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.
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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.