<p><strong>It's hard to know how to answer this question as stated, without a lot more information about basic parameters</strong> (as of 2022-04-28, 10:45 AM CDT).</p>
<ul>
<li><p>When companies give away a product or service at a loss, they <em>usually</em> do it to promote the sale of <a href="https://en.wikipedia.org/wiki/Complementary_good" rel="nofollow noreferrer">complementary goods</a>. The classic example of this would be <a href="https://www.bbc.com/news/business-39132802" rel="nofollow noreferrer">Gillette's longstanding business practice of giving away safety-razor handles in order to sell their replaceable safety-razor blades</a>. (Caveat: <a href="https://hbr.org/2010/09/gillettes-strange-history-with" rel="nofollow noreferrer">Randal Picker argues that this actually has a more complicated business history than is commonly understood</a>; but Gillette certainly has given away a lot of free safety-razor handles, and even started mailing them out unsolicited using marketing lists. I got one in the mail myself when I turned 18, back in the 1990s.)</p>
<p>When this is sustainable, the money to do it typically comes from the sale price of the complementary good(s), when and if this is enough to cover losses from the giveaway. The profit in it comes from the shift in demand, if this increases the quantity of the complement that can be sold or the price at which it can be sold.</p>
</li>
<li><p>In economics jargon, the strategy is a particular form of a <a href="https://en.wikipedia.org/wiki/Two-part_tariff" rel="nofollow noreferrer">two-part tariff</a>: there is a lump-sum entry fee for using the composite product (the fixed cost of the razor handle, or the printer, or the Tesla car), and a variable cost for usage (the cost of replaceable blades, or ink cartridges, or electrical charging stations). The basic strategy here is to try to take a loss on the revenue from one of the two parts of the composite product, and subsidize it by increasing revenue from the other.</p>
<p>In some sense, Tesla's strategy here works in the opposite direction from Gillette's. Gillette lowers the fixed cost of the razor-blade handle to 0, and then covers the cost from the increased revenue that they make from the variable usage cost (selling new replaceable blades). As you've described it, Tesla's strategy seems to be to lower to 0 the <em>variable</em> cost of discharging your Tesla car (by driving it around) and then recharging at a Tesla charging station; they presumably hope to cover the cost from the increased revenue that they make from the <em>fixed</em> lump-sum sale price when people buy new Teslas. (There are lots of reasons they might think this will be useful for increasing sales; besides any direct financial effects of the subsidy or psychological effects toward brand loyalty, the availability of free charging stations is also almost certainly intended to help reduce <a href="https://www.jdpower.com/cars/shopping-guides/what-is-range-anxiety-with-electric-vehicles" rel="nofollow noreferrer">range anxiety</a> in prospective customers when they consider buying a new Tesla.)</p>
<p>Will that turn out to be sustainable over the long term? Well, that depends on a lot of details, as well as quite a bit of unpredictable luck. In no particular order:</p>
<ul>
<li>How many stations will Tesla build?</li>
<li>How much of the recharging do they expect Tesla drivers to do at company charging stations (as opposed to charging up at home, or charging at a 3rd party charging station)? (I.e., what share of the variable costs of driving a Tesla are they actually expecting to be subsidizing?)</li>
<li>How much does it cost them on the margin to provide the electrical charge?</li>
<li>How much or how little does this boost sales of Tesla cars? (I.e., how much do they expect to increase their revenue from the lump-sum fee?)</li>
<li>How long do people who buy a new Tesla car keep driving it? (I.e., does the lump-sum payment generally have to cover 6 months' worth of driving on average, or 2 years', or 5, or 10, or...? This will make a big difference to how affordable it is likely to be.)</li>
<li>How much does this influence people's likelihood to replace their old Tesla car with a new Tesla car?</li>
</ul>
</li>
</ul>
<p>There are a lot of other questions that you might want to ask. If you have some possible ballpark estimates or reasonable minimum-maximum ranges for any of these figures -- either in terms of what Tesla might expect the figures to be, or what they might realistically turn out to be in fact, or whatever scenario you want to run -- then those could provide some guidance for a more concrete answer to your question. In the absence of that, the best answer you're likely to be able to find is to get some kind of model that will lay out the blanks you'd need to be able to fill in to get a concrete answer.</p>

CC BY-SA 4.0
2022-04-28T16:23:30.167Z
2022-04-28T16:23:30.167Z
AlabamaScholiast
<p>I came across <a href="https://youtube.com/shorts/ShGg4COalI4?feature=share" rel="nofollow noreferrer">this video</a>, where Elon says charging a Tesla car at Tesla supercharge station is free and will be free always</p>
<p>How is this a sustainable business model? Where will the money for electricity come from?</p>

CC BY-SA 4.0
2022-04-28T11:01:57.287Z
It's hard to know how to answer this question without a lot more information about basic parameters. When companies give something away at a loss, they usually do it to promote the sale of [complementary goods](https://en.wikipedia.org/wiki/Complementary_good) (clasically, giving away razors in order to sell blades) that cover losses from the giveaway. Whether this is sustainable or not depends on a lot of details. How many stations will Tesla build? How much does it cost them on the margin to provide the charge? How much charging will they do? How much does it boost sales of Tesla cars? Etc.
AlabamaScholiast
CC BY-SA 4.0
2022-04-28T19:15:14.493Z
The margin on the car far outweighs the value of the electricity. You could keep a car charging permanently for its entire functional lifetime - it would break before Tesla took a loss on the car.
RegressForward
<income-effect>
How is Elon Musk's free Tesla charge a sustainable business model?
Daniel Chase
# How is Elon Musk's free Tesla charge a sustainable business model?

