Elon's demand "secret weapon" ...what is it?

[Room_A113]

Or from post 33 ...I'll go with a massive worldwide dealership distribution agreement with Apple. Overnight, every Apple Store will become an authorized dealer, CarPlay included. ..

Thanks! I hadn't seen that.

The only difference with my idea is that Apple would not be selling Tesla vehicles. Apple would be demonstrating its software, and a Tesla vehicle would just happen to be the platform upon which Apple would be demonstrating their software. This would avoid the problem of a manufacturer owning a car dealer.

The benefit for Tesla would be that the millions of more people would have easy access to test drive a Tesla, and the benefit for Apple would be to get more people interested in CarPlay software (even if the person chooses to buy CarPlay in another vehicle brand).

For the record, the state laws that prohibit manufacturers from owning dealerships don't care, in the examples I've reviewed, whether (a) the cars are new or used, or (b) whether the manufacturer is selling its own cars or other manufacturers'. This knocks out some of the ideas kicked around so far.

In my scenario Apple is not selling any Teslas. Apple would only be demonstrating its software. Apple thus could in no way be considered to be owning a car dealership, and thus would not be violating any state law. I'm sure it would be challenged in court, but that would take time and IMHO such a challenge would backfire against the dealership cartels.

 

[jhm]

I think this excerpt covers the section you are referencing.

from http://seekingalpha.com/article/290...arnings-call-transcript?page=2&p=qanda&l=last

Elon Musk
Yes, exactly. If we are producing and I would say 800 Xs a week, and if - several weeks it’s like several thousand cars. So it’s just really - it’s really tricky to predict it from - I can much easier predict like next year. Assuming people like the car, that’s where you start to see, yes, I don’t know, 40,000, 30,000 40,000 at least. Maybe, 50,000, let’s call it 30,000 to 50,000 Xs next year.
Rod Lache
Okay. And clearly up until now as you pointed out, you’ve been able to hit all these numbers without any advertising and marketing.
Elon Musk
And no endorsements, and no discounts.
Rod Lache
Right, to get…
Elon Musk
We haven’t paid anyone to pretend that they like our car.
Rod Lache
Right, and…
Elon Musk
Which is a very important point.
Rod Lache
And no franchise dealers and you know all these things that you know - people had said that you might need to do, you’ve been able to do it without any of them. But I’m just curious about kind of longer-term to get to the volume objectives that you are looking for this year and beyond, is - are all of those in your view achievable while avoiding the franchise dealer model, while holding back on advertising and marketing and while in some cases even raising prices for example, in Europe to adjust for currency or any of those impediments to the demand objectives that you have and would you modify the strategy in any way to achieve these volume numbers?
Elon Musk
I think we’re going to be okay on the demand side for this year. I mean maybe something changes next year but I think we’ll be okay and I don’t think we’re going have to do a bunch of advertising or [indiscernible] with the dealers or anything like that this year and or discount the cars or anything like that. So if I - I do want to emphasize that whenever you feel like a celebrity or some prominent person driving our car they all paid full retail. There was no discount. We didn’t give them the car, they are buying the car and they are driving because they really believe in the car, not because someone paid them to pretend that they do. So we may give them credit for the people [indiscernible] brought the car. So yes, I think we - I do have a secret weapon on the demand side that will probably start to deploy later this year for demand generation. We’ll see how that goes. It isn’t totally necessary but I think and it could be pretty interesting, I could [indiscernible] dealers.

Thanks for the full quote. I've reduced it a bit here to show that the context of the "secret weapon" comment is clearly about advertising, discounts and endorsements not being needed to generate demand. I love how Musk says bluntly, "We haven't paid anyone to pretend they like our car." Specifically, Musk is saying that celebrities pay full price for the car, and no one has paid them for any sort of endorsement. Then immediately Musk says that he has a secret weapon that may start to deploy later this year. Within this tight context, I suspect that Musk knows that certain celebrities are reservation holders. These unpaid celebrity endorsdments may well be the secret weapons the Musk has in mind. They will start to deploy as deliveries are made to these celebrities. We may well see red carpet photos with the Model X falcon wing doors taking center stage. What celebrity would not want to be seen with one of these beauties when they arrive for the Oscars or Grammys? Who's made the list? It's a secret. You're going to have to wait to see.

