As far as deaths and resurrections go, this was pretty short.
Tesla Motors (NASDAQ:TSLA) discontinued the Model S 60 last April when it introduced the dual motor 70D. The 70 kWh became the lowest battery capacity available at the entry-level price point. Well, the electric-car maker has now decided to bring back the 60.
This morning, Tesla announced that it was relaunching the 60 kWh capacity. Significantly, this comes with a lower price point: A base single-motor 60 kWh Model S will now start at $66,000, which comes down to $58,500 after the federal tax incentive. The variant should get an EPA-estimated range of 210 miles.
This move is important because it underscores Tesla's commitment to making its vehicles as affordable as it can over time. The company has just been historically limited in this regard by the high cost of batteries, while reducing battery costs is one of the most important strategic initiatives at Tesla. You may have heard about some factory they're building in the desert.
It also makes sense since 200 miles is generally regarded as the psychological threshold that alleviates range anxiety for the average consumer. Moving back to a 60 kWh capacity that's still above that magic number while also reducing the price of the vehicle is likely to help stimulate demand.
For a price
Here's the rub: Customers will still actually be getting a 75 kWh battery pack. The capacity will be limited to 60 kWh by software, though, and can be upgraded to the full 75 kWh capacity through a software update. The upgrade will add about 19% (39 additional miles) to the range and cost $8,500 at the time of purchase, or $9,000 after the fact. I was just talking about the range upgrade yesterday, and how it might be a small margin tailwind.
So a base single-motor 75 kWh Model S with no options would cost $74,500 -- unchanged from how the vehicle was priced before. Tesla is essentially just removing the 70 kWh option and moving back down to the 60 kWh offering since it's the most affordable way to offer 200 miles of range.
You get what you pay for
This pricing change will very likely trigger the same controversy as before. Consumers will still have the 75 kWh hardware in the vehicle, and the unorthodox model of charging to unlock additional range will take some getting used to.
Remember that Tesla experimented with this pricing model many years ago when it was initially going to offer 40 kWh three years ago. That capacity was immediately discontinued due to low demand (only 4% of orders), but Tesla still went ahead and fulfilled existing 40 kWh orders. For the sake of streamlining manufacturing, Tesla just built 60 kWh batteries and included them but limited the range with software. It's the same idea.
You could even consider it as if Tesla is selling you a higher-capacity battery for a much lower price than would otherwise be possible, which also speaks to the company's ongoing progress with reducing battery costs as well. Besides, there are still probably some benefits in terms of the battery's useful life, since degradation is a function of many factors, such as the number of cycles and the depth of discharge, among other variables.
Think of it like this: If you ignore the underlying hardware for a moment, conceptualize it as if you're simply paying certain prices for certain functionalities. You pay more, you get more.
Evan Niu, CFA owns shares of Tesla Motors, and has the following options: long January 2018 $180 calls on Tesla Motors. The Motley Fool owns shares of and recommends Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.