A few notable developments
Personal commentary on Tesla's price hike, energy economics, and risks from weed delivery
Hello folks,
Happy Thursday! I wanted to share some commentary on some developments I found interesting in the space of high risk innovation.
Let me know what you think of this. Depending on feedback, might make it something regular.
Tesla raising price of FSD to $12k
Context: Tesla decided to raise the price of its full-self driving (FSD) product to $12k from $10k. FSD is not actually a fully-functioning self-driving mode yet.
This is interesting because FSD very much still seems like a beta product (as this reddit thread painfully articulates). And many people who paid for it haven’t yet gotten access because they don’t meet Tesla’s many safety requirements. So you wouldn’t expect Tesla to raise the price. But they did.
My rationale here is a simple one: FSD is a big profit driver. Tesla ships the hardware with every single vehicle already, whether or not the owner has purchased FSD. So, purchases of FSD are very high margin. Raising the price on a high margin product is an effective way to increase overall margins.
This is critical also because Tesla already has the highest gross profit margin of any auto company at an impressive 30%. Moving that up gives them more cash to put to work as EV competition heats up. I bet most people decide to purchase FSD right when they get their car, so as Tesla’s new deliveries continue to go up, the absolute amount of profit this is driving is going up as well.
An alternative take is they wanted to improve the attractiveness of the $199/mo ($2400/yr) FSD subscription. If the one-time purchase is more attractive, more people may commit to an ongoing subscription. This still has a financial motive to be fair as it enhances Tesla’s “services” revenue and furthers the Apple comparison.
Personally unsure on this move. EV competition is heating up across every segment. Increasing the price on a very work-in-process, safety impacting, watched-closely-by-regulators product seems like it could reduce brand cachet.
There’s this funny video showing the gap between Tesla’s self driving promises versus reality. To their credit, Elon and Tesla almost always deliver but rarely on initially predicted timelines.
CA net-metering 3.0 inches closer to law
Context: CA has a fast growing solar industry but the state’s energy regulatory body, CPUC, has proposed some significant changes that will change the economics of residential solar.
The rules aren’t official until 1/27/22 vote, but the popular opinion is that residential solar will be gutted if they become official. I tend to agree considering my own solar purchase. If the rules go into effect, I will go from saving ~ $100/month for picking solar to probably paying $75/month more on my energy bill. In reaction, for my project that’s not yet installed, I will probably shrink the size of my solar array to only cover my energy use during the day rather than seeking to be a net zero home across the year. The solar installer would make less money and my overall, net energy mix would likely be less renewable.
Putting aside my own interests though, I do feel it’s fair to charge residential solar owners more for the right to be connected to the grid. Those lines aren’t cheap - especially considering they have caused wildfires and thus are PG&E’s biggest liability.
If these rules go ahead, it could inadvertently be a boon for residential energy storage. There’s already 1M households with solar in CA and I suspect they built their arrays to be net zero across the year, not just to offset daytime use. So those 1M people will be looking for a solution to leverage their excess energy instead of giving it to their utility for 80% off. For reference, Tesla only sold 250k powerwalls last year.
However the energy storage solutions will need to be designed differently. Right now they are often sized for off grid and backup uses with multiple days of energy storage, thus they cost $7k+. For this use case, it’s about storing hours of energy instead of days. And it needs to be affordable so the solar array owner can justify the upfront cost for better ongoing economics compared to just selling the energy back cheaply. Need is the mother of invention.
Cannabis platform Meadow inadvertently creates targets with $3k of inventory
Context: Back in November Meadow announced that they have now shifted configuration for mobile dispensaries to carry up to $3,000 of Cannabis in vehicle to do faster deliveries.
The opening of the article reads:
Meadow’s new Dynamic Delivery helped Cannable cut delivery times from hours to 20 minutes. How? The delivery vehicle is stocked with pot available for purchase, and customers can order, through an app, directly from the car in their neighborhood.
There’s two things about this one, but I’ll start with the obvious one. Maybe I just read it this way: if you announce that your drivers are carrying $3,000 of weed now, you have created a target. If a would be criminal is deciding who to rob, will they pick the random vehicle or the vehicle that has $3,000 of ready to sell cannabis? Seems pretty clear to me.
I think this is an honest mistake by Meadow, but it’s a pretty stupid one that was avoidable. First, they didn’t need to announce the $ amount. Second, they should have protections in place that serve as deterrents. Perception is often reality.
Considering Meadow’s business model is to power mobile dispensaries, they should very seriously consider adding safety features. It could make Meadow an enablement partner of choice to improve driver safety and reduce business losses from theft.
There was a second thing that was interesting in this story though: 60% of legalized cannabis retail revenue is done via delivery. Thus only 40% is done in-store. Wow! It’s only a 5 year old category.
For comparison, e-commerce is a 25+ year old category and is still only at 18% penetration. Shows what is possible in a brand new category when your customers don’t have established habits and alternatives.