 

[Hogfighter]

You know what would be great?

In exchange for promising to give Tesla back my battery pack, they provide free maintenance for the life of the car. BOOM!!

 

[v12 to 12v]

Thanks for the full quote. I've reduced it a bit here to show that the context of the "secret weapon" comment is clearly about advertising, discounts and endorsements not being needed to generate demand. I love how Musk says bluntly, "We haven't paid anyone to pretend they like our car." Specifically, Musk is saying that celebrities pay full price for the car, and no one has paid them for any sort of endorsement. Then immediately Musk says that he has a secret weapon that may start to deploy later this year. Within this tight context, I suspect that Musk knows that certain celebrities are reservation holders. These unpaid celebrity endorsdments may well be the secret weapons the Musk has in mind. They will start to deploy as deliveries are made to these celebrities. We may well see red carpet photos with the Model X falcon wing doors taking center stage. What celebrity would not want to be seen with one of these beauties when they arrive for the Oscars or Grammys? Who's made the list? It's a secret. You're going to have to wait to see.

I got a completely different impression.

In the Q3 earnings call, as they reinforced the message that there was no demand issues, it was stated that Tesla has multiple "demand levers" they could pull at any time they choose. In Q4 they reinforced the message again with statements in the Earnings Call and the Shareholder Letter supporting the fact that they simply cannot make or deliver enough cars to meet that demand due to various supply, delivery and production constraints.

The "secret weapon" message sounded like it was something that would shock or blow away dealers, so I expect a very unconventional and creative "secret weapon".

A simple demand lever that Tesla could pull towards the end of the year is a Model 3 preview and they could begin to take deposits for special editions and production cars. But, everyone knows that Tesla used that method previously, so I doubt that could be considered a "secret weapon" that would blow away dealers.

I get the impression that Tesla buyers are not the type that would be influenced by celebrity and glitz either.

 

[bayrower]

That is still a dealer. Once there is even one dealer, every state will stop Tesla direct sales.

Yes, the point is exactly for it to be a dealer in those states.

I am not sure why every state would then require dealerships unless you are suggesting it will be political and laws would be passed, but even if true then set up a national coop structure then.

The key is that it is economically neutral.

And the principles of how it operates are set in the governance.

Though I would need to understand more

- - - Updated - - -

@bayrower, welcome to TMC, and thanks for the great idea. I've looked at most of the states' laws that prohibit Tesla from selling direct, and I'm nearly certain that your approach would work. In MA Tesla was able to meet the letter of the law merely by setting up a wholly-owned sub, Tesla Motors Massachusetts, but other states' statutes are a constructed so as not to allow such an easy workaround. I suspect the chief issue would be one of control, whether the co-op was just a shell for Tesla or whether it was actually independent.

It is amusing when wholly owned subs aren't covered under legal definitions of control. Of course, Ireland benefits most of the major tech and pharma companies on this with the double Irish tax structure, but they do it willfully.

What needs to be understood is what controls are necessary for the coop to have to be independent. Frankly, Tesla is concerned about receiving their profit, and making sure their sales principles are followed, that great service is provided, etc. I think that can easily be handled. The governance of the coop can be set in advance as well. If there was a change of control (as suggested in the earlier post of demutualization) then the relationship can get severed at Tesla's determination.

The tricky part is that Tesla will receive less for each car, and the coop will mark up the price of that car to handle the distribution piece. The sum of those two should be the same as current MSRP. Service can just be handled as an economic relationship too, and again all profits get rebated back to the customers, perhaps as REI does as a percentage of the revenue each customer had there.

One could go even further and make this whole thing a non profit!

