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How long will Tesla's current retail model be feasible?
- Thread starter Teslawisher
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- Tesla Inc.
Tesla's dealership model is unsustainable
I realize this is a bit of an inlammatory thread title, and while it is my opinion, hear me out and I think you might see some reason to my madness.
It's no secret that some people are having issues getting their Model S delivered in what they feel is a reasonable time frame. I'm sure that Tesla is getting better at this, and of course launching an all-new car from essentially an all-new company at volumes it has never before experienced, is no small feat. There are likely to be glitches.
But there's going to come a time, I believe sooner rather than later, where it makes no business sense for Tesla to continue to operate their distribution methods using the "Apple Store" blueprint.
Consider that Tesla has aims to sell 20,000 Model S cars a year. That means delivering nearly 55 cars a day. Every day, Sundays and Christmas. Considering that Tesla has to staff a sales department to handle all the logistics one car at a time, arranging for delivery of each car individually (some going out one car on a truck), how much money are they spending doing this? Already it has become clear that the current staff is unable to keep up with the order rate. And this is not even counting all of those who are handling the initial order taking, with all the labor that entails.
In order to sell this many cars, their dealership numbers need to be expanded. Each store has to be uniquely built by Tesla, staffed, and filled with sales and service materials. All of that costs.
If Tesla succeeds, and they move on to the volume model due after the Model X, how in the world are they going to handle all of this business in-house? If the volume model sells at even 50,000 a year, that's nearly 140 cars of that model alone, to arrange sales and delivery for. At those kind of sales numbers, it is going to be mandatory to have inventory at the dealerships. A large majority of people are not going to want to place an order online and wait. And Tesla simply won't be able to ship these cars out one or a few at a time. It doesn't make economic sense. The Chicago Tesla store barely has any room for inventory. Better shell out for a new facility. And consider that a volume model is going to generate a lot of trade ins.
Simply put, at some point Tesla is going to realize that there is a sound business case for letting established dealerships handle all of this work for them. They already have the facilities, and they can handle all the paperwork and delivery on site, at the point of the sale. This will allow Tesla to just focus on turning cars out and shipping them in large batches to the dealerships, to keep as inventory.
I just don't know of any distribution system that operates at scale that can do so efficiently in a single step manner. There's a reason you don't buy toilet paper by calling up Charmin and ordering twelve rolls to be shipped directly to your house. It's wildly cost inefficient for Charmin to distribute that way.
I realize that Tesla is trying maintain control over the sales and delivery process, in an effort to maintain standards. But really you could have a bad employee/experience even in that situation. I also realize that the Apple stores are the model they're going after. But consider this: these days you don't have to go to an Apple store to buy and iPhone. You can get them pretty much anywhere. Why the change? For that matter, I don't even know where the nearest Apple store to me is.
I think as Telsa succeeds and matures, they're going to have to eventually sell through the traditional dealers, especially with the kinds of goals they have. It doesn't make economic sense not to. If they keep turning out great product, they may find they have a lot of interested parties. How that would affect their challenge to the dealer laws, I have no idea. It could get complicated. Which is why I think it will happen sooner rather than later.
Discuss.
I realize this is a bit of an inlammatory thread title, and while it is my opinion, hear me out and I think you might see some reason to my madness.
It's no secret that some people are having issues getting their Model S delivered in what they feel is a reasonable time frame. I'm sure that Tesla is getting better at this, and of course launching an all-new car from essentially an all-new company at volumes it has never before experienced, is no small feat. There are likely to be glitches.
But there's going to come a time, I believe sooner rather than later, where it makes no business sense for Tesla to continue to operate their distribution methods using the "Apple Store" blueprint.
Consider that Tesla has aims to sell 20,000 Model S cars a year. That means delivering nearly 55 cars a day. Every day, Sundays and Christmas. Considering that Tesla has to staff a sales department to handle all the logistics one car at a time, arranging for delivery of each car individually (some going out one car on a truck), how much money are they spending doing this? Already it has become clear that the current staff is unable to keep up with the order rate. And this is not even counting all of those who are handling the initial order taking, with all the labor that entails.
