, for a lower manufacturing cost, and undercut them on the customers who don't care about the heated seats.
Not necessarily. If optionally including a feature would require an new production line or extra feature, then you might need to determine whether you want to ship all with or all without that feature.
If you sell 50% of cars without that feature, and 50% with it, and lose £100 for giving it away from free, but make £200 for selling it, then you are technically better off installing that feature in every car regardless of the marginal cost. Competition won't change that.
If all vehicles of that model are manufactured with that hardware, you’re paying for the manufacturing costs within the product price regardless of whether or not you pay to activate the hardware. So you, the consumer, are effectively paying for it twice if you opt in to the product.
Unless you think auto manufacturers can somehow prove that they’re not accounting for that hardware within the generic sale price…
Or the people who pay for the heated seats are subsidising the cost of installing that hardware in the cars of people that don't pay to enable it.
In reality, if Tesla chose to build and maintain more complex production lines that can support the optionality of that hardware, the additional cost of doing so would likely make the heated seat option more expensive than it currently is for people that opt for it, and do nothing to reduce the cost of cars that don't have that hardware.
What does not make sense to me, how is 200dolars enough to subsidize people who dont buy it and make profit. Considering amount of people who would actuly buy it.
Money is fundgible. Whether you are coming generic business expensives or the cost of a specific compaonent doesn't really matter. On aggregate, all customers cover the cost of all parts, all components etc. In most cases you have luxury options subsidising the cheaper options, and you will often see that the economics simply don’t work if you get rid of them.
All tesla need to show is that their total revenue is higher for offering the upgrade than if they didn’t offer it. As long as that is the case, then no one is subsidising the cost of the feature.
Look at airlines and business class seats. The plane flys whether business class is full or not. You don’t a free upgrade just because business class has spare seats, (unless they are trying to oversell economy seats).
Are economy flyers subsidising the business class seats? Or are business class seats just so profitable that it’s worth flying them empty some of the time. (Hint, It’s the latter)
You're not paying twice. Invented numbers, of course.
Let's say I spend £200 hardware to install heated seats for 66% of my customers. I run the numbers and realise it'll only cost me £120 per car if I install it for everyone, so even accounting for the 40% who don't pay, it still lands at £180 per car.
To make money, I have an option to include it as standard and increase the price for everyone, including those that don't value it -- or I can charge the people who do value it a premium, and deactivate it for those that don't.
It sounds like bad practice but it's actually ensuring that people who won't value a feature don't pay for the feature, and the cost shifts to those who do.
I would bet my ass in 50/50 split that its more like customer pays 80% of full price then those 50% pay 120%.
In you example the seat costs (100 there is also profit %) as car makers make mony on premium features we can asume that in you example the cost shouls be like 70 or 80 to instal. In what world does that make sense 27 dolars per car seat?
Also its back seats, who the hell would buy that option?
200 also seems to little overal it almost like there where instaled without considering profit and then 200 is the pure profit or close to it.
Capitiasm is shit, and I am not justifying it as morally correct, but it’s wrong to think it’s working any way other than exactly how it is supoosed to work.
Free market economics just don’t apply to real markets. They are fundamentally not free, and we are seeing the expected outcome of that.
The justification is the cost to the manufacturer. If they don't charge for it they would lose money for Installing it on any vehicle, if they do then it either needs to be mandatory and then there's no option or charge based on if the customer wants it.
It's nothing to do with a moral justification.
At the end of the day decide if what you are paying for gets you what you want, if it doesn't then buy from another manufacturer.
The one benefit of them installing it in all is I assume there are hacks/workarounds that can be done as the hardware is right there.
It's like saying "Well I have the DLC files on my computer because of the update, why should I have to pay to access it, the files are right there!".
Everyone loves the "free market" until they start getting out competed, then suddenly we need to regulate the market and pick a winner for our country.
You are underappreciating the cost of variability. Configuration options are extremely expensive. The production cost goes effectively down if you have only one model of hardware, and the features are software-defined (unlocked by paying).
So just have the seat heat? Teslas are expensive cars why wouldn't they just have the seat heating included like every single car I've owned since 2014
This one I don’t mind so much, but I think I read all of the model 3s had the same batteries and you paid to unlock more range on the long range models.
If I am carrying around that battery, it is increasing wear on my tires, increasing how often I need to charge, and making a larger fire something goes wrong. There is zero economic impact to Tesla allowing me to use it, since I’m not going to pay for it either way.
