Should Tesla charge more for their cars?

Tesla Motors announced their newest car, the Model 3, is now available for pre-order.  It’s always been Tesla’s stated purpose to bring down the cost of electric vehicle dramatically, by first charging people for high end cars, and using those profits to innovate the cost of cars down to affordable levels for the general public. It’s an admirable goal that combines the best intentions with good incentives, using idealism to drive profits.

Tesla has, confusingly, sold 3 models of cars prior to the Model 3: the early Tesla Roadster (all over $109k price), the ultra-luxury sedan Model S (starting price at $76k, but most sell at over $100k), and the newer Model X SUV (about $5000 more than the Model S).  Few Model X’s have been shipped, and only about 2500 Tesla Roadsters were ever built. The vast majority of Tesla’s automobiles have been Model S’s between 2012-2016. In that 4 year span, roughly 107,000 cars have been sold worldwide, with about 63,000 in the United States.

In the past couple weeks, Tesla has received 325,000 almost 400,000 Model 3 pre-orders.

Making matters worse, Tesla has said they expect to start shipping at the end of 2017. Some analysts say that Tesla will ship about 12,000 cars in 2017 and another 60,000 in 2018.  But this might be optimistic, since Tesla was supposed to start building the Model X last year, but only got a couple hundred out the factory before January.

Tesla will get better at manufacturing, but they are not ready to switch from the high end market to the mass market (or as mass market as a $35,000 base model). The Tesla “master plan” is not ready to attack this level of the market yet, but that’s not to say it isn’t successful in other ways; as Ben Thompson wrote: “The real payoff of Musk’s ‘Master Plan’ is the fact that Tesla means something.”  In fact it means so much that the demand for a $35k Tesla in 2017 is something like 10x predicted supply! Tesla should take advantage of this.

The obvious economic answer to quantity demanded outstripping quantity supplied is to raise the price.  Scaling Tesla’s manufacturing output to new heights is not going to be easy, but it will be easier with additional resources. And Tesla could use some additional resources (they lost about $300 million in 2014). Right now, people will be waiting around for their cars for years. Why not take some more from people who want a car sooner, so that more innovation can be done to help the people on the back-end?  That’s Tesla’s whole plan anyway.  Creating an affordable family car that you can only make 50,000 of every year doesn’t help many families!

Now, of course, it’s true that some of the appeal of Tesla is that they are trying to transform the auto industry, and if they charge more for the Model 3, one could argue they aren’t as transformational as they claim.  But I’d counter with Thompson’s comparison to Apple, in that the Tesla brand itself is drenched in cool. Tesla’s brand is quite valuable, and the best way to help humanity with that brand is to push harder for innovation.

An awesome, widely available $35,000 electric car will come, but for now, Tesla has the opportunity to marshal more resources to build a better future; it would be silly to not take advantage of that.


Photo Credit: “Candy Red Tesla Model 3”, is a derivative of this photo by Steve Jurvetson, used under CC BY 2.0. “Candy” is licensed under CC BY 2.0 by Mariordo.

Links 2016-4-17

Counting past infinity is easy! It was the infinity raised to infinity and infinite number of times that I really got lost.

I’ve settled on the right way to show the date in these links posts: the international standard ISO-8601.  It’s about time since that has been the standard since 1988.

Niskanen center names social justice aware libertarianism as “neoclassical libertarianism“. I like this idea, as it’s strictly superior to progressivism, and I’ve been trying to come up with a good name for it. Scott Alexander called it left-libertarianism-ist, which just isn’t as catchy. Of course, maybe pure libertarianism is better, but neoclassical liberalism is far more politically palatable. It is also more “conservative”, meaning that it is closer to the status quo.