In order to sell this many cars, their dealership numbers need to be expanded. Each store has to be uniquely built by Tesla, staffed, and filled with sales and service materials. All of that costs.
If Tesla succeeds, and they move on to the volume model due after the Model X, how in the world are they going to handle all of this business in-house? If the volume model sells at even 50,000 a year, that's nearly 140 cars of that model alone, to arrange sales and delivery for. At those kind of sales numbers, it is going to be mandatory to have inventory at the dealerships. A large majority of people are not going to want to place an order online and wait. And Tesla simply won't be able to ship these cars out one or a few at a time. It doesn't make economic sense. The Chicago Tesla store barely has any room for inventory. Better shell out for a new facility. And consider that a volume model is going to generate a lot of trade ins.
Simply put, at some point Tesla is going to realize that there is a sound business case for letting established dealerships handle all of this work for them. They already have the facilities, and they can handle all the paperwork and delivery on site, at the point of the sale. This will allow Tesla to just focus on turning cars out and shipping them in large batches to the dealerships, to keep as inventory.
I just don't know of any distribution system that operates at scale that can do so efficiently in a single step manner. There's a reason you don't buy toilet paper by calling up Charmin and ordering twelve rolls to be shipped directly to your house. It's wildly cost inefficient for Charmin to distribute that way.
I realize that Tesla is trying maintain control over the sales and delivery process, in an effort to maintain standards. But really you could have a bad employee/experience even in that situation. I also realize that the Apple stores are the model they're going after. But consider this: these days you don't have to go to an Apple store to buy and iPhone. You can get them pretty much anywhere. Why the change? For that matter, I don't even know where the nearest Apple store to me is.
I think as Telsa succeeds and matures, they're going to have to eventually sell through the traditional dealers, especially with the kinds of goals they have. It doesn't make economic sense not to. If they keep turning out great product, they may find they have a lot of interested parties. How that would affect their challenge to the dealer laws, I have no idea. It could get complicated. Which is why I think it will happen sooner rather than later.
Discuss.
How has Amazon.com been able to survive without contracting out to Walmart? Dealerships are wildly inefficient and have tens to hundreds of cars sitting on lots collecting dust at times. That can be millions of dollars of cars sitting there on the lot that if they don't sell, must be discounted in order to move. Tesla sells cars only to people who have already ordered them so basically no inventory. Tesla also can create many small footprint stores in malls for the cost of one traditional large scale dealership. They still have a monumental task on their hands, I'm not denying that and they definitely need to hire many more people now and definitely in the future for the Gen III car.
(This is not directly to Matt but shared with all "Tesla naysayer futurists")
Like so many future investor statements about Tesla and what Tesla will be able to sustain, this one also presumes that Tesla is keeping everything the same. It assumes first that Tesla will keep the same count of factory employees, stores, service centers, Rangers, and Delivery Specialists.
Worse, it also assumes that Tesla is blind, living in a cave, chained to the wall wearing headphones.
Like that clever Seeking Alfa author is the only one in the world who thought Tesla should (fill in the blank here) or Tesla will go under.
When the truth is, Tesla is usually about 10 steps ahead (Supercharging) of what everyone else what even talking about.
I think selling 200 cars a day with 200 stores in the US would be cake.
Like so many future investor statements about Tesla and what Tesla will be able to sustain, this one also presumes that Tesla is keeping everything the same. It assumes first that Tesla will keep the same count of factory employees, stores, service centers, Rangers, and Delivery Specialists.
Worse, it also assumes that Tesla is blind, living in a cave, chained to the wall wearing headphones.
Like that clever Seeking Alfa author is the only one in the world who thought Tesla should (fill in the blank here) or Tesla will go under.
When the truth is, Tesla is usually about 10 steps ahead (Supercharging) of what everyone else what even talking about.
I think selling 200 cars a day with 200 stores in the US would be cake.
