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Why Tesla's Direct approach to sales will fail

mark360

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TESLA WAY

Tesla's is the manufacturer and the SELLER of the vehicle. Not only are they now responsible for manufacturing a good car, but they have to also be responsible for covering the cost of selling that vehicle. That means covering the costs for transporting the vehicles, storing them, maintaining their properties, additional staff, so on and so forth.

No matter where you go in the country, the price is the same for buying a Tesla. Why? It cost them twice as much in labor cost to sale you a vehicle in Los Angeles than it does in Raleigh (my Service Center location)? Well, their price COVERS that in ALL areas of the country.

Even if it cost Tesla $1,000 less to sell you a car in Raleigh, they charge you the LAX price.

Tesla doesn't care to lower the price, they know you can't go to the next closest service center and get a lower price.

The DEALERSHIP model works as such:

An individual is responsible for the financial success of the dealership. This is in all aspects of the business, service, and sales. When a dealership is in Raleigh, their cars will be priced CHEAPER than in Los Angeles. Why? Because that same sales manager has to make twice the commission for living expenses. They are also managed by two completely different people and owned by two completely different companies

Also, the manufacturer of the Vehicle focuses primarily on the manufacturing of the vehicle while offering incentives to move the vehicles at the dealer level if need be.

The manufacturer focuses on building a car, while the Dealer focuses on running that side of the business and being profitable and selling the vehicle. If you understand anything about cars, you'd realize that on new car sales most dealers are only getting a $500 mark up over invoice on low price vehicles.

Not only that, but majority of the time they are competing with other dealers located right down the road. This further drives prices down in the local market.


Takeaways

  1. Other car manufacturers will ultimately have cheaper offerings in the long term if Tesla doesn't adapt. Mustang's Mach E is already price equally to the Model Y and it has a bigger battery pack. Improvement will come over time.
  2. The more service centers Tesla has, the more cost and liability they will have to cover.
  3. Tesla service and deliveries are struggling to meet demand. The more service centers they open, the more costs they have to incur.
  4. Tesla has already tried to reduce costs by reducing the amount of showrooms in the country, and now offering 7 day money back guarantee to help offset the blow-back of less places to test a car.

I ultimately do not have confidence that this business model will work long term. I believe the dealership model has NUMEROUS advantages over a direct to consumer approach.
 

frinesi2

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I think you misspelled "stealership"
 

jlauro

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I'll just say both methods have pros/cons, and one might be superior than the other in most aspects, but in the end neither is doomed to fail, and both can be successful long term in the same marketplace...
 

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Tesla has MANY problems. Bottom line is that Musk does not have the capital to continue doing what he is doing. When Tesla was essentially the only Electric car he owned the market. Until the mach E there was zero competition against Tesla due to battery range. With the Mach e being a direct competitor and VW opening EA Tesla is no longer the only game in town. VW is launching their line of Electric cars the end of this year as well. Tesla has cut down on their quality control aspect of their cars.
 

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Tesla has MANY problems. Bottom line is that Musk does not have the capital to continue doing what he is doing. When Tesla was essentially the only Electric car he owned the market. Until the mach E there was zero competition against Tesla due to battery range. With the Mach e being a direct competitor and VW opening EA Tesla is no longer the only game in town. VW is launching their line of Electric cars the end of this year as well. Tesla has cut down on their quality control aspect of their cars.
They have enough of their own outstanding shares to raise 2 billion assuming the stock price doesn't drop and increase the % of stock in the market. The gains in the stock price makes 2% float easy to raise a lot of capitol.

Not saying VW or mustang will not be competition, but seriously they not be able to gear up before 2022 model year and Tesla had some weak competition before in terms of specs, just over priced... and other competition at a better price but under specs... Only reason mach e isn't over priced is the $7500 tax credit.

Tesla will do just fine for at least a couple of years. They might be over valued, but I certainly wouldn't bet against them for the next 18 months, and VW, Ford, and others have stated good plans and could offer some serious competition, but have yet to deliver, and unlikely to have enough battery capacity to really compete even if they have better vehicles.
 

LYTMCQ

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It's working quite well so it would seem that your theory is not valid. While you may not like Tesla for some reason (no Tesla, no Mach-E), the direct sales model is very profitable. One less hand out for money.
 