Merrick Garland would not be a good SCOTUS justice. Randy Barnett discusses with Reason why he opposes Garland’s nomination: he’s completely deferential to executive and legislative authority and does not protect individual rights from the state. Does it make sense for the Senate to not give him a hearing? Maybe, maybe not. Did it make sense to declare prior to his announcement that any candidate wouldn’t get a hearing? Hard to say; if that hard line approach made Obama nominate an old white guy who endorses state power in the name of national security, that’s certainly a win for neoconservatives. I don’t think anyone should take an outrage stance on the Supreme Court opening because this really is a complicated game theory situation with nested layers of strategy. Even though I’m sure he is one of the most un-libertarian nominees ever, it’s impossible to say if he would be worse than a Hillary appointee or even a Trump appointee.

How to fight the War on Drugs: hit their wallets. Legal marijuana causes Mexican drug cartel revenues to plummet. 

Heard through Slate Star Codex, anti-censorship blog Status 451 (linked in the sidebar) held a fund-raiser for LambdaConf, a functional programming conference I had no idea existed until a week ago. Apparently, after an anonymous analysis of submitted papers, the Lambdaconf organizers selected a paper to be presented at the conference by Curtis Yarvin, a.k.a. Mencius Moldbug, perhaps the most well known neo-reactionary.  Certainly I think neo-reactionaries are a bit nuts, but Mr. Yarvin has also invented the intriguing functional programming language Urbit. We don’t agree with him politically, we can learn and grow our knowledge by understanding what he has to say, especially in technological areas he is an expert in! Alas, as Eric S. Raymond recounts, the social justice movement did not see it that way and pressured LambdaConf to remove Yarvin from the event. Lambdaconf refused and the activists moved to forcing sponsors to drop out. Incredibly, Status 451 started an indiegogo campaign to save LambdaConf, which was funded within the day. This is a big victory for anyone who wants to live in a tolerant, knowledgeable, and free society, but if you want to know their motivations firsthand, please read what they have to say.  Status 451 are also true believers, calling out some on the right for their similarly censoring response.

Related in Not the Onion news: Emory vows to hunt down students who politically disagree with the Left.

Bryan Caplan on liberalizing expertise and the link with defending free speech from the attacks of economic licensing.

A great write up on derivatives, what they are, how they work, and why it’s misleading to suggest that the derivatives market has a quadrillion dollars in risk.

Another excellent reddit post, this one asking soldiers what things they don’t tell you about war. In short: the smell.

Apparently the music industry thinks the DMCA doesn’t do enough to stop copyright infringers (more on the RIAA at TorrentFreak). It seems they’d like to target the safe harbor provisions of the DMCA, the only parts of it that are useful. Techdirt has a great series of posts from the other side, detailing the many abuses of DMCA takedown notices. Right now, there is no legal check on whether a takedown request comes from someone who actually owns the copyright, or even if that copyrighted work is utilized fairly for criticism or commentary. This isn’t an easy problem to solve by any means, but we should remember that the point of copyright is to encourage production of new works, and if there’s anything that YouTube does right is making it easier to create new content. Moreover, it’s helpful to remember that YouTube is run at a loss of more than $150 million a year. Trying to force YouTube to pay for content policing is one of the dumber ideas they’ve ever had, which is saying something. So what should be done instead? A good start would be to make false copyright claims a criminal offense, and require you to prove you own the copyright in the claim.  It would also be good if it turned out your copyright claim was wrong, the ad-money would not go to the claiming part, but would be held in escrow until the dispute is resolved. This would allow YouTube to better focus on actual infringers and stop the torrent of false claims. Of course, another big looming problem for the RIAA is Facebook video, which doesn’t even have the semi-transparent (though flawed) takedown-notice system of YouTube.  Ultimately, given how little money YouTube makes after 10 years on the internet, if YouTube was allowed to be held liable for infringing uploads, YouTube would either go out of business, or cease becoming a free platform anyone could use. This would be a monumental failure of the copyright regime; yes, it might end up getting RIAA members more money, but that is not the purpose of copyright. Copyright exists to help make new content, not destroy content platforms.