Living in Texas there will be no Tesla employee involved in the delivery of my car. While I'm disappointed in that, it's not a deal breaker and it's a very scalable process that way. Also, reading the forums, it sounds like many people in states with no legal barriers have chosen to have their cars drop shipped without a DS there in the interest of expediency. As Tesla works through some of their remaining quality issues this process only becomes more feasible. Stores (or "Galleries" in Texas) are for getting people's attention and interest. The Internet and telephone are for ordering. Service Center Delivery, drop-shipping through a car transport company, and, when feasible, having a DS handle it are how cars are delivered. Three very different things, all scalable.
A traditional dealership model would disappoint me. This will be the first car I've ever gotten that is configured exactly the way I want. For other car companies, the dealers configure what they think will sell and the buyers have to hope that some dealer in the area happened to configure what they want, which rarely happens. I hope Tesla never goes to that model.
A traditional dealership model would disappoint me. This will be the first car I've ever gotten that is configured exactly the way I want. For other car companies, the dealers configure what they think will sell and the buyers have to hope that some dealer in the area happened to configure what they want, which rarely happens. I hope Tesla never goes to that model.
One of the big reasons I am purchasing a Model S is because it doesn't go through a horrid dealer. Right now there has to be a bit more one-on-one then will be needed in the future. I suspect somewhere down the road the cars will be delivered with a Getting to Know Your Tesla video and a paid option to have a one on one session(s).
Each DS should be able to handle an average of 3 to 3.5 deliveries per day (not counting the in-store and factory deliveries). So that's 15 per week. Put another way, each DS brings in $1,200,000 per week of sales (assuming the average car is $80,000 before taxes).
Let's say the deliveries are only to 25 states (as some states will have no deliveries in any given week). So at 30,000 cars a year, and 40 working weeks in a year (vacations, training, etc. take 12 weeks easily) that's 750 cars per week, spread over 25 states, or 30 cars per state per week which would require two DS to do. If half the cars are delivered at the stores and the factory, that means it will take 60,000 cars a year to reach the capacity of two delivery people per state. (I'm not even counting the problem states where there are no delivery people).
I don't see this being a problem. Even at 300,000 cars a year that's only 20 DS per state.
Each DS should be able to handle an average of 3 to 3.5 deliveries per day (not counting the in-store and factory deliveries). So that's 15 per week. Put another way, each DS brings in $1,200,000 per week of sales (assuming the average car is $80,000 before taxes).
Let's say the deliveries are only to 25 states (as some states will have no deliveries in any given week). So at 30,000 cars a year, and 40 working weeks in a year (vacations, training, etc. take 12 weeks easily) that's 750 cars per week, spread over 25 states, or 30 cars per state per week which would require two DS to do. If half the cars are delivered at the stores and the factory, that means it will take 60,000 cars a year to reach the capacity of two delivery people per state. (I'm not even counting the problem states where there are no delivery people).
I don't see this being a problem. Even at 300,000 cars a year that's only 20 DS per state.
Zzzz...
Member
If this statement is correct, then I would agree, Tesla will eventually need independent distribution network.
But I'm not sure if that large majority would not like to place build to order configuration and wait couple months...
Sorry for duplicating an already existing thread. Shoulda looked further...
For what it's worth, I don't think Tesla is blind, nor stupid. And I don't know who Seeking Alfa is, so I don't get that reference! But I think I know what you mean. :wink:
I think I am like a lot of you here. Any time I have bought or inquired about a car, I have always known exactly what I wanted. In EVERY case without exception I knew more about the car in question than the salesperson did. I acknowledge that even a simple cash transaction at a dealership turns into a several hour chore. And that car salespeople have a lower approval rating than members of Congress.
You all knew you wanted a Tesla, and what it should look like. But the average person doesn't buy cars the way you or I do. They go to the dealership to see what they have. They like to see a bunch of different ones, in different colors. This is maybe changing as people become more internet-savvy, but to be honest it's astounding to me sometimes how little people care and know about cars, even the ones they buy and own. And a lot of it is done on impulse. Dealers have a few hundred cars in stock because when you sell a few hundred a month, you can't afford to run low on selection.
Like I say, not everybody wants to wait. And it used to be that you could order a car to your specification. I think you still can, but it's not done too much anymore. I think the Japanese started that, "Here's what we've built, pick from that." Turns out to be more cost effective. Personally I would never buy a car that wasn't exactly what I wanted, I don't mind searching or going a distance.
