What Tesla’s Changes To Its Supercharger Program Mean

February 6th, 2017 by Trefis Team

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Tesla Motors (NASDAQ: TSLA) has decided to end its Supercharger program that offered free charging to all Tesla vehicle owners. Currently, 795 supercharger stations exist with another 5,085 superchargers. These stations allow Tesla vehicle owners to recharge the battery that powers their vehicles for free in an hour. This program was one of the key aspects for the company to build and grow its business. Electric vehicles before Tesla’s Model S had very low ranges and took a lot of time for their batteries to get recharged. This inconvenience was a strong disincentive to consumers even considering the purchase of an electric vehicle. The challenge for the Silicon Valley auto maker was not only to build a superior electric car but also to build out the recharging infrastructure needed to make ownership hassle free. As a result, the company began building out super charger stations that offered free charging to vehicle owners.

Currently, enough such stations exist that Tesla customers can travel from one end of the U.S. to another without having to pay for fueling. In some places, like California and Germany, the density of these stations is such that consumers are never more than half an hour away from a station. This kind of ease of access is how the company was able to convince half a million people to put down a deposit of $1,000 for pre-booking a Model 3. However, this plan required considerable capital expenditure and put a strain on the company’s cash position. As of the third quarter of last year, the company had only seen positive operating cash flow just once, spending 50 cents in cash for every $1 in sales. This meant that Tesla had to frequently dip into the bond market, raise revolving credit streams and issue equity to meet its funding requirements.

However, now the company has scrapped this program. To be clear, it is not a complete scale back of the program. According to the company, Tesla owners’ long distance travel needs could be covered with 400 kWh worth of free charging capability. For all buyers of Tesla vehicles post January 15th, this is the amount of free Supercharging credits that they will receive for free each year. Above these levels of charging, the company will charge a fee that will be proportional to the electricity consumed or per minute of usage of the network, depending on the regulation in the place. Rates will vary by state in the U.S. and by country elsewhere.

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Since, Tesla needs to expand production significantly over the next few years and also has to figure out a way to integrate its Power wall energy storage products with Solar City’s PV modules and solar roofing financing plans in order to make Tesla’s acquisition of Solar City profitable. Additionally, the scale up of the Tesla autonomous driving capabilities and the roll out of a ride sharing program using existing Tesla fleets will put strain on the company’s balance sheet. Therefore, this is a timely move, as it will help the company raise some capital without sacrificing customer relationships. The company plans to keep usage fees smaller than gasoline costs and according to estimates provided by the company costs of traveling are likely to be only 40% of costs using gasoline.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Tesla Motors

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