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Can an exclusive Tesla dealer survive?

Discussion in 'Cars and Transportation' started by elecblue, Nov 2, 2013.

  1. elecblue

    elecblue Member

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    I was thinking about the TX dealer laws and what residents in TX need to go through in order to buy a Tesla, and that got me thinking about the financial model for an auto dealer. Specifically, if an exclusive dealer could survive. The dealer would need to be exclusive to TM or there would be reduced incentive to sell TM cars (i.e., why sell the EV is ICE cars generate more revenue).

    Here are the major revenue sources for a dealer and my thoughts about the applicability to Tesla:
    1. Selling the car above manufacturer's invoice==> For a dealer to get revenue, either TM would need to lower the cost of the car to the dealer (bad for profits and therefore investors); or increase the price of the car over invoice (bad for consumers). So, this wouldn't work well.
    2. Selling options for new cars==> this basically fits into #1 above - the same principles apply, so this wouldn't work either.
    3. Servicing Teslas==> When Teslas are under warranty the dealer would need to get reimbursed by TM for the service cost. The price of parts for reimbursement would need to be increased (presumably) for the dealer to generate revenue. Again, bad for TM profits so this is not a good choice. When Teslas are out of warranty then the dealer would generate revenue. However, since currently the service centers are designed by TM to generate no profit, then compared to the current situation the dealer would need to raise the price of either/both parts and labor, compared to where they are today, so again bad for the consumer.

    I'm sure there are other significant revenue sources for car dealers that I'm not listing here. However, my conclusion is that compared to the current business model if Teslas were sold through dealers it would be disadvantageous for either TM, consumers, or both.

    Is there more to this - something significant that I'm missing? Can anyone think of a practical way that a Tesla dealer would make money and it would be good for the dealer, TM, and consumers alike?
     
  2. Shumdit

    Shumdit Member

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    I think the dealers argument is that they are members of the local community and support it. They also feel an obligation to not be considered a crook I guess too, but I think overall your opinions are pretty much spot on. I doubt Tesla would benefit from selling to a dealer and then having them mark it up since it would lower their margins. The dealer would tell you it could create competition where they could then allow you to haggle on price, but I still think the transaction price would be higher the the current sales model.
    Really, the only advantage I could see is more exposure for the product since Tesla does not have stores outside major markets and that some buyers are so used to the old (not necessarily better) dealership model that they would have less anxiety about ordering a car like you order a laptop online and schedule service in a different manner then they are used to. I do wonder if Tesla will be able to reach sales volumes they are projecting/hoping to see on the Gen III without a more traditional dealership model though.
     
  3. RobStark

    RobStark Active Member

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    The only way it will work IMO is Tesla gives a single company exclusive rights to All of Texas. No price shopping or pitting one dealer against another.

    Tesla gives dealer a discount but dealer commits to a quota and to have stand alone Tesla dealerships.

    This only makes sense for Tesla once production bumps up to demand constraints.

    If Tesla can sell an extra car in Florida, Germany or Australia directly instead of the Texas dealer then it makes sense to sell directly outside of Texas.

    Once Tesla is filling worldwide demand outside of Texas and still has extra production capacity then it makes sense to have a Texas Tesla dealership.
     
  4. Shumdit

    Shumdit Member

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    I think that situation in Texas shows exactly how corrupt and flawed our system of government has become. Whoever can spend the most on lobbying seems to have the upper hand.
     
  5. ItsNotAboutTheMoney

    ItsNotAboutTheMoney Active Member

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    Yes. I think it's a logically obvious answer. If a dealer can't make money, Tesla can't make money.
     
  6. ggies07

    ggies07 Active Member

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    It really sucks. One of the lawmakers on the committee that voted no to the bill this year has his own dealership. How that doesn't count as conflicting interests and he's able to vote on the issue is beyond me......corrupt politics. Because of this law, I basically tell everyone I know or run into about our circumstances so that the word can be spread that this is not right.
     
  7. sp4rk

    sp4rk Banned

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    Think of the fortune that can be made from servicing ... oh, wait. Scratch that!
     
  8. richkae

    richkae VIN587

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  9. brianman

    brianman Burrito Founder

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    The 2008 data point is interesting, especially when looking across all 3 charts.

    "Can't afford a new car. Don't value an old car. Must repair current car."
     
  10. elecblue

    elecblue Member

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    Interesting 2nd chart - I hadn't thought of selling used cars for a net profit but of course that would be an obvious source of dealer revenue. However, according to the 3 major revenue source charts, if you took away net profits from new cars and parts/service (which would be equivalent to the current TM model) and are only left with used car net profits, then the dealers would probably not be making enough profit to stay afloat.

    With the largest share of profits coming from parts/service, it's a no-brainer that the current dealership model is not a good deal for customers.
     
  11. TylerCA

    TylerCA Member

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    Highly doubt Tesla would go this route as it will be reducing their margin. On the other side of the coin though, is if Tesla runs into some form of financial instability, then they may consider this as a last resort. Franchise fees and license, immediate inventory, etc will generate immediate cash flow for the sake of lower margins.
     
  12. RobStark

    RobStark Active Member

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    At some point Tesla supply will match demand from existing Tesla markets.

    If the choice is between selling cars in Texas, Arizona, and whatever other state bans direct sales through dealerships or not at all I think Tesla would rather sell those vehicles at a lower margin through dealerships than not at all.

    Texas P85+ customers may go through the hassle of buying a car out of state but I think you will lose a lot of potential Model E buyers and even more for future Teslas priced below the Model E.
     
  13. PokerBroker

    PokerBroker Member

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    I think there is a good chance that Model E waiting times will be significantly longer than Model S. Elon regularly says they are supply constrained, not demand constrained and I don't see that changing with Model E. I fully expect the legal issues to be sorted out in the next three years but if they don't there will be plenty of people in Texas willing to get in line online. A $35,000 car is still a relatively affluent purchase.
     
  14. RobStark

    RobStark Active Member

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    The average transaction price for a 2012 new car was $31k. $35k is not that far off. By 2016 or 2017 the base price of a Model E may be equal to or lower than the average transaction price of a new car.

    Yes, at first there will be long waiting periods for the Model E. But not forever. That is no way to run a business.

    The supply constraints are battery constraints. That was the whole point of the new battery deal with Panasonic. And it looks like they are looking for new capital for the Giga Battery Factory. It was reported they discussed a major investment with a huge S. Korean Pension Fund. They were turned down but the point is they are looking NOW.

    I hope the legal ban is either sorted out and the will of the vast majority is carried out in the various state legislatures.

    Or the US Supreme Court uses the Commerce Clause to strike down these laws.

    But I don't expect it. Certainly you can't make a business plan expecting 100 years of legal precedent to be upended.
     

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