Tesla – More Than Just Ludicrous Mode

Tesla has introduced game changing software development lifecycle practices to the automotive industry, and customers love the results.

When people read about Tesla Motors these days, it’s usually about some new performance milestone or automotive accolade. Most recently, “Ludicrous” mode was introduced as a $10,000 upgrade that reduces the Model S 0-60 time to 2.8 seconds. Before that, it was all-wheel-drive and “Insane” mode. These are amazing achievements and definitely help mainstream consumers see electric vehicles as more than just glorified golf carts. However, it takes way more than a few successful drag races to achieve the customer loyalty that Tesla enjoys. Among current owners, 85% plan to purchase a Tesla as their next vehicle [1].

So what makes the difference? Tesla creates value for the consumer across nearly all of the major pain points of traditional vehicle ownership. Dealers? Forget that! You can just order your car on the website and follow it along as it’s custom-made in the factory. As for range anxiety, the Achilles heel of the EV world, Tesla has built a wildly popular, free Supercharger network for road trips.

A perhaps less well-known reason for Tesla’s unprecedented customer satisfaction, however, is the company’s approach to the software development lifecycle that enables the Model S to resemble a high-end smartphone  more than a vehicle. Traditional OEMs usually assign only one software version to each model year for a particular vehicle, and it is never updated unless you buy a new car or if there is a recall and you take the vehicle into the dealership. In a Model S, however, your persistent cellular data connection enables frequent over-the-air (OTA) updates. In this way, Tesla has managed to reinvent the fairly rigid product lifecycle practices of Detroit using the latest ideas of continuous integration from Silicon Valley. And customers receive all of the benefits.

In January 2015, Tesla released an OTA update for the drive inverter (motor) that shaved 0.1 seconds off the 0-60 mph time for existing owners [2].  Another update contained new traffic-routing maps applications, enhancements to the UI, and scores of customer-pleasing enhancements that are chronicled throughout online forums [3]. The key point here is that vehicles have always been modeled as quickly depreciating assets. However, in Tesla vehicles, the ownership experience will actually improve over time, a completely foreign concept in the automotive world.

Additionally, Tesla has one of the most advanced diagnostics and fleet management capabilities in the industry. By logging performance data over the cellular connection [4], problems can be identified proactively and customer service issues can be handled quickly and precisely. Tesla will also be able to leverage advanced data mining and machine learning as its fleet size scales, using performance metrics to ensure vehicle reliability and reducing the iteration time for vehicle improvements.

In some ways, it seems strange for Tesla to give away free Supercharging and OTA software updates, especially since many customers would likely pay for them. However, Tesla is clearly taking a long-term view, valuing customer loyalty and word-of-mouth referrals over immediate profit maximization. After all, value is captured for each generation of Tesla car that a customer purchases as well as through positive referrals.

Ultimately, it will be fascinating to see where Tesla goes with the upcoming release of the Model X and Model 3 in a couple of years. The challenge will be for it to maintain its standards and innovative development practices as the company grows and production escalates above 100,000 cars per year. Also, everyone wants to know what comes after “Ludicrous” speed [5].

[1] http://www.greencarreports.com/news/1098970_tesla-model-s-owner-loyalty-probably-unparalleled-in-industry

[2] http://www.roadandtrack.com/new-cars/car-technology/news/a24885/a-software-update-will-make-the-tesla-model-s-p85d-even-faster/

[3] http://www.teslamotorsclub.com/

[4] https://www.schneier.com/blog/archives/2013/02/automobile_data.html

[5] Featured image. http://i.stack.imgur.com/mNA4dm.jpg

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Student comments on Tesla – More Than Just Ludicrous Mode

  1. Great post! I’m not a huge car enthusiast but Tesla seems to be a truly innovative car company. I love the idea of having the internal software of the car updated at the touch of a button, as well as having state of the art diagnostics readily available. It makes me wonder how Tesla’s car systems can be (or already are being) set up to allow for self-driving capabilities as that part of the market continues to evolve. I think the car market has a long way to go in terms of shifting consumers away from normal gas powered cars to electric cars but Tesla certainly seems well positioned to be a clear winner in this space.

  2. I really admire Tesla as a company and didn’t know about their unique software development lifecycle. Thanks for sharing. I wonder, though, to what extent Tesla will actually be able to move down-market with the Model 3. Right now, it is selling to consumers who care deeply about owning a high-performance electric vehicle and are willing to pay a premium for it. However, as Tesla moves down market, its incremental consumers will care less and less about high performance and all-electric, and will be happy with “good enough” traditional cars. So far, Tesla has avoided competing directly with most major car manufacturers (instead targeting an extreme up-market niche), but as Tesla competes more directly for the mass market consumer, I wonder if it will be able to sustain its high margins. I sense trouble ahead.

  3. Austin, I loved reading your post on Tesla. It is amazing to read about what Tesla can do with over-the-air patches and updates. It is extremely impressive. It gives them unprecedented control over brand experience in a way that makes the dealer-less sales model seem insignificant! I am curious how their maintenance concept will evolve over time and whether new high-end electric entrants (Porsche, BMW, etc.) will embrace a similar dealer-less concept for their electrics or make the user drive the car to a brick and mortar service center.

    I think the true test of winner/loser is coming if Tesla can stay relevant with their coming models. It’s clear they made a mark, but will it stick? Tesla has had some problems getting the Model X sport-utility production ready. I think Musk is far too focused on build quality to worry because he wants to delight customers again. If he can do what he did with the Model S, I think the Model X will get them one step closer to a low-cost mass-market electric vehicle in a few years. Right now, the economics simply aren’t there.

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