Build to order or Cars on lot?

[ElSupreme]

Right now Tesla is having people order cars, and then building them to order. This will probably be the way they operate into the 2nd half of 2013 based on pre-orders of Model Ss. Eventually they will probably chew through their pre-orders.

Do you think they will try to keep a 'build to order' business model? Or will they start producing units (based on their sales configurations) to put onto 'lots' or possibly inventory at their factory (or somewhere else)?

I have distinctly uncommon vehicle preferences and have always desired a 'build to order' method of car buying. And from experience it seems this is difficult to do as a consumer. I would prefer it Tesla kept this business model of 'build to order' with some minimal inventories, and of course dedicated test drive models to view in their stores.

So what method do you think they will pursue? What method do you prefer? What method do you think Tesla should operate? Inventory/Traditional 'buy off lot', or 'build to order'.

 

[ElSupreme]

Oh, here are my answers.

I think Tesla will try to avoid inventories for as long as possible, but will probably slowly change to inventories as their revenue's grow, and as costs drop. But will always maintain a 'build to order' preference, even for Blue Star.

I would prefer the 'build to order' model. I wish other auto makes made this easier. I know what I want, and prefer to get exactly what I want.

I think Tesla should pursue a path similar to the one I think they will. I think they will try not to inventory anything until a bit later (BlueStar). I think they need a small inventory (enough for 10% total sales) as I know a lot of people who buy a car once they see it.

 

[AnOutsider]

Many people want to drive home in their car, so having some "lot" inventory will probably help -- especially with impulse buys

 

[richkae]

Some customers don't want to wait and would rather be able to buy "off the lot" or get something within a day or two. Having inventory serves those customers.

Inventory is expensive. 1000 cars at an average of $75000 each is 75 million dollars worth of cars.

If Tesla has 40 stores worldwide sometime in 2013, thats only 25 cars per store. If they are selling 20,000 per year thats about 18 days worth of inventory. If half of the buyers buy off the lot, its 36 days worth.

Having some inventory also makes sure that the manufacturing is smooth. Tesla wants to make the same number of cars every day, every shift. They want the suppliers delivering on a regular schedule.

How many variations are there?
4 battery/drive types: 40,60,85, 85 sport
4 interiors/colors
3 interior accents
9 exterior colors
3 roof options
tech
sound
active air
twin chargers
Its about 20,000 combinations. There are probably realistically only about 300 variations Tesla would want to stock. Its still a lot of variations.

 

[strider]

Even with the limited Roadster production they built "spec" cars and had these available in inventory around their various stores. When my wife and I decided to buy they had a car that was exactly what we wanted (well, we upgraded the wheels) that was in the final stages of assembly. We actually got to watch our car being built and took delivery of it a week or so later. They would let you browse the inventory from all the stores and would ship cars around if you wanted a spec car that was at another store.

So I'm sure they will build spec Model Ss to have on hand.

 

[Robert.Boston]

So I'm sure they will build spec Model Ss to have on hand.

Yep, but as we saw from the spec Roadsters, you don't have to have a lot full of 25 variants. Car dealers routinely trade inventory around; when we bought our BMW, our dealer found a near-perfect match for our preferred configuration sitting in New Jersey and had it shipped up to Boston (at no incremental cost to us, though I'm sure we could have driven a harder bargain had we bought something on our dealer's lot). Since Tesla owns all the stores and all the inventory, this swapping around will be even easier. Keep 3-5 spec cars at each store (which also lets customers see colors more accurately).

I'm sure, though, that Tesla will always maintain the build-to-order option. At this price point, that's standard industry practice.

 

[jcstp]

Anyhow, they will need 2-3 cars for their showrooms, and 1-2 for test-drives!
If you really want your car immediately I guess after reservation-holders got theirs, delivering the showroom-models to eager buyers is easy I think!

In Europe most people order their cars to their personal taste. A car is no hairdryer you go buy in a supermarket one afternoon.

I think build-to-oder makes the most sense for tesla! And when there is a gap, they can make a special series in collaboration with one or other designer. (other interior upholstery, wheels, special paint-job or stickering )

 

[GSP]

Oh, here are my answers.

I think Tesla will try to avoid inventories for as long as possible, but will probably slowly change to inventories as their revenue's grow, and as costs drop. But will always maintain a 'build to order' preference, even for Blue Star.

I would prefer the 'build to order' model. I wish other auto makes made this easier. I know what I want, and prefer to get exactly what I want.

