Tesla's Countergate II - The Sequel

| About: Tesla Motors (TSLA)

Summary

Tesla already had a potential Countergate, defused at the last possible time by the promise of removing the performance limitations Tesla had imposed.

The update removing the performance limitations has arrived.

With this update, the truth is uglier than fiction. Some performance limitations were lifted, while much more aggressive performance limitations were imposed.

The article also covers a non-related development regarding one of the incoming Tesla competitors.

A while back, I published an article titled "A New Tesla Scandal Is Brewing". In that article I described the impending Countergate, a scandal which was near breaking out on the media.

What was that scandal about? It was about Tesla (NASDAQ:TSLA) implementing counters (hence "Countergate") for the use of its cars' performance (wide open throttle uses, launches, etc), and limiting said performance forever when these counters reached certain thresholds.

These counters applied to Tesla's most expensive cars, the Performance line including the P85D, P85DL, P90D, P90DL and possibly even the P100D. The performance limitations arrived with a software update, post-sale, and were not described to customers either when updating the cars or when buying them. Anecdotal evidence pointed to cuts as large as 100hp. The whole scandal broke on Tesla Motors Club as enterprising owners carefully monitored their cars beyond what regular customers would do. The obvious reason for Tesla implementing these performance limitations was clearly to delay or avoid failures, which it would have to cover under warranty since it provides an 8-year warranty on the powertrain including the battery.

As the scandal gathered strength, and sensing media trouble, Tesla backed off. It promised, even directly in Tesla Motors Club, that a future update would remove these performance limitations. A couple of weeks ago, the promised update arrived. With this update, an update beckons - and it shall be provided in this article. I am afraid, though, that the update is not what Tesla fans and shareholders were expecting.

The Good News

The update removing the performance limitations works. Customers who had been punished by the previous limitations have gotten their power back. But thing is, it doesn't stop there…

The Bad News

So, if customers who had been limited no longer were, what kind of bad news could there be? The devil is in the details. Here's how a Tesla representative broke the news of the update to its customers over at Tesla Motors Club:

Hi Everyone -- The software update that removes software performance reductions tied to frequent max battery power usage is being deployed now. With this update, maximum power output will be achievable anytime both Launch Mode and Max Battery Power Mode are engaged.

Now, normally with Tesla you always have to parse everything. Here, however, the opposite happened. Jon McNeil literally meant what he said. To the letter. And what's the problem in that? Let me emphasize part of the statement above, and then bold it some more:

With this update, maximum power output will be achievable anytime both Launch Mode and Max Battery Power Mode are engaged.

So what's wrong here? Well, a bit of history might be in hand:

  • The P85DL and P90DL versions were first launched in August 2015. These models offered the "Ludicrous" mode, at a premium. The robbing of the additional performance offered by Ludicrous made up a large part of the first "Countergate" scandal.
  • Only in December 2015, did Tesla offer "Launch Mode," which could supposedly improve the 0-60mph times already achieved with Ludicrous. This was done by following a complex sequence, which pre-loaded the suspension among other things. Without Launch Mode the customer, moving or from a standstill, only had to smash his accelerator to get the performance. With Launch Mode the customer had to follow a sequence, couldn't necessarily get the actual launch when he wanted it (timing got tricky), and it only served for standstill launches.

Given this, the Launch Mode was an alternative way of enjoying the car's performance, but all of that performance was available even outside of Launch Mode. Launch Mode was more of a party trick, whereas regular usage of the higher performance could take place at any time (provided Max Battery was selected, SoC -- State of Charge was high and the battery was ready temperature-wise -- conditions also necessary for Launch Mode).

So remember again what Jon McNeil said (emphasis mine):

With this update, maximum power output will be achievable anytime both Launch Mode and Max Battery Power Mode are engaged.

He meant it literally. Maximum power would now be achievable when (and only when) these conditions were met, and at no other time. Translated: Every single customer has now lost access to maximum power under regular usage, counter or no counter. From now on maximum power will only be available under a very tight set of conditions.

What does this mean? That the same (Tesla) objective which was present in "Countergate" is present in "Countergate II." The objective is for customers to not use the maximum performance their cars offer and were sold on. Previously this was achieved by counting performance events and limiting performance forever when certain thresholds were met. Only customers making a lot of usage were affected. Now, every single customer is affected in regular usage. The performance ceased being there, and will only be available in the occasions where customers actually use Launch Mode - something they aren't likely to do easily in their day-to-day usage, given the necessary sequence and timing constraints.