Like REI, it should create great loyalty knowing that your service is being performed for cost (though service tends to be a large profit center for dealers, and perhaps manufacturers like Tesla, so losing control of this revenue stream needs to be carefully considered. Perhaps there is a licensing fee for equipmentt etc that gets sent back to Tesla, or Tesla performs certain activities)

By doing a coop where profits gets sent back to customers, you avoid setting up a system where customers never feel good about different prices, as there is no incentive to do the aggressive destructive price negotiations. Saturn tried that too, so the legalities of that need to be understood.

 

[austinEV]

Secret weapon theories

Every time EM suggests there is a secret coming, the what-if needle goes from zero to crazy on these forums. It is sort of entertaining to air out ideas, but the reality always turns out to be the most boring down-to-earth theory, or even something so boring no one thought of it (the original financing announcement comes to mind).

1) Its not a truck. We need to stop with the truck talk. A truck would either require a 4x battery pack (lose half efficiency for larger size and poorer aerodynamics and lose half again for towing). Either that or they release a truck with an 'asterisk' on its specs, where it is dramatically lower range if you try to tow something. I figure the truck is 2022 at the earliest!
2) Its not Apple-as-dealer. Dear god no. As others have pointed out, that makes zero sense for Apple and it doesn't even solve any problem for TM.

Applying the what-is-the-most-boring test I get these results:
1) A legal push to appeal to the interstate commerce clause and get the dealership laws ruled unconstitutional.
2) An ad campaign. Really that is probably it. They have always said that is the thing they don't dare to do while production constrained, and they always could if there is a risk they aren't. TM cannot grow forever without doing any demand creation. Whether it is this year, or 2017, or 2020 eventually they will advertise how great their cars are and establish a branding message. They certainly wouldn't want to roll out advertising AFTER they needed it for demand, so I reason they will plan to start ads sometime in the next year or two. It makes sense to get the branding out before the industry does it for them!

Reading between the lines, EM said they have never paid anyone to pretend to like their products. Indeed, people are filling Youtube with viral videos and slickly produced commercials. TM could do a campaign that slickly features the user content that has already been created to show how loved the product is. So in effect, they are building an ad campaign around the unpaid, unsolicited material. Then they will follow up with some more expressly conventional ads that describe the products (that is what I hope they do).

Ether 1 or 2 matches the comments and makes sense. But, I think its #2.

 

[HankLloydRight]

Every time EM suggests there is a secret coming, the what-if needle goes from zero to crazy on these

OMG, truer words have not been posted on TMC.

1) A legal push to appeal to the interstate commerce clause and get the dealership laws ruled unconstitutional.

Well, they do serve a legitimate purpose to keep auto manufacturers from coming in and undercutting the franchised dealerships with higher overhead, so I don't think that part can be blanket ruled as unconstitutional. It's just that the laws as written inadvertently also prohibit direct-to-consumer sales in some states as currently interpreted. There would need to be a push to have these laws better clarified, to allow open and free market competition, which is what the dealers are shaking in their boots over, but still protect them from the auto makers from undercutting them.

 

[tomas]

Applying the what-is-the-most-boring test I get these results:
1) A legal push to appeal to the interstate commerce clause and get the dealership laws ruled unconstitutional.
2) An ad campaign. Really that is probably it. They have always said that is the thing they don't dare to do while production constrained, and they always could if there is a risk they aren't. TM cannot grow forever without doing any demand creation. Whether it is this year, or 2017, or 2020 eventually they will advertise how great their cars are and establish a branding message. They certainly wouldn't want to roll out advertising AFTER they needed it for demand, so I reason they will plan to start ads sometime in the next year or two. It makes sense to get the branding out before the industry does it for them!

.

Agree not truck, though I hope they eventually do. Been talked out of apple... though disagree on a few of your points (it makes a ton of sense for Apple... and Tesla could get a lot out of it... but really not interested in an argument).