When you start selling at volume, you encounter a lot of these non-enthusiast kind of buyers, who literally don't know or care what they're buying. When you tell them, "Well go online and put your car together there and then mess around with all the paperwork and in a few months your car will arrive," they may very well decide it's just too much trouble and look elsewhere. Especially given that Tesla doesn't really have an efficient system for handling trade-ins. Buying a car online is a bit more complicated than buying a book online.
In any case, it's just my feeling on it. I could turn out to be wrong, I'm not afraid of that; I've been wrong before.
For what it's worth, I don't think Tesla is blind, nor stupid. And I don't know who Seeking Alfa is, so I don't get that reference! But I think I know what you mean. :wink:
I think I am like a lot of you here. Any time I have bought or inquired about a car, I have always known exactly what I wanted. In EVERY case without exception I knew more about the car in question than the salesperson did. I acknowledge that even a simple cash transaction at a dealership turns into a several hour chore. And that car salespeople have a lower approval rating than members of Congress.
You all knew you wanted a Tesla, and what it should look like. But the average person doesn't buy cars the way you or I do. They go to the dealership to see what they have. They like to see a bunch of different ones, in different colors. This is maybe changing as people become more internet-savvy, but to be honest it's astounding to me sometimes how little people care and know about cars, even the ones they buy and own. And a lot of it is done on impulse. Dealers have a few hundred cars in stock because when you sell a few hundred a month, you can't afford to run low on selection.
Like I say, not everybody wants to wait. And it used to be that you could order a car to your specification. I think you still can, but it's not done too much anymore. I think the Japanese started that, "Here's what we've built, pick from that." Turns out to be more cost effective. Personally I would never buy a car that wasn't exactly what I wanted, I don't mind searching or going a distance.
When you start selling at volume, you encounter a lot of these non-enthusiast kind of buyers, who literally don't know or care what they're buying. When you tell them, "Well go online and put your car together there and then mess around with all the paperwork and in a few months your car will arrive," they may very well decide it's just too much trouble and look elsewhere. Especially given that Tesla doesn't really have an efficient system for handling trade-ins. Buying a car online is a bit more complicated than buying a book online.
In any case, it's just my feeling on it. I could turn out to be wrong, I'm not afraid of that; I've been wrong before.
Even with the GEN III, Tesla is never going to sell to the large majority, so I think that's a non-issue. When Amazon opened up, people said a something similar about getting it right away vs. waiting for a delivery. It hasn't seemed to hurt Amazon much though. Even though Toyota has dealers, for most of it's life people waited many months for delivery.
Al Sherman
It's about THIS car.
It seems to me that each store and service center could have a single car delivery guy with an enclosed car carrier, and maybe two Product Specialists who are also delivery specialists. All the cars could be delivered to the store, or service center and delivered there or at the buyers home.
Krugerrand
Meow
Does not matter to Tesla's viability.
Already there's been a trend for these types of people to change their minds about cars where the Model S is concerned, but again, does not matter to the viability of Tesla.
I get what you're saying, and it's typical of people to say; it can't be done that way long term, it won't work long term, etc... when they are faced with change and what they've known their whole lives. But what you've failed to realize is that in Europe, this is how cars are often sold...order the configuration you want and wait. So, on the other side of the ocean people do it 'this' way all day long and the sky doesn't fall and car companies are successful. The people of the United States of America often fail to realize they are not the center of the Universe (sorry, should have warned you to sit down before spilling those beans) and that people outside of the country think different and do things differently and that's not necessarily a bad thing. Tesla doesn't need to sell to everybody to be successful.
smorgasbord
Active Member
I think Tesla is getting a really good idea of how customers want to configure their Model S cars. When the time is right, they'll be able to have the most popular option/color sets available to satisfy the impulse buyers. This is what Tesla did with Roadster in mid-late 2011 (although for different reasons). You were also able to look into the production pipeline and see what was coming (Sport/non-sport, color, infotainment, etc.) and then make some changes (swap interior colors, add adjustable suspension, etc.) and still get your car quickly. That's what I ended up doing.
