Why Tesla's Direct approach to sales will fail

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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.
We get it. You have a Tesla and dislike the company and car, and will never buy another. They have sold nearly 700,000 model 3 I think (I could be off a little). I am sure there will be a small percentage of dissatisfied customers. Just like there will be with the Mach E. That is ok. No company/car is perfect, and sometimes you just get a bad car/employee/etc.

A large majority of Tesla owners love the car, and sometimes even buy a second. Hopefully the Mach E is good enough that people buy a second one.

I feel for your bad experience, but we would probably as a forum benefit from less posts bashing other EV makers. Just some thoughts, maybe others disagree, that is fine too :)
 
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We get it. You have a Tesla and dislike the company and car, and will never buy another. They have sold nearly 700,000 model 3 I think (I could be off a little). I am sure there will be a small percentage of dissatisfied customers. Just like there will be with the Mach E. That is ok. No company/car is perfect, and sometimes you just get a bad car/employee/etc.

A large majority of Tesla owners love the car, and sometimes even buy a second. Hopefully the Mach E is good enough that people buy a second one.

I feel for your bad experience, but we would probably as a forum benefit from less posts bashing other EV makers. Just some thoughts, maybe others disagree, that is fine too :)
Thanks for the feedback! Just giving my .02 cents into the EV market.
 

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Getting back to the original issue in the title... I'm not so sure the direct sales approach will fail. In fact, I think it's potentially a great idea that could work really well.

Vehicle sales and vehicle service don't have to be from the same place. In fact they're often not. Many people have moved away from the dealer they bought the car from by the time they need service 5-10 years later for something. And thus don't even care where they bought the car. They only care about finding a place nearby when they need service.

The issue with Tesla service being spread so thin has nothing to do with them direct-selling cars. It has to do with them only having 1% of the market share for US vehicles. And well less than 1% of service appointments since they have so few older cars on the road (relative to ICE cars).

When you're spread that thin, you simply can't have thorough nationwide coverage. Has nothing to do with the sales model, it has to do with market share and economies of scale.
 
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Getting back to the original issue in the title... I'm not so sure the direct sales approach will fail. In fact, I think it's potentially a great idea that could work really well.

Vehicle sales and vehicle service don't have to be from the same place. In fact they're often not. Many people have moved away from the dealer they bought the car from by the time they need service 5-10 years later for something. And thus don't even care where they bought the car. They only care about finding a place nearby when they need service.

The issue with Tesla service being spread so thin has nothing to do with them direct-selling cars. It has to do with them only having 1% of the market share for US vehicles. And well less than 1% of service appointments since they have so few older cars on the road (relative to ICE cars).

When you're spread that thin, you simply can't have thorough nationwide coverage. Has nothing to do with the sales model, it has to do with market share and economies of scale.
Great point!

In America the reason why service and sales are together is because the service side pays all the overhead of the business, giving sales a lot more flexibility. If they were separate, we would see higher prices for vehicles and similar prices for service. Warranty repair and recalls are extremely profitable for dealerships.

Tesla service is separate from their sales and their shop hourly rate is still $40 more per hour than the local dealerships. ($165/hr vs $120)

I hate to throw this in like it matters, but I have many years of experience in the dealership industry and fully understand the pros and cons of both models. Legacy automakers have and will continue to use a hybrid sales strategy, you can configure a car and get pricing online. That car will then be delivered to your local dealer for pickup. The dealer a lot of times will add options after sale that Tesla just can’t do. If service is 15 minutes away, now that dealership has to have employees shuttling cars back and forth to service.

Subaru & Subaru owners are notoriously known for going online ordering a car and then showing up at the dealership to take delivery. This isn’t something new to Tesla.
 
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Great point!

In America the reason why service and sales are together is because the service side pays all the overhead of the business, giving sales a lot more flexibility. If they were separate, we would see higher prices for vehicles and similar prices for service. Warranty repair and recalls are extremely profitable for dealerships.
Getting back to the original issue in the title... I'm not so sure the direct sales approach will fail. In fact, I think it's potentially a great idea that could work really well.

Vehicle sales and vehicle service don't have to be from the same place. In fact they're often not. Many people have moved away from the dealer they bought the car from by the time they need service 5-10 years later for something. And thus don't even care where they bought the car. They only care about finding a place nearby when they need service.

The issue with Tesla service being spread so thin has nothing to do with them direct-selling cars. It has to do with them only having 1% of the market share for US vehicles. And well less than 1% of service appointments since they have so few older cars on the road (relative to ICE cars).

When you're spread that thin, you simply can't have thorough nationwide coverage. Has nothing to do with the sales model, it has to do with market share and economies of scale.
My post point also is that at some point Tesla will have to adopt the dealership model and partner with a dealership to sale vehicles. They won’t have a choice if they want to scale.
 