I think Tesla should pursue a path similar to the one I think they will. I think they will try not to inventory anything until a bit later (BlueStar). I think they need a small inventory (enough for 10% total sales) as I know a lot of people who buy a car once they see it.

Exactly the same as my answers, only worded much better than I would have done!

GSP

 

[dsm363]

I could see Tesla building a few cars and storing them in their big factory once custom orders slow down but as was pointed out, keeping a bunch on inventory around on lots would copy the old style car company's model.

 

[tdelta1000]

Exactly the same as my answers, only worded much better than I would have done!

GSP

agreed

 

[WhiteKnight]

Tesla's retail strategy will limit them to having probably no more than 2 cars in their showroom and 4-8 cars out in the parking deck for test drives. I don't think they plan to carry 20-30 cars in the mall parking lot and I'm not sure the mall wants that.

I would think the test drive cars should all be 85 kWh Performance models and they can electronically dial them back to whatever model the customer is considering. So as an example if a customer is considering the 40 kWh with normal suspension, the car can electronically dial back the power to go 0-60 in 6.5s instead of 4.4s and the active air suspension can be set to a non-active setting that approximates the manual suspension.

If somebody wants to buy one of the test drive cars then they can do that but I doubt they get a discount (maybe no delivery charge). But of course they don't have to wait. I do think that the $5,000 deposit will drop in the future to something more like $500 and the wait for a custom car will routinely be 2-4 months.

 

[Mycroft]

I agree that they won't be able to keep inventory at the mall stores. However, their new centralized service center locations in low rent industrial parks will be perfect for the inventory. All they need is a single sales guy and a small office at the service center and they can take referrals from the mall store.

 

[Cobos]

I agree that they won't be able to keep inventory at the mall stores. However, their new centralized service center locations in low rent industrial parks will be perfect for the inventory. All they need is a single sales guy and a small office at the service center and they can take referrals from the mall store.

Couldn't they simply do all the sales work at the store and "tag" the car at the service center as sold in their system. They print out a receipt of sorts and you go to the service center and pick up your car. Only difference is a quick walkthrough of the final car is done at the service center not the sales personel. Wouldn't that save a sales position?

Cobos

 

[WhiteKnight]

I agree that they won't be able to keep inventory at the mall stores. However, their new centralized service center locations in low rent industrial parks will be perfect for the inventory. All they need is a single sales guy and a small office at the service center and they can take referrals from the mall store.

That is a great point I had not thought of.

I think that ALL deliveries of cars will take place at the service center. You need to know where it is anyway. No reason to tie up sales people delivering cars that have already been sold.

 

[Mycroft]

Couldn't they simply do all the sales work at the store and "tag" the car at the service center as sold in their system. They print out a receipt of sorts and you go to the service center and pick up your car. Only difference is a quick walkthrough of the final car is done at the service center not the sales personel. Wouldn't that save a sales position? Cobos

Possibly, but I think it would be smart to have a sales gal/guy there. They can be in charge of setting up the test drives, helping to sell any cars that happen to be in inventory, and as WhiteKnight said, they could do the hand-off to new owners. They may even need two sales positions there eventually.

 

[WhiteKnight]

Possibly, but I think it would be smart to have a sales gal/guy there. They can be in charge of setting up the test drives, helping to sell any cars that happen to be in inventory, and as WhiteKnight said, they could do the hand-off to new owners. They may even need two sales positions there eventually.

Well they are opening 10-15 service centers by the end of 2012 and other than delivering new cars how much service are they actually going to be doing in the first year!? Hopefully not much. First annual checkups won't be until July 2103.

 

[dsm363]

I'm sure there will be things for them to do being their first car built on their own but I also hope they sit around for a year like the Maytag repairman.

 

[Mycroft]

In between dealer prepping new cars for owners, they'll be installing after-market upgrades, fixing boo-boos and holding training.

Hopefully I can bribe a tech to upgrade the music storage so I don't have to hang a USB device off one of the two ports.

 

[brianman]

First annual checkups won't be until July 2103.

Centurial checkups!

 

[Dan5]

I think they may have a few on hand to show to potential customers. The issue becomes if they tie too many up on lots, that's capital that's tied up.
I think no more than 10 per location, maybe showing off the different colors/ interior option combinations.
I remember back in the 70's for GM if you wanted something not on the lot, you had to special order it and they had to build the car to order and wait for it.
I found my old car receipt and the GM spec sheet when I was restoring it. The car wasn't "built" until after the order was placed.