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Tesla's Plan to Rule the Auto Industry? In-App Purchases

• https://www.wired.com

Introducing a new Tesla Model S with a 60 kilowatt-hour battery, a 200-mile range, and a lower price didn't require redeveloping the pack, revamping the assembly line, or reconfiguring the supply chain. All it took was a few lines of code.

That's because the Model S 60 and its all-wheel-drive sibling, the 60D, carry the same 75 kilowatt-hour battery Tesla Motors already puts in the Model S 75. Engineers simply tweaked the software to limit its capacity by 20 percent. This lets Tesla quickly and easily offer a model at a lower price—thereby goosing sales—and gives customers the option of upgrading down the line as their needs and budgets change.

It sounds crazy: Tesla is building overly capable cars, limiting their use, and selling them at a discount—then charging $9,000 for an upgrade. Tell the dealer you want more range, hand over your money, and Tesla presses a button. Zap. Software update. Gamers, of course, recognize this for what it is: an in-app purchase, in a car.

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It's Nothing New

Tesla does this already. Customers who pay $2,500 for Autopilot are simply paying to have the software activated. Tesla already installs the cameras and radars—the stuff that actually costs money—in every car. Early adopters who didn't get automatic access to Tesla's network of Supercharger stations can add it for $2,500. The hardware needed to quickly suck down electrons is already on the cars, they just needed the software. In the early days of the Model S, Tesla planned to offer a 40-kWh battery. So few people ordered it, the company ditched the pack, installed handicapped 60-kWh packs and gave owners the option of paying ten grand to remove the training wheels.

The company says it is giving buyers more options and flexibility. If you skimp on Autopilot but decide you want it a year later, you don't need a new car. If a new job brings a longer commute and a raise, paying $9,000 for 20 percent more range becomes a great option.

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Tesla didn't invent this move. "The electronics industry has for many years put out products that are essentially the same, but which they can sell to different consumers at different price points," says Erik Gordon, who studies technology commercialization at the University of Michigan's Ross School of Business. There's even a term for it: crippling.

Back when having separate hi-fi components was the epitome of cool, for example, manufacturers segmented the market to draw a wider range of buyers, Gordon says. The top-of-the-line gear might have knobs for high, medium, and low frequency tone adjustment. The cheap version offered only high and low controls, even it shared the same guts. It's counterintuitive, but the hardware was cheap, and sticking to one production line was more efficient.

Tesla's key advantage is its ability to enable those crippled features with a few clicks on a keyboard at virtually no cost and charge the customer thousands of dollars for them.

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