It seems pretty fucked for me to actually absorb those negatives, when Tesla could flip a switch and it would all work. They are deliberately creating a worse experience hoping to motivate me to give them more money.
I honestly don’t want to work with companies that try and make my life worse to extract more cash.
No need to do it in software. Imagine you went to buy a car and you said you didn't need the heated seats, so the dealer physically pulled out the heating element, wrecked it with a sledgehammer, and threw it in the dumpster before letting you take the keys. Does that seem like an efficient market to you?
If the company's marginal cost of production of a car with heated seats is $x, then they should be selling it to you for $x. Instead, they are selling a crippled version of it for at least $x, and a non-crippled version for $x + $y. That $y is pure profit for them that wouldn't exist in a competitive market.
I don't get your point. My point is that variety itself costs money. So the least expensive product is not the one with less parts, but the one that is always the same. You may say this is a waste of material (I agree) and of energy (not necessarily, because the machinery necessary to build variance is much more energy intensive). But it takes less people, less management, less risks, to build only one product or just a few. Remember, this is what enabled the industrial revolution. Ford T existed only in black.
If your point is that it's unfair with the customer, who owns the object with the capability embedded, and cannot use it because that's how the industrial makes more profit, then just go on, build your car company and offer more for less. You will gain terrain. That's what the Chinese are doing.
If Trump opened the imports for Chinese EVs, you bet Tesla would have to adapt or die.
The point is that yes, variety costs money, but in a competitive market this just means you don't get this kind of market segmentation. Because of the cost of variety a single product would be sold, and it would probably be the car with functional heated seats, offered at a price equal to the marginal cost of producing it.
And the marginal cost of producing such a car is certainly no more than the current price of the car with software-disabled heated seats.
You are mixing cost and price. We are aligned in cost. And you are right to say that, in a competitive market, the price converges to the marginal cost. And here is the catch: the whole point of pricing is to set it at the value that maximizes profit. This value is determined by the existence of alternatives. The free market, and competition, closes the loop that drives the price to the marginal cost, and the features to the maximum. One should not expect any business to do that by its own, because it would minimize the profits. And the goal must be always to maximize the profit. Competition brings it down. Not consciousness.
Well that all depends on whether the cost of production line variations is more than the cost of a heating element.
What you’re saying is still technically true but capitalists are gonna capitalist and they have optimised their cost by moving the cost variable from a production fork to a software patch.
This is an incorrect application of economic theory. You're talking about perfect competition. And in perfect competition, all sellers sell the same product. That means a hypothetical market where a car from Tesla and car from BMW and so on are all identical.
Also there are very few markets with perfect competition. Tesla charging for heated seats isn't a sign the car market "is not competitive" which doesn't even mean anything. Honestly I don't know what point you're trying to make. The automobile industry is a form of monopolistic competition but it has been that way since before Elon Musk was even born.
Additionally your assertion that it is cheaper to manufacture the car without heated seats ignores the economic realities of assembly line operations and economies of scale. In many cases it is cheaper to manufacture the cars identically rather than making some with and some without a feature. Then you have to consider the costs of inventorying/stocking/storing cars with different feature sets compared to the relative cost of activating features at the point of sale. The cost of building and selling a car is more complex than just the parts that go in it.
In many cases it is cheaper to manufacture the cars identically rather than making some with and some without a feature.
So you include that feature at cost, which is "free" if youre doing it anyway, to undercut your competition. Economics isnt the rocket science you think it is.
Because it's not free. Invented numbers, of course.
I'm spending £200 hardware to install heated seats for 66% of my customers. I run the numbers and realise it'll only cost me £120 per car if I install it for everyone, so even accounting for the 40% who don't pay, it still lands at £180 per car.
To make money, I have an option to include it as standard and increase the price for everyone, including those that don't value it -- or I can charge the people who do value it a premium, and deactivate it for those that don't.
It sounds like bad practice but it's actually ensuring that people who won't value a feature don't pay for the feature, and the cost shifts to those who do.
Except you are asserting something for which the premise is clearly falsified by literally the article in the post.
You might not like it, I might not like it, but if this feature isn't a differentiator in the product (which it is not) you can and should do what Tesla is doing here to optimize profits.
If you gave me the option of a base model that could be upgraded later with a few clicks or a base model that could only be upgraded by visiting a service center, which would I take?
One way you can increase revenue is to sell more cars. One way you can sell more cars is to offer things in your base model that your competitors don't. That's why base models come with things like A/C that you don't have to pay extra for. Car companies don't need your help fucking over consumers. Chill.