With all due respect, legal push just doesn't match the words "we'll do a little of it if we need to". Legal strategy - particularly federal - is an all or none. And, I don't believe even EM is naive enough to think that it could be done on a schedule. That could take 5 years - give or take 15.

Ad campaign? They've done great without it, and I don't know what it would ad (sic).

I still don't think we (collectively) have guessed. But I do think batting the "what-if" needle around between zero and crazy is a bit of fun... nice exercise to think outside of the box. And a few people will get to say "I told you so".

 

[1208]

"So yes, I think we - I do have a secret weapon on the demand side that will probably start to deploy later this year for demand generation. We’ll see how that goes. It isn’t totally necessary but I think and it could be pretty interesting"

I interpret this as a weapon to get more people to buy the car. So it is either a weapon to get people who can't afford a Tesla to buy one or a weapon to get those not currently interested in EVs to buy one.

 

[v12 to 12v]

The more I think about it, there is something that would strongly influence demand positively, bowl over the dealers and fulfill an existing need for current owners.

What is a dealership's gravy? Service and parts.
What is one of the first things a potential new buyer wants to know? How much will it cost to maintain or fix an exotic car.
What do the owners need to know in the near future? How much service and parts will cost them once their warranties are over.

I do know that Tesla has been really analyzing some of the cars that have been on the road the longest. Tesla has to be getting an idea as to what maintenance will cost in the future and the frequency. I think we are going to see something that has to do with a service and maintenance plan or general pricing established. I think it is going to be surprisingly inexpensive and shock dealers and owners alike. If it is great, owners will start talking to everybody about how great this program is because they will all have big Tesla grins.

Elon has hinted for a long time that he was going to have a huge service program related announcement. I'm well over two years into my four year warranty and this is something I need to know about. I have no idea what it would look like but if it is right, it could be a coup.

How is that for a hat trick?

 

[Lloyd]

What is a dealership's gravy? Service and parts.
What is one of the first things a potential new buyer wants to know? How much will it cost to maintain or fix an exotic car.
What do the owners need to know in the near future? How much service and parts will cost them once their warranties are over.

I recently had my son's 325i at a BMW dealership for a warranty repair of the airbag. They talked my son into a $299 whole car evaluation. They came up with almost $8000 worth of repairs needed.

I took the list to a local independent and had everything done on the list for $1650. I will never take any car to a dealership again if I can help it!

 

[Jhall118]

I'm thinking referral program!

 

[tomas]

I'm thinking referral program!

That would be good, but that's not it. It's not something you "start to roll out". It's binary, you either have a referral program, or you don't.

 

[ecarfan]

@v12 to 12v, I think you are on the right track. Elon did say last year that a major announcement related to Tesla service was coming. The dealership model would be destroyed if Tesla in some way guaranteed that total service and repair costs would be some very low figure over say, for example, a 10-year period from new. I do believe that Tesla has come a long way towards reducing product failure rates (EV drivetrain, charging system, etc.) in just the past two years. Put it all together and that might be his "secret weapon" against the dealers. It would be very appealing to car buyers to know there was a vehicle choice that offered minimal maintenance requirements AND guaranteed low repair costs for normal use (accidents obviously excluded) over a long time period.

I do know that Tesla has been really analyzing some of the cars that have been on the road the longest. Tesla has to be getting an idea as to what maintenance will cost in the future and the frequency. I think we are going to see something that has to do with a service and maintenance plan or general pricing established. I think it is going to be surprisingly inexpensive and shock dealers and owners alike. If it is great, owners will start talking to everybody about how great this program is because they will all have big Tesla grins.

Elon has hinted for a long time that he was going to have a huge service program related announcement. I'm well over two years into my four year warranty and this is something I need to know about. I have no idea what it would look like but if it is right, it could be a coup.

