Tesla has dropped its deposit fee from $2,500 to $100. Also important to note, the previous $1,000 and $2,500 deposit fees were fully refundable, but the $100 deposit is nonrefundable.
CNBC says that, “The order fee means that Tesla will make money every time a person places an order, even if they decide not to move forward with their purchase — no matter why they decided to bail.” (Yes, that is the definition of a nonrefundable fee.)
To be honest, I don’t think this is a bad thing at all. Let’s look at it from the point of view of a business. A business is meant to do one major thing: thrive. In order for it to thrive, it must survive. For this to happen, the business needs money to build itself up, create products to sell, sell them, and so on. Fully refundable deposits can send incorrect signals, create false expectations, and complicate Tesla’s operations. A nonrefundable deposit (which is what Tesla used to use), even if much smaller (it was previously much higher), is an actual commitment. Not that many people are going to give away $100, so they also won’t place an order without a genuine commitment or plan to buy the product.
Let me explain it in another way. I will use myself as an example. I am a “wire artist,” someone who makes jewelry with wire, be it copper, silver, or gold. These metals can get quite costly, especially gold. Then add in the cost of the mineral or gemstone — you won’t be looking at the sales numbers Tesla sees, but depending on what someone orders, it could be a $400 piece of jewelry that is handmade.
$400 is a lot for artists like me, and at least 25% of that will be the base cost — cost of the materials alone. Then there’s the work that goes into making the piece and shipping it. With Tesla, it has to pay employees.
So, when a customer places an order and then changes their mind, a business needs to have a plan in action. Personally, I charge full price upfront for my work and inform my customers that it’s non-refundable due to the cost of materials.
Now, let’s look at it again from the point of view of Tesla. The company has thousands of customers a week. Let’s imagine that out of every 1,000 orders, 10 are canceled. I am not sure what the exact number is, so I’m just guesstimating here. So, if 10 per 1,000 are cancelled and these 10 paid $2,500, then that could equate to $25,000 in cash Tesla would lose just from having to return deposits. [Editor’s note: With my new Tesla referral code, I have seen 8 people finalize a Tesla order and 3 place an order and then cancel it. Another 7 have placed an order and are yet to receive the car (and thus finalize the order) or cancel. That’s certainly not a scientific sample, but just as one data point, that’s a 27% cancel rate. If that’s anywhere near the norm, it must be quite a challenge for Tesla to manage when it so closely matches production with consumer demand.]
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The best way to prevent those kinds of losses is to make it nonrefundable, and to do that, Tesla had to lower it. Remember, Tesla has to thrive–not just survive–but to thrive. The goal of anyone with a business is to prosper, yet people have this mentality that Tesla (and other businesses) must be bad because they make a lot of money. Some seem to give little to no thought about this. I see people all the time asking for Elon to give them a Tesla. If he did, Tesla wouldn’t make money.
On the plus side for customers, making the deposit only $100 makes it easier to get through the first step of buying a Tesla. $100 is still a lot to the average American working 2–3 part-time jobs and holding down a side business to survive — but it’s a lot more approachable than $2,500!
Photo by JRR, CleanTechnica