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Like someone mentioned in another thread, this is a Mach E forum. We don't want to start sounding like fanboys over here. We all laughed at that "other" forum, but it is starting to sound like that here too. Maybe it's just me though, if so, nevermind :). Maybe once we get some new Mach E info, it will help.
 

LYTMCQ

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Tesla has MANY problems. Bottom line is that Musk does not have the capital to continue doing what he is doing.
Factually incorrect by every metric, sales, cash, orders. Tesla is so cash and sales fat that it can ignore what little competition there is and not make any needed upgrades and can just keep pumping out the same increasingly profitable cars.

Tesla’s service revenue jumped by nearly $1B as car charging and non-warranty service started contributing to the bottom line. Both of those will increase substantially as are sales with new China plant online and Berlin plant under construction.

Fair to say every car mfg on the world want’s Tesla’s problems of high sales and high revenue.

If anything direct sales has been part of Tesla‘s success story.
 
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mark360

mark360

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Like someone mentioned in another thread, this is a Mach E forum. We don't want to start sounding like fanboys over here. We all laughed at that "other" forum, but it is starting to sound like that here too. Maybe it's just me though, if so, nevermind :). Maybe once we get some new Mach E info, it will help.
Not trying to sound like a fanboy, but after further analysis there is no way Tesla can sustain the direct to consumer model. It just never works in several industries.

Another good analogy is like saying you can only get an Apple Phone from an apple store, and then to get service you have to then go to a Verizon, at&t, etc to get the phone to work properly long term. Of course apple could expand the amount of stores, but that cost then has to be recovered in the cost of their product.
 
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mark360

mark360

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Factually incorrect by every metric, sales, cash, orders. Tesla is so cash and sales fat that it can ignore what little competition there is and not make any needed upgrades and can just keep pumping out the same increasingly profitable cars.

Tesla’s service revenue jumped by nearly $1B as car charging and non-warranty service started contributing to the bottom line. Both of those will increase substantially as are sales with new China plant online and Berlin plant under construction.

Fair to say every car mfg on the world want’s Tesla’s problems of high sales and high revenue.

If anything direct sales has been part of Tesla‘s success story.
You are actually incorrect in this analysis. Tesla, from day 1, has not made a fiscal year profit. In addition to that, last year their Total units moved was 400,000 vehicles. 320,000 Model 3's and 78,000 Model S/X. They lost money using GAAP. Why do you think they are having to issue common stock to raise a measly 2B dollars? They don't have the cash... and 400,000 is not high sales. It is peanuts in the global car market. Their sales of the Model S/X are actually declining, down 30-40%. It's not because the car has gotten worse, it's because their are many more options now in the marketplace that are more attractive to buyers than there were 3-4 years ago.

Ford sold 5.5 million vehicles last year.

If you look at ford, for example they have 34B cash in the bank. That is the sum of Tesla's Assets, and for some reason the news likes to make the perception out like Tesla has all these gargantuan factories. Ford has over 250b in assets. Tesla is just no where close to the size or scope or profitability of Ford.

Ford is investing 11b (1/3 the size of Tesla $ wise) into their EV architecture and future while still paying a 7% dividend to shareholders. Tesla can't pay a dividend because they're spending all their money trying to grow. It isn't possible to grow to the level of ford, because EV demand worldwide is currently 2 million vehicles and in the united states it makes up only 1.8% of the total vehicles sold. EV's are way too expensive. Ford is coming out with the Mach E at the perfect time and will get their chunk of the EV pie just like Tesla. Worldwide Tesla accounts for only 20% of the EV market. Where is the other 80% going? How are they not dominate in other parts of the world when their car is suppose to have the best technology, specs, etc?

However, Tesla in the USA has a dominating presence - they make up 60% EV sales in the USA or triple worldwide. Why is that? Because the charging infrastructure and government regulations isn't anywhere near the level like it is in Europe where regulations are getting ridiculous and they have excellent 3rd party charging coverage. Tesla has a Monopoly when it comes to charging and that is their only advantage, which is quickly dwindling with EA chargers at about 50% coverage of Tesla and growing rapidly.

