Tesla Motors, Inc.: Expect Major Improvements Every 12 to 18 Months

By Daniel Sparks Markets Fool.com

Tesla Motors (NASDAQ: TSLA) CEO Elon Musk took to Twitter this weekend with a range of updates and commentary about the electric-car maker's products. But perhaps the most telling of all was a glimpse into how the company thinks about releasing major updates for its vehicles. Here's a window into Tesla's approach to product innovation.

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Image source: The Motley Fool.

Frequent updates

When asked on Twitter whether the company would allow owners to pay for a retrofit of their first-generation Autopilot hardware to Tesla's October-launched improved new sensors for Autopilot, Musk said this won't be happening.

"Unfortunately, that would require stripping down the entire car and replacing 300+ parts," Musk explained. "Wish there was an easy way."

Going further, Musk said anyone buying a Tesla shouldn't expect their vehicle to keep up with future innovation in the company's cars.

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"Tesla will never stop innovating," Musk explained. "People are buying the wrong car if they expect this. There will be major revs every 12 to 18 months."

Customer requests for retrofits are a part of an old narrative from Tesla owners. The first major updates for the company's vehicles came in October 2014, when the electric-car maker announced dual-motor all-wheel drive and the first Autopilot hardware for its vehicles. This update introduced important driver-assist safety features such as automatic emergency braking and collision avoidance, as well as convenience driver-assist features like automatic steering and parking, adaptive cruise control, Summon (a feature that allows cars to move themselves), and automatic parking. Furthermore, dual-motor technology improved both the range and acceleration of Tesla vehicles.

More recently, Tesla began including its second-generation Autopilot hardware in every vehicle. The new sensors will enable an enhanced version of Autopilot and even fully autonomous driving, after further software validation and regulatory approval, according to the company. In addition, in January Tesla began offering a new version of Model S with 20 miles of additional range than its previous highest-range model, helping the sedan achieve a maximum driving range of 335 miles on a single charge.

For someone looking to buy the highest-range Model S, this was a significant update since the 335-mile version cost much less than the 315-mile version. The catch, of course, is that the 335-mile version has a zero-to-60 time of 4.2 seconds versus the 315-mile version's time of 2.5 seconds.

Teslarati's Gene Liu explained the significance of the new, higher-range version of Model S (and a similar update to the company's Model X SUV lineup) when price is taken into account:

Though the increase in range onthe 100D is minimal when compared to the company's performance-based P100D with 100 kWh battery pack, the price difference is substantial. A Model S P100D starts at a base price of $137,800and bundles in theSmart Air Suspension feature while the non-performance100D is priced considerably less at $95,800, but does not include the Smart Air Suspension. The $42,000 price difference buys unprecedented acceleration, however the 100D offers20 more miles of range than the P100D despite the lower price point. The same story can be told for the Model X. A Model X 100D costs$37,000 less than the P100D version and offers 6 more miles of range.

Image source: The Motley Fool.

Innovation is Tesla's priority

In short, Tesla doesn't expect its current vehicles' hardware to keep up with new vehicles for very long. Even if that means updating its vehicles within the same model year, Tesla intends to deliver major revisions as fast as possible. While Tesla will continue to deliverbig software updates for vehicles it has already delivered, the company won't be expending energy on updating old hardware.

Musk summed up this philosophy in a tweet this weekend: "If we applied resources to doing super complex retrofits, our pace of innovation would drop dramatically."

This fast pace of innovation is particularly important for Tesla. While the company's annualized 100,000-unit build rate today has established the automaker in the luxury-car market, Tesla's scale still pales in comparison to that of other major automakers. As Musk has expressed in the past, speed is one of the company's greatest defenses in combating competition.

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Daniel Sparks owns shares of Tesla Motors. The Motley Fool owns shares of and recommends Tesla Motors and Twitter. The Motley Fool has a disclosure policy.