California is raising its minimum wage, eventually to $15 an hour. FiveThirtyEight’s Ben Casselman is excited at least to get some data on large minimum wage hikes, although judging from the headlines, it seems like he thinks this is a good idea. I’m fairly confident it is not, and Matt Zwolinski makes one good point to support me: the minimum wage doesn’t fight poverty.  There’s a lot of data surrounding the minimum wage. And it’s apparent that unemployment does not automatically rise when minimum wage increases occur.  Nonetheless, longer term unemployment effects are essentially impossible to study, and it’s likely there are some effects on businesses. If businesses could absorb 20-40% increases in labor costs easily, then why aren’t businesses getting more out of their employees, or more firms entering the business due to excess profits? There is evidence of long term job growth being harmed, as well as higher prices (see last link).  Ultimately, I predict there will be negative consequences for California, but it’s hard to find something that is worth predicting. I could predict that California’s employment and workforce participation rate will be lower than the country average by more than they are now (check this in the future). It’s also likely that low cost goods will see price increases, but I don’t have an easy way to check that over the next five years.

Robin Hanson has a good thought experiment to show that most people don’t vote to change the outcomes of elections. This would explain why anyone votes at all, given the uselessness of voting generally.
GiveWell tries a new tactic to persuade more people to fund their top researched causes: ” First of all. Just so you understand, this guy is a total loser. He begged me to be his peer reviewer, I said ‘NO THANKS.’ Pathetic!”

Related: We can’t stop here, this is Cruz country!

Daniel J. Bernstein taking over crypto is good.

Legal Innovation: Warrant Canaries

I recently came across a fascinating legal concept called warrant canaries. I’m going to cover the idea briefly, but if you want to know more about them in detail, I highly recommend this Warrant Canary FAQ at the Electronic Frontier Foundation.

The context is that many online services based in the United States can be compelled by the FBI to give whatever information they have to law enforcement through National Security Letters. Those documents often gag the companies from informing their customers they are being spied on, even if the service is being provided specifically so that users can get encrypted, private communication. It’s hard to pin down the exact constitutionality of NSLs. They were ruled unconstitutional in 2013, but it looks like the case was remanded in 2015 after the passage of the USA Freedom Act. Given the government’s continued efforts to obtain information regardless of constitutionality and limitations placed on them by Congress, it would be nice if we had some way to communicate if a service was under duress from the government.

The usefulness of warrant canaries (I’ll get to what they are in a moment) is based on two legal concepts: (1) it’s not illegal to inform anyone of a warrant you haven’t been served, and (2) the state cannot compel false speech.

The first statement is common sense, since you can’t be curtailed from simply stating something hasn’t happened yet.  The second is a bit more subtle; a stronger statement is that the state cannot compel speech at all, but that’s not always true. The state can sometimes compel commercial speech to inform consumers of information so they can make accurate decisions. The EFF elaborates that “…the cases on compelled speech have tended to rely on truth as a minimum requirement”.

This is essential because it allows companies with encryption products to convey highly relevant information to their customers. Companies can publicly post a message indicating they have not received a warrant because of the first legal concept, and they can immediately take down their public message when they do receive a warrant because the state cannot compel false speech.

To ensure the authenticity of the message stating that the given company has not been subject to a NSL, many go an extra step and sign their messages with a PGP key (example here).

Of course, a foolproof way to ensure no data is lost is to simply make all data encrypted, like Apple has with the iPhone, ProtonMail does for email, and everyone who has ever sent encrypted emails has been doing since the 90s. But I still like this idea, because individuals who run encryption services should not be forced to be government puppets, like the FBI hoped to do to Ledar Levison.

The weakness is that we don’t know what we don’t know, so it’s possible the government already has a new Secret National Security Letter which it uses to compel companies to lie under some made up interpretation of an arcane piece of legislation. The only real security is end-to-end encrypted communication or being Hillary Clinton.