Software is Eating the World-Tesla Edition

By Alex Tabarrok

Last week Consumer Reports refused to recommend Tesla’s Model 3 because it discovered lengthy braking distances. This week Consumer Reports changed their review to recommend after Tesla improved braking distance by nearly 20 feet with an over the air software update!

Last week, after CR’s road test was published, Tesla CEO Elon Musk vowed that the automaker would get a fix out within days.

Until now, that type of remote improvement to a car’s basic functionality had been unheard of. “I’ve been at CR for 19 years and tested more than 1,000 cars,” says Jake Fisher, director of auto testing at Consumer Reports, “and I’ve never seen a car that could improve its track performance with an over-the-air update.”

…In retesting after the software update was downloaded, the sedan stopped in 133 feet from 60 mph, an improvement of 19 feet.

…The improved braking distances raised the Model 3’s Overall Score enough for the car to be recommended by CR

Tesla is also responding to other concerns raised by Consumer Reports. It’s quite astounding that Tesla is able to improve something as physical as braking distance with a software update and also astounding that they are able to update so quickly–even pure software firms don’t respond this quickly! Quite the win for Tesla.

The larger economic issue is that every durable good is becoming a service. When you buy a car, a refrigerator, a house you will be buying a stream of future services, updates, corrections, improvements. That is going to change the industrial organization of firms and potentially increase monopoly power for two reasons. First, reputation will increase in importance as consumers will want to buy from firms they perceive as being well-backed and long-lasting and second durable goods will be rented more than bought which makes it easier for durable goods producers not to compete with themselves thus solving Coase’s durable good monopoly problem.