Said another way, Tesla swapped a restriction on the usage of the performance it sells its cars on, for an even tighter restriction on such usage. And more fantastically still, it did this while broadcasting that it was removing the previously unannounced performance restrictions!

Now, this, again, has the potential both to be a scandal and to drive away its most loyal and profitable customers. With the scandal potential being there, why does Tesla insist in doing this? A powerful motive has to exist. Broadly speaking, it's obvious that the motive must be to avoid warranty claims on an expensive piece of kit which Tesla knows will fail is the performance it sold is actually used.

But what about particulars? It has been speculated in Tesla forums that the reason for the limitations are the battery cell links, which could fail under repeated usage. These have been improved for the P100D, so that could have been the reason.

I am, however, going to offer another possible reason. I'll do this based on two things:

  • Something an incoming competitor said.
  • The fact that the underlying, structural, problem was also improved upon for the P100D.

My Speculative Reason

Up until now, everything I said above regarding performance limitations is factual. The possible explanation I'm going to offer is more speculative. Here it goes.

A while ago, Automotive News had a short interview with Wolfgang Ziebart, Jaguar Land Rover's technical design director regarding its upcoming Jaguar I-Pace, namely in what concerned its battery design. In this interview Wolfgang Ziebart offered the following interesting information:

Q: What is the biggest challenge in battery management?

A: The hotter the cells get, the more electricity they release, but they are more stressed and have a shorter life. What is important is to keep all the cells in a temperature range of plus/minus 2 to 3 degrees. When we tested our competitors' models we saw temperature differences of up to 10 degrees, which is not good for the cell life.

It's obvious that the only existing, direct, competitors to the incoming Jaguar I-Pace are Tesla's Model S and X. So what was Wolfgang Ziebart referring to? 2 things:

  • That hot batteries offer more power but lead to a shorter life. Remember, to use Ludicrous power levels, the battery needs to be pre-conditioned (heated).
  • That additionally it's highly undesirable to have large temperature gradients within the battery, as that will shorten cycle life further (presumably, in the hotter cells). And within this, Jaguar wanted to keep its cells in a +-2-3 degree range (presumably Celsius). However, in its Tesla tests it saw 10 degree ranges (+-10 degrees, which means battery cells can be as much as 20 degrees apart).

There are many known factors affecting battery life, including:

  • Storage/use at a very high or very low SoC (State of Charge).
  • Rate of charge (think supercharging).
  • Rate of discharge (think hard acceleration, usage of maximum power). This is also another possible reason to limit performance.
  • Storage temperature.
  • Operating temperature. Here, usage of performance is also relevant both because the battery is pre-conditioned (heated, so will be used at a higher temperature to begin with - to provide more power) and because the high discharge rate to provide the power will also induce heating.

It is this last effect which concerns us. The usage of Ludicrous mode will already happen under unfavorable conditions for supporting a long battery life. Just how unfavorable? The following represents typical behavior for a Li-Ion cell (though this can change with different chemistries, etc.):

Source: MPowerUK.com

See what happens in the higher temperature ranges? The drop off in battery cycle life is tremendous. Now, the usage of maximum performance on Tesla's Performance models already entails heating the battery to achieve Max Battery Power. This alone would already have an impact on battery cycle life. But then, there's the problem alluded to by the Jaguar executive: large temperature differences (gradients) within Tesla's batteries!

Furthermore, we know these temperature gradients to be structural. They're a result of Tesla's battery module design prior to the Model P100D. A Tesla patent shows a scheme of how coolant flows within Tesla's battery module:

Already, it's evident why a thermal gradient will build -- and worse still, under quick discharge the hotter battery cells will always be the same:

This will happen because as the cooling agent makes its way through the cooling tube, it will pick up heat and become hotter. As a result, it will gradually lose the ability to cool cells further down the circuit, which will as a result become hotter. This will happen over and over, under hard acceleration. So part of the cells within the modules will be exposed to much more aggressive lifecycles under performance use than the rest. This makes these cells much more susceptible to fall into conditions which would quickly and aggressively reduce their cycle life. This, thus, is my best estimate of what's leading Tesla to limit performance on its Performance cars, and keep on insisting on doing it.

Also, anecdotally, after "removing" the performance limits, Tesla has asked for the batteries from several customers which were already exposed to the previous limits. The reason here is probably to study the actual impact which had already taken place in their battery packs.

