Imagine if the next new car you bought lasted the rest of your life? The Tesla Gigafactory could make that possible, selling new batteries to old Teslas. This could have an even more profound impact on the auto industry than Tesla’s direct sales model, keeping cars on the road for decades instead of years.
Elon Musk sure seems to be in a hurry to get the Gigafactory going, perhaps even breaking ground on two locations at once, just to make sure there are no delays. Why? I have a theory, and it’s a simple one; Tesla is going to need a lot of batteries soon, but not just for new cars rolling off the assembly line. By 2020, when Elon wants the Gigafactory working at full capacity, the first Model S sedans will be running out their 8-year battery warranties. These warranties are rated at an unlimited amount of mileage, but don’t cover capacity loss, a problem not even Tesla can outrun.
That doesn’t mean the battery will be useless, but it will mean many owners are operating with less range than they’re used to. How much? There’s no way to tell except to wait, but by then I expect Tesla to have much better battery packs to offer owners. What if you could replace a battery that gets 265 miles per charge with a battery good for 400 miles or more? What Model S owner wouldn’t want that option?
It’s frankly a brilliant scheme on Tesla’s part, as they can create customers for life needing a steady supply of replacement batteries. You’re basically wrapping up a lifetime of service costs into a single bill, as the Model S needs little more than a few fluid changes and tire rotations over the course of its service lifetime. Minimal maintenance is one of the biggest advantages of electric cars, and one of the main reasons car dealer lobbies are battling Tesla’s direct sales model. But Tesla isn’t actually getting rid of those costs if you think about it; they’re simply pushing them off for eight years, and wrapping all that potentially-lost profit into a single battery swap.
It’s a great secondary source of income for Tesla, but it’s also a huge boon for customers. The simplicity of electric motors means they can run for decades without needing any sort of maintenance, and the ease of swapping out the battery pack is inherent to Tesla’s design. Now, instead of buying a new car every few years, all you need is a new battery at perhaps 1/10th the cost of a new car, giving your old ride new life in a matter of minutes.
Now, every person that’s purchased a Tesla becomes that much more likely to come back for a second or even third new battery, giving new life to an old car. It’s also the only way I can figure that Tesla will actually need all the planned volume for the Gigafactory.
Elon’s contract with Tesla that he signed last year calls for annual production of 300,000 vehicles by the end of his ten-year term in order to receive all his bonus pay. That’s a little more than half of the 500,000 batteries the Gigafactory can produce, and while other automakers may opt to buy some Tesla batteries, I’m not sure that’s the real game plan here.
Instead, Tesla could be creating a generation of lifelong customers. So far their customer satisfaction is the highest in the industry, and their response to criticism has been swift and on-point. But while everybody is focused on Tesla’s direct sales model, this could end up being just as dramatic a shift away from the auto industry as we know it.