(Asked by: username_0 on 2022-04-28)

I came across [this video](https://youtube.com/shorts/ShGg4COalI4?feature=share), where Elon says charging a Tesla car at Tesla supercharge station is free and will be free always

How is this a sustainable business model? Where will the money for electricity come from?

**Tags:** income-effect

> **Comments:**
> **username_1**: It's hard to know how to answer this question without a lot more information about basic parameters. When companies give something away at a loss, they usually do it to promote the sale of [complementary goods](https://en.wikipedia.org/wiki/Complementary_good) (clasically, giving away razors in order to sell blades) that cover losses from the giveaway. Whether this is sustainable or not depends on a lot of details. How many stations will Tesla build? How much does it cost them on the margin to provide the charge? How much charging will they do? How much does it boost sales of Tesla cars? Etc.  
> **username_2**: The margin on the car far outweighs the value of the electricity. You could keep a car charging permanently for its entire functional lifetime - it would break before Tesla took a loss on the car.  

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## 1 answers

### Answer by username_1 on 2022-04-28. Score: 2 | Accepted answer

**It's hard to know how to answer this question as stated, without a lot more information about basic parameters** (as of 2022-04-28, 10:45 AM CDT).

* When companies give away a product or service at a loss, they *usually* do it to promote the sale of [complementary goods](https://en.wikipedia.org/wiki/Complementary_good). The classic example of this would be [Gillette's longstanding business practice of giving away safety-razor handles in order to sell their replaceable safety-razor blades](https://www.bbc.com/news/business-39132802). (Caveat: [Randal Picker argues that this actually has a more complicated business history than is commonly understood](https://hbr.org/2010/09/gillettes-strange-history-with); but Gillette certainly has given away a lot of free safety-razor handles, and even started mailing them out unsolicited using marketing lists. I got one in the mail myself when I turned 18, back in the 1990s.)

  When this is sustainable, the money to do it typically comes from the sale price of the complementary good(s), when and if this is enough to cover losses from the giveaway. The profit in it comes from the shift in demand, if this increases the quantity of the complement that can be sold or the price at which it can be sold.
* In economics jargon, the strategy is a particular form of a [two-part tariff](https://en.wikipedia.org/wiki/Two-part_tariff): there is a lump-sum entry fee for using the composite product (the fixed cost of the razor handle, or the printer, or the Tesla car), and a variable cost for usage (the cost of replaceable blades, or ink cartridges, or electrical charging stations). The basic strategy here is to try to take a loss on the revenue from one of the two parts of the composite product, and subsidize it by increasing revenue from the other.

  In some sense, Tesla's strategy here works in the opposite direction from Gillette's. Gillette lowers the fixed cost of the razor-blade handle to 0, and then covers the cost from the increased revenue that they make from the variable usage cost (selling new replaceable blades). As you've described it, Tesla's strategy seems to be to lower to 0 the *variable* cost of discharging your Tesla car (by driving it around) and then recharging at a Tesla charging station; they presumably hope to cover the cost from the increased revenue that they make from the *fixed* lump-sum sale price when people buy new Teslas. (There are lots of reasons they might think this will be useful for increasing sales; besides any direct financial effects of the subsidy or psychological effects toward brand loyalty, the availability of free charging stations is also almost certainly intended to help reduce [range anxiety](https://www.jdpower.com/cars/shopping-guides/what-is-range-anxiety-with-electric-vehicles) in prospective customers when they consider buying a new Tesla.)

  Will that turn out to be sustainable over the long term? Well, that depends on a lot of details, as well as quite a bit of unpredictable luck. In no particular order:

  + How many stations will Tesla build?
  + How much of the recharging do they expect Tesla drivers to do at company charging stations (as opposed to charging up at home, or charging at a 3rd party charging station)? (I.e., what share of the variable costs of driving a Tesla are they actually expecting to be subsidizing?)
  + How much does it cost them on the margin to provide the electrical charge?
  + How much or how little does this boost sales of Tesla cars? (I.e., how much do they expect to increase their revenue from the lump-sum fee?)
  + How long do people who buy a new Tesla car keep driving it? (I.e., does the lump-sum payment generally have to cover 6 months' worth of driving on average, or 2 years', or 5, or 10, or...? This will make a big difference to how affordable it is likely to be.)
  + How much does this influence people's likelihood to replace their old Tesla car with a new Tesla car?

There are a lot of other questions that you might want to ask. If you have some possible ballpark estimates or reasonable minimum-maximum ranges for any of these figures -- either in terms of what Tesla might expect the figures to be, or what they might realistically turn out to be in fact, or whatever scenario you want to run -- then those could provide some guidance for a more concrete answer to your question. In the absence of that, the best answer you're likely to be able to find is to get some kind of model that will lay out the blanks you'd need to be able to fill in to get a concrete answer.


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