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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...
Sure both have pros and cons. It really boils down to tesla's model being better when you are purchasing a car, and the dealership model is better when you are getting service. I think dealerships are superior because I purchase cars much less than I get service. It makes sense as the dealership model was made to handle the difficulties in service.
 

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My post point also is that at some point Tesla will have to adopt the dealership model and partner with a dealership to sale vehicles. They won’t have a choice if they want to scale.
If they get that big. I have doubts they're going to become the next Ford or GM though. Competition from the legacy automakers is going to get very tough for Tesla in the next few years, as they start to produce some solid BEV models. At the same time that personal car ownership is starting to slow down (outside of China, that is). Tesla could be almost near their peak in the next year or two for personal vehicles. (Commercial vehicles could be a whole different matter though, especially if they end up making a really good semi).
 

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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.
I would buy the Mach E sans a dealer if it was possible.

We have too little data to compare direct sales vs dealer because it really hasnt been a thing till recently. However it doesn't appear Tesla owners complain about the purchase process. Complaints usually revolve around the servicing of the vehicle. Service centers dont have to be Dealerships.
 

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There are a ton of complaints online about the Tesla delivery process:

Delivery appointments changed several times.

Car not there when the customer arrives.

Car not charged and customer not allowed to charge at the delivery center.

Car not washed.

Walk-through process rushed.

Customers told to accept issues found on walk-through and they will be fixed later. This leads to more stress on the service centers because these problems should have been fixed at the factory.

Paperwork wrong. Incorrect VIN, wrong configuration, trade-in not shown, ect...

Registration paperwork not completed. Customers have had to stop driving their cars because their cars were not registered.

Supercharger referral credit not issued.

There are others. Everyone brags about Tesla as a technology company but a great company would use technology as an organizational tool.

I was ready to order a Model Y until I started to research Tesla and the customer experience. My local Tesla service center is horrible. There isn't another service center close. Jaguar, Audi, and Mercedes all disappointed on price and range. I'm so glad I waited as the MACH E checks all the boxes for me.
 
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There are a ton of complaints online about the Tesla delivery process:

Delivery appointments changed several times.

Car not there when the customer arrives.

Car not charged and customer not allowed to charge at the delivery center.

Car not washed.

Walk-through process rushed.

Customers told to accept issues found on walk-through and they will be fixed later. This leads to more stress on the service centers because these problems should have been fixed at the factory.

Paperwork wrong. Incorrect VIN, wrong configuration, trade-in not shown, ect...

Registration paperwork not completed. Customers have had to stop driving their cars because their cars were not registered.

Supercharger referral credit not issued.

There are others. Everyone brags about Tesla as a technology company but a great company would use technology as an organizational tool.

I was ready to order a Model Y until I started to research Tesla and the customer experience. My local Tesla service center is horrible. There isn't another service center close. Jaguar, Audi, and Mercedes all disappointed on price and range. I'm so glad I waited as the MACH E checks all the boxes for me.
You are 100% correct, coming from a Model 3 owner.
 

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High profit margins per car? Can you post exactly the profit margin? Something is wrong here. The expensive versions are sold first then the lower cost ones arrive because Tesla needs the money right? The $35,000 Model 3 never appeared because they could not produce it without losing money? The gross on the S and x models is way greater than the 3 model but sales are way down meaning less money. Tesla stock fell to below 200 a share in 2019 based upon concerns about profits or lack of. There have been calls for an investigation of Tesla stock in just the past month
 

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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.
You can't directly compare gross margin versus other manufactures, since Tesla has to pay for its own sales and service staff. Also, the average sales price is above the average car sales price, they are not selling budget cars.

As a percent of gross vehicle sales, for 2019 Tesla's cost for sales, general and administrative is notably higher than Ford's. That even includes the advertising Ford does.

Selling in the premium market they are doing well, but the question for the future is how much market is available there.
 

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Not a Tesla fan at all ( I only like the model S), but somehow it feels like samsung fans calling apple bad. For now it looks like Tesla is the apple in the EV business... Tesla being able to incorporate the dealerships in their supply chain the cut out the profit margin the owner of the dealership takes home. Looks like a smart business model to me. EV’s don’t need nearly as much oil and sparkplugs changed, so there is less business case on a dealership?
 

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Selling in the premium market they are doing well, but the question for the future is how much market is available there.
No. The question here was that Tesla's direct sales method is/will fail. The empirical answer for the last 10 years has been the opposite, it has been an overwhelming success for Tesla.
 

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Tesla is the apple in the EV business
Exactly! Well put.
so there is less business case on a dealership?
Tesla Service Centers are jammed packed with cars that “will never need service” with 2-3 week out appointments. There’s no drive in for a quick service lane. Tesla could use something like that. Be cool if Ford did that. Car is doing something weird you drive right in and “What’s that” which will likely be something it was supposed to be doing and away you go.
 
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