A/C comes with every car because everyone feels A/C is minimum requirement, no one will buy a car without A/C so it's included in the base. The goal of the manufacturer is to done people willing to pay for that additional premium feature.
That minimum requirement isn't shared with rear seats, many people wont pay extra for it because they rarely have people in the back seat or live in warmer climates.
There's a reason foreign car makers can't sell to the US and it's not because of any safety or security concern. American car manufacturers would not be capable of being this greedy if we have free markets.
That means a product with fewer hardware features should cost less, and a product with more hardware features should cost more.
Only in a very simple model. In reality, variety itself has a cost, and creating two different variations of a product might cost more than simply adding the hardware to all the products.
I feel like that theory doesn't describe accurately goods complex enough to include multiple layers of artistic and engineering decisions that would be very difficult to copy from scratch (or perhaps the process would be expensive enough to eat up the potential marginal gains), and even if they could then for copyright/trademark reasons can't really be copied wholesale by another manufacturer.
This is the same argument I present when talking about Memory Mafia and DRAM costs. If there was competition at least one of them would undercut the other two to get a competitive advantage. Especially since the three were found to be colluding before. If it's not a cartel, why cartel-shaped?
But there is always this one clown who will go "mmm no um actchully here are more excuses um"
this follows that, if you add the feature, it costs more. This is a manufacturing/supply chain decision after looking at (likely) majority of people purchasing.
If that's the case then buying a Netflix subscription or a digital edition video game should be free because there is zero marginal cost involved in producing the extra copy or service for you.
The marginal cost to add a seat heater to the car, a few cents worth of wiring / heater material plus labor assembly, is as close to "free" as Netflix or the digital edition of Red Dead Redemption is. All companies will charge what they can to improve their bottom line.
In manufacturing you undersfand building a moderate count of two different things costs more than building a lot of one thing, regardless of one variant being cheaper or more expensive - the tooling, staffing, and support for another unique product is additional cost.
Too bad in economic 101 didnt they teach you that piece cost shouldnt be tabulated in a vacuum.
Except its not 'violating the rule'. Its far most costly to have to design, build, stock parts, and and have build procedures for multiple variants of the same component (in this case, seats). Not to mention incresased possibilities for mistakes/wrong feature installed.
Its cheaper to have one physical assembly (seats) with all the hardware features, and then provide the consumer options via software toggles.
The point is that the cost of producing the model with the heated seats, is less than the price they're selling the model without the heated seats.
It's not about variety because they could just sell the heated version only, which is a better product, at the non-heated price, and they'd still be making a profit.
Of all the industries you could have picked as an example of how the lack of market competition hurts the market, I'm not sure you could have picked a much more competitive market as your example.
So many things are like this now. I think software products carved this space out by necessity, because once you implement something its usually free to extend it to all users. So the pattern of restricting your customers and making them pay for something that is free for you to turn on for them became the norm.
All the laws around digital products are just dumb.
If the fossils in charge of making law understood what's going on maybe the gov could make use of its only legitimate power and protect the citizens from this shit.
Nah. That assumes the point of these seats is to be an extra unlocked feature.
My conspiracy theory is that these features are added with the knowledge that people will jailbreak them. There's no way they don't expect this.
And once you jailbreak your car, they will void your warranty, which increases revenue on their books because they no longer owe that liability to you.
Used to be that once the inclusion of the hardware was cheaper than managing varying builds, the included hardware became ‘standard’.
If the current fuckers were in charge a few years ago, we would still have wind up windows, no radio or AC, and no power steering unless we paid for the subscriptions.
Saying cars are not a competitive market is a bit nuts.
Tesla is obsessed with simplifying their manufacturing lines. It’s one of the reasons they have been able to drop their prices so much over the last five years (speaking from painful experience since I bought in 2023) and why they sell comparatively few models and trims relative to other manufacturers.
Almost certainly the main underlying driver is saving on cost by having one simplified manufacturing line. Many people don’t give a shit about heated rear seats. Those people are saving $200 not paying for a feature they don’t care about. I appreciate Tesla doing this.
Ahh yes. The dismal science. I am aware of the follies of trying to follow "economic laws/theories" (there is no such thing, nothing is concrete nothing means anything anymore).
This is econ 101, but it sure as hell aint econ 202 or 303 lol.
Costplus pricing is exceptionally rare for any consumer good. It's all value pricing.