By going direct to consumer, it hurts their service and after sales support of their business. Sure, people may buy a Tesla from marketing - after they realize the service sucks they're gonna go to their local Ford dealership and say why the hell didn't I just get a Mach E to begin with? It's similar in every way.

I own a Model 3 and will not be buying another Tesla. Their service and after sales support and even the delivery of the vehicle was the worst buying experience I've ever had. No wonder they try to make the car sale itself as much as possible.

Hope this helps.
 
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LYTMCQ

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Why do you think they are having to issue common stock to raise an additional 2B dollars?
They didn’t. It sold out instantly because Tesla stock is outperforming the DOW by 150%, up to near $600 a share making Tesla the most valuable car company in the world right now.

Cash flow is good, sales are excellent, revenue increases are excellent, new factories and new models coming up with no slacking in demand to pay for the new factories.

Other car companies would do better trying to catch up with Tesla, Model S is near 400 mile range (take than 50% cold weather deration for all EVs) than hoping Tesla fails when all evidence is to Tesla’s continued success.
 
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mark360

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They didn’t. It sold out instantly because Tesla stock is outperforming the DOW by 150%, up to near $600 a share making Tesla the most valuable car company in the world right now.

Cash flow is good, sales are excellent, revenue increases are excellent, new factories and new models coming up with no slacking in demand to pay for the new factories.

Other car companies would do better trying to catch up with Tesla, Model S is near 400 mile range (take than 50% cold weather deration for all EVs) than hoping Tesla fails when all evidence is to Tesla’s continued success.
Tesla stock currently is not based on financial literacy and is an anomaly, which will decline soon. The only companies that are worth 13x book value are companies such as Microsoft - where 90% of the world uses a windows based operating system. That valuation is easily justified, and same with Coke - around 13x book value. Coke is the most popular brand in the world. Those value's are justified. Tesla has no where near the dominance like those two brands nor can it grow to that level making EV's. Too many limitation on raw materials.

The other car companies do not have to "catch up" with all the features and specs, if that were the case why is it that ford has all the reservations sold on the Mach E? Why is Tesla's worldwide market share only 20%? Why do people buy GMC over ford and Toyota over GMC? Ford has the best truck specs?
 
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mark360

mark360

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To also add to my original post, the perfect Sales system would be a Hybrid of both dealerships and direct to consumer sales.

Well what do you know? Pretty much all automakers do that, go on their website configure a car and they will give you a price. Pay that price and they will have it shipped to your local ford dealership for pickup. Easy peasy.

The average consumer doesn't understand is that the cost to run a car dealership varies drastically from state to state, city to city, town to town. Recommended MSRP is there for that EXACT reason. In some cities, the dealership has to charge MSRP in order to cover their cost and make a fair living. In other places, Charging MSRP is way to much and gives the dealership too much profit. This is how the free market works with competitors nearby. Every dealer has similar costs to operate in an area and if a ford store down the road is charging $1,000 less because their operation is more efficient you will go and buy from them.

To take delivery of a vehicle, paperwork has to be filed, car has to be cleaned, inspected, financed, etc. etc. That same person cleaning the car in NC that makes $7.15/hr in new york has to make $15.00 per hour. Although a small example, that can add up to $100 to your car price just in the labor cost difference from NC to NY. That finance person has to make $150,000 per year vs $80,000. If you spend 2 hours with the finance agent, that's another $100 added to the cost of a car. It all adds up little by little. How many times does that finance person have someone walk but spent two hours working up a deal to have the person leave? That cost has to be recovered. Just those two examples alone, would add $400 to the price of the car in NC vs New York. The dealer has to mark up his costs otherwise he is operating at a break-even.

I could go on and on, and only a select few will sit down and really analyze it to the detail I have. It it was so much better to go ONLY Direct to Consumer, all industries would do it.

Tesla is charging all consumers in all areas the MSRP price, but people are too blinded to realize that and think we are getting a cheaper price overall for the vehicle. Its a fasad.
 
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LYTMCQ

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Tesla stock currently is not based on financial literacy and is an anomaly, which will decline soon
A comment that has been proven wrong over the last 10 years. Tesla is arguably the healthiest car mfg in the world as it is selling high tech, selling all it can make, is expanding with partners (China) willing to invest billion$ in the company and is making high gross profit margins per car.
 



 










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