Did not know that about Europe, thanks.
I never said the sky would fall. Nor do I think the U.S. is the center of the universe, but your concern for my ability to stand is duly noted. Try that one again without the snarky tone.
Tesla doesn't have a dealership model. At least as I understand the word "dealership". You might want to retitle your post.
What percentage of cars are sold under this "order and wait" model?
Half?
25%?
It is a very familiar model in the high end car business in the US as well.
However, the convenience factor is very very strong. Europeans also can't shop 24hrs a day. The convenience of being able to get a car you want today, now, is high. Just like the ability to buy a quart of milk when you need it, not when the government allows you to buy it.
But why does TM need to become like the others? They don't. They must not become a mass car manufacturer. On the high end is where the margins are. Stay there. License the technology to those that want to make $25k EV but offer the white glove service to the others.
The problem is not that Tesla lacks dealerships.
The problem is that Tesla has not built the competency to perform customer-satisfying "doorstep" deliveries at the current rate.
Delivery is one of Amazon's key strengths. Unlike Amazon, from the beginning Tesla has had to build the actual items they sell and clearly that was the first priority. As a Tesla supporter, I hope they crack the delivery nut -- by changing the delivery model, building the competency internally, and/or finding partners who can execute it.
I don't believe this is a competency they must build internally.
The problem is that Tesla has not built the competency to perform customer-satisfying "doorstep" deliveries at the current rate.
Delivery is one of Amazon's key strengths. Unlike Amazon, from the beginning Tesla has had to build the actual items they sell and clearly that was the first priority. As a Tesla supporter, I hope they crack the delivery nut -- by changing the delivery model, building the competency internally, and/or finding partners who can execute it.
I don't believe this is a competency they must build internally.
When it came time to configure our car I had a hard time making the final decision. It would have been nice to have been able to go somewhere and see most combinations. We did go to the Fashion Island Newport Beach store. There was only one car and it was of limited help even with the attention of one of the employees. With that said, I am very happy with our car. The only thing I might have done differently is add the second charger to give us more flexibility on trips.
The delivery experience was just satisfactory--we picked up our car in the service bays at the Costa Mesa service center. We were at the end of a long day for the delivery folks there.
I think over time Tesla will refine the order and delivery process. At some point they will need to provide a stronger link to finance and leasing plus trade-ins.
The delivery experience was just satisfactory--we picked up our car in the service bays at the Costa Mesa service center. We were at the end of a long day for the delivery folks there.
I think over time Tesla will refine the order and delivery process. At some point they will need to provide a stronger link to finance and leasing plus trade-ins.
Delivery isn't really Amazon's competency. It belongs to Fedex and UPS. Amazon has figured out how to integrate with those partners to appear seamless. Amazon has also cleverly worked within the structure of those shipping companies to get maximum efficiency.
As you said, Tesla needs to build that somehow. As long as they are supply constrained they don't actually need to do anything. Once they get past that point, they need to develop methods to increase sales, which include offering more models, offering more options, adjusting prices, opening additional sales channels and improving the customer experience with fast CTO deliveries, faster deliveries, better scheduling, etc.
There's convenience in going to a stores and buying stuff, but increasingly people are shopping online because it's much cheaper. You buy milk from a store because it's much cheaper than having it delivered. A car is more like a TV than milk because it's a low turnover item. Online from a warehouse is cheaper. Even cheaper is making them to order. The only thing a buyer needs is a test drive, and that can be done with a lot less space, inventory and manpower than dealers currently have.
They would go into mass production because there's more money to be made. Daimler's making $2B per quarter, but GM's making $1.5B and that's with $1B losses in Europe. The key difference will be that Tesla will continue their build-to-order model. Flexible manufacturing, Internet ordering. They're actually set up pretty well to add a low-cost secondary product.
If they can get delivery time down to a week or two I think that will be plenty good for most customers. They can even throw in some sort of deal where if you purchase a Tesla, they'll negotiate with your insurance company to ensure a rental car for the time until delivery if you are purchasing to replace a totaled or severely damaged vehicle. That would cover people who claim they must take immediate delivery because they don't have alternative transportation.