 

[austinEV]

@v12 to 12v, I think you are on the right track. Elon did say last year that a major announcement related to Tesla service was coming. The dealership model would be destroyed if Tesla in some way guaranteed that total service and repair costs would be some very low figure over say, for example, a 10-year period from new. I do believe that Tesla has come a long way towards reducing product failure rates (EV drivetrain, charging system, etc.) in just the past two years. Put it all together and that might be his "secret weapon" against the dealers. It would be very appealing to car buyers to know there was a vehicle choice that offered minimal maintenance requirements AND guaranteed low repair costs for normal use (accidents obviously excluded) over a long time period.

That feels like something that would mess up their financials even more. I think they have to account for the future value of the existing warranties. So if they extend them a lot or (god forbid) forever they would have to earmark more cash to this future expense. Even if TM had reason to believe that these future costs would be low it would take years to validate that. In the meantime it would look like they had thrown hundreds of millions into the fire, from an accounting perspective. Someone correct me if that isn't so.

 

[flankspeed8]

@v12 to 12v, I think you are on the right track. Elon did say last year that a major announcement related to Tesla service was coming. The dealership model would be destroyed if Tesla in some way guaranteed that total service and repair costs would be some very low figure over say, for example, a 10-year period from new. I do believe that Tesla has come a long way towards reducing product failure rates (EV drivetrain, charging system, etc.) in just the past two years. Put it all together and that might be his "secret weapon" against the dealers. It would be very appealing to car buyers to know there was a vehicle choice that offered minimal maintenance requirements AND guaranteed low repair costs for normal use (accidents obviously excluded) over a long time period.

One major problem with this is that it does require what could be considered a critical mass of service centers. How far should a less urban driver be required to drive for a service appointment? People from Iowa have to have their cars flatbeded to the Mpls or Omaha (is it open yet) service center. Saw in another post that it was a 3 week wait to get a 12v battery replaced. This has to change and the only way is to massively build out a service network. That will probably not come cheap. As much as the ICE manufactures absolutely suck, the one thing they have is location, location, location. Early adopters will put up with a lot, but not having close by service could be a psychological deal breaker for some. Tesla is trying to force a paradigm shift. I hope people are just as ready to adapt.

 

[bonaire]

Just came to me while reading the thread. What would work against dealers?

A personalized at-home test drive reservation. Ranger type service arrives at your home with a Tesla and lets you do a drive at your convenience scheduled to cater to your needs. Not needing to go into a dealership and go out of your way for a test drive. Maybe integrate it somehow with Uber black owners who drive Teslas where Tesla pays them a fee for allowing use of their car for the drive.

 

[jhm]

I don't suppose anyone here has heard what Joss Whedon's next TV series will be about. A group of awkward 40somethings time travel in a Model X battling an evil cartel called AI and its dealers who are bent on keeping the world addicted to fossil fuels. Juliet Landau and Alexis Denisof are being considered for principal roles. Joss would really like to use Elon for the the voice of AI, which you never really get to see.

 

[rjcbox]

I recently had my son's 325i at a BMW dealership for a warranty repair of the airbag. They talked my son into a $299 whole car evaluation. They came up with almost $8000 worth of repairs needed.

I took the list to a local independent and had everything done on the list for $1650. I will never take any car to a dealership again if I can help it!

We had a similar experience w/ a local dealer vs. local repair shop with 2 vehicles over past year. The local shop took me in back, showed me each item that I reported that needed repair/replacement based on dealer's recommendation. It was then obvious that each of the items either never needed repair/replacement or were very premature advised replacement. Dealerships are so slimey. Avg dealership nets 800k/year and half of that profit is from their own service department. Service manager receive bonuses base on what they bring in for company

 

[alexeiw123]

My guess is that international production of vehicles will begin, allowing of course for more deliveries to be made in a shorter timeframe. Perhaps a RHD factory in Europe or Australia. A bit out of the US dealers reach.

My wish (being Australian) is that the soon to be disused Holden factory could be bought, retrofitted and provide a lot of employment. What got me thinking about this was Malcolm Turnbull's recent visit to the Tesla Factory in California. It's unlikely but in some ways it seems ideal.