An Aside

The Model P100D battery is of a different design. It has 2 cooling loops instead of one, which means Tesla recognized the structural flaw. As a result, there are fewer reasons to impose performance restrictions on the P100D.

There is, however, anecdotal evidence that performance limitations have taken place there as well. In part this might be caused by the software treating every model the same way (and thus only making the full performance available under Max Battery Power + Launch Mode for everybody). It should be said that even beyond the temperature gradient described above, there are still reasons to limit performance for the sake of battery cycle life (they're just not as immediate/urgent).

Market Consequences

As with many other Tesla actions, by doing this Tesla is exposing itself to the loss of its one existing, sustainable, advantage: Its brand. Tesla keeps on risking its brand image in many different ways, including:

  • Long waits for service, though Tesla is putting resources into mitigating this.
  • Going back on previous promises, like delivering AP1 which never reached what was initially promised. This will also likely happen with its present FSD (Full Self Driving) promises on AP2.
  • Having poor reliability and quality. This is exacerbated by then having long waits for service.
  • Imposing delays on customers for crucial features, like emergency braking - promised to AP2 customers by December 2016, and not yet implemented today (this should be delivered shortly).
  • And now, of course, limiting performance on its Performance cars.

At some point, this kind of mistreatment is likely to bite Tesla back. One such obvious point, is when serious competition arrives. That's something which is set to happen in 2018, by the hands of Jaguar, Mercedes and Audi. This brings me to my next point.

The Jaguar I-Pace Interior

When I wrote my article titled "Tesla: Competition Set To Arrive - An Example," I was amazed by the concept's interiors, namely its dashboard. I was, however, a bit skeptical that such an advanced interior would actually make it to production, without a level of changes which would nerf it down. Here is the amazing interior I'm talking about:

Source: Jaguar

Something has happened, however, which lowered my skepticism significantly. Jaguar Land Rover has unveiled its Range Rover Velar, to be sold from July 2017 onward (by the way, the first production prototype cars were caught testing back in July 2016, 12 months ahead of launch).

So what about the Range Rover Velar? Well, this production car has an interior as follows:

Source: Carmagazine.co.uk; Jaguar Land Rover

So there it is, this interior is already a production interior, and it shows the same features as the Jaguar I-Pace concept interior. If this is going into production now, then for sure in early 2018 the I-Pace will also have its promised interior. Which is to say, the Jaguar I-Pace interior will be incredibly competitive -- especially when compared to what Tesla has now in its Model S and X. Tesla might have to go into a crash course to update those interiors.

As another curious note, the Jaguar I-Pace also had integrated self-presenting door handles. Some speculation existed on whether those would make it to production. Well, the Range Rover Velar also has self-presenting door handles, so the likelihood of the Jaguar I-Pace keeping them is also significantly increased.

Conclusion

There are many conclusions to be drawn from this exercise:

  • Tesla has some kind of problem with its customers using the full performance in their Performance-series cars. Clearly, Tesla wouldn't go to the lengths it's going if that was not the case. Tesla is actively and repeatedly trying to discourage the usage of the full performance capabilities. The previous "Countergate" scandal involved counting the usage of performance. The new "Countergate" scandal doesn't actually include counters - this time Tesla is simply limiting everybody's Performance car under all scenarios except for the limited and unpractical usage of Launch Mode. Gone is every day performance.
  • These actions by Tesla indicate that not putting these limits in place would lead to warranty claims Tesla wants to avoid.
  • However, Tesla is risking its image in putting forward these limitations. Tesla sold cars which had a higher level of performance which was supposedly usable in everyday conditions. Yet now Tesla -- with an OTA software update no less -- is removing performance capabilities which it sold its customers for real cash. This is also provable by the fact that Ludicrous mode existed before Launch Mode, and hence was not limited by having to apply Launch mode before.
  • Tesla's image and brand power is the one sustainable advantage it can have when competition arrives. The competition will have the same specs, higher quality, higher reliability, lower prices and clearly better interiors. Tesla is putting its only hope of resisting the onslaught at risk. As a result, this kind of performance limitation scandal is more serious for Tesla's story than a possibly significant cost hit because of failing batteries on the Performance models.
  • The first competitive car to arrive, the Jaguar I-Pace, is now more likely to be closer to the concept Jaguar presented than ever. This is so because some of the more outlandishly amazing features, like its beautiful interior, are being taken to production nearly one year ahead of the I-Pace. If the Range Rover Velar has those features, there's no impediment for the I-Pace to have them as well.

Disclosure: I am/we are short TSLA.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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