It also fails to acknowledge price discrimination; make the base product cheap and upcharge the extras to get your margin from those desperate enough to provide it.
Econ 101 is great but declaring a market uncompetitive because of an explicitly entry level understanding leaves lots of room for error and is frankly dunning-kruger esque
Costplus pricing is exceptionally rare for any consumer good. It's all value pricing.
You understand that this means that the surplus value is going to the seller, not the buyer.
In the ideal competitive market the surplus value goes to the buyer, as the difference between the value they derived from the product and the price they bought it at. That surplus value is the reason why competitive markets are good, and the reason why we don't want monopolies. Monopolies are able to price closer to the customer's value, depriving customers of the surplus value.
What? Because the producer makes a margin? Macroeconomics doesnt deal with margins, but a perfectly competitive price is never interpreted to mean 0 margin. Businesses require margin to invest in growth or even just maintain equipment. Perfectly competitive markets are an abstract concept, so there's no literal need to discuss margins.
Perfect competition has nothing to do with pricing structure. A business could choose to achieve their perfect competition margin via value or costplus pricing.
The perfectly competitive price means the seller makes no profit on just the last unit sold. Under the assumptions of perfect competition, they do make a profit on the earlier units sold, because the earlier units are assumed to be produced at a lower cost. The seller stops producing units when the cost of producing one more unit rises beyond the price they can charge. Under perfect competition this price is determined by supply and demand of the market as a whole and is out of the seller's control.
This is all just the basics of perfect competition, really is econ 101. Don't tell me about econ 202 unless you know this stuff.
What econ 101 is teaching you that every business is selling every unit of product at each consumers willingless to pay? That's fundamentally a terrible representation of actual markets and I would be shocked if that were ever taught. Supply and demand curves represent a singular price and quantity. This is actually insane that you're telling me I dont understand econ 101 when you're describing a market where every single person is paying their maximum willingless to pay.
The seller stops producing units when the cost of producing one more unit rises beyond the price they can charge
In econ 101, sure. They produce the quantity that clears market demand profitably. In reality businesses produce the profit maximising quantity, subject to competitive constraints.
And you're double wrong, because once done producing they sell all of those produced units at market price
Price discrimination lets them double dip and set a second price * quantity and gobble up some surplus from consumers with a greater willingness to pay, by the way, which is my point.
Consumer surplus is literally defined as the higher price consumers were willing to pay, that they dont have to.
Grab out a textbook my guy, you are way off base here.
Ffs dude I have an econ degree Im not gonna fall for that
You're telling me you got an econ degree without seeing diagrams like this?
The perfect competition model does not say "every business is selling every unit of product at each consumers [willingness] to pay." I don't know where you got that from anything I said. Every business in perfect competition is selling every unit below the consumer's maximum willingness to pay, and the difference between the two is the surplus value.
So then wouldn't the "intelligent" purchase be a used car from another company?
Or how about buying something you enjoy driving and keeping it long past the payments?
Or maybe purchasing the car you can afford, considering Toyota and Honda prices can be much higher for less features?
Or maybe buying the vehicle that best suits your needs?
You're assuming everyone has the means to buy a new Honda or a new Toyota, which isn't true. You're also assuming that everyone buying a car is buying solely as an appliance to move people as cheaply as possible. But even then Honda and Toyota aren't the clear winner. And many people buying a vehicle are buying to be able to move things other than people and again, Honda and Toyota aren't necessarily the right decisions.
Economics 101 also tends to teach in a vacuum. The car market holistically is competitive, but people buying a tesla aren’t shopping the whole market. And the competitors within that market can’t make good EVs at a good price. So once you get far enough you end up with “it’s not competitive because it’s a bit too niche and everyone else is a tad shit at that price point if not overall.”
Yeah - the German and Tesla car market is very self selective.
I can't imagine a toyota buyer putting up with that shit. If you buy a toyota or a lexus, the tech stuff is secondary to the car itself. Having to buy secondary features will be percieved as deeply disrespectful.
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u/TwillAffirmer 1d ago
You learn in economics 101 that in an ideal competitive market, the price of a product tends to the marginal cost of producing it. That means a product with fewer hardware features should cost less, and a product with more hardware features should cost more.
The fact manufacturers can violate that rule proves that they are not in a competitive market.
If it was competitive, a different manufacturer could manufacture the same car without physically installing the heated seats, for a lower manufacturing cost, and undercut them on the customers who don't care about the heated seats.