The weak link for Tesla is the delivery experience. The car is great, ordering on line is fun, but whether it is the lack of updates/status, some people not getting a DS at delivery, wrong delivery windows...Tesla's delivery experience is sub par. Tesla really needs to do something about UPS if UPS is going to be handling the delivery logistics. Being in the dark and then getting a call one day before delivery seems to be a recurring delivery experience. This needs to be improved. People shelling out $90K+ for a car want and deserve better service and communication. Whether that requires Tesla demanding UPS be more forthcoming with delivery status updates or finding another delivery system, Tesla needs to get it right. Too many people are justifiably complaining about the delivery.
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How long will Tesla's current retail model be feasible?
- Thread starter Teslawisher
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- Tesla Inc.
Krugerrand
Meow
I'll try again, if you're willing to have a sense of humor and not take things personally. :smile:
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The percentage is not relevant. Tesla isn't trying to sell to everyone, or 50%, or 25%. If convenience is an issue, then that person won't buy a Model S and still Tesla will be fine. 20,000 people have already shown that convenience isn't an issue for them, with a couple thousand of those people having waited years.
Neither I, my spouse, nor any of our family members have purchased a car based on 'convenience'. That's a lot of cars over the years. I can't even think of a friend who's purchased a car based on 'convenience', but I'm sure there's someone out there who has. Point being, I question your claim of convenience being a very, very strong factor.
The dealership system is obsolete. It is a 19th century model in the 21st century. It is a model that arose out of a communication system that was measured in bits per minute, not gigabits per second, and when door to door cross country shipping was months, not overnight - and don't forget sending money across the country was a dangerous unreliable and slow affair that is now done in a millisecond.
If GM or Ford or Toyota could magically start from scratch and have no dealers I think they would do it in a heartbeat.
You think they want tens of billions of dollars of inventory sitting around for months? That they want to give up the customer contact and final sale and final profit to a 3rd party?
No way. They would have factory stores and they would invest in transportation and delivery to get the cars from the factory to the customer in as short a time as possible.
They would have some inventory on lots, but I think they would have a couple orders of magnitude less than they do now.
The customers would be better served, and get better product for their money.
If GM or Ford or Toyota could magically start from scratch and have no dealers I think they would do it in a heartbeat.
You think they want tens of billions of dollars of inventory sitting around for months? That they want to give up the customer contact and final sale and final profit to a 3rd party?
No way. They would have factory stores and they would invest in transportation and delivery to get the cars from the factory to the customer in as short a time as possible.
They would have some inventory on lots, but I think they would have a couple orders of magnitude less than they do now.
The customers would be better served, and get better product for their money.
I don't know. Toyota, Ford and GM are on a scale much bigger than Tesla is for now. As it is Tesla's delivery service is contracting with UPS and UPS isn't able to give real time status updates which is causing problems with customer dissatisfaction. Think UPS could handle something bigger than 20K deliveries a year?
Plus, it is one thing to be delivering cars strictly in the US and Canada. Even with that Tesla is having to deal with different laws in different states which is probably causing all kinds of headaches. Now imagine with Toyota, Ford and GM, they are delivering to countries all over the world. Not only do they have to do with shipping logistics, but now they'd have to deal with each country's laws and language. Further to be effective selling those cars all over the world, they'd have to learn each individual sales market and the preferences it has.
Then there is the servicing problem. Right now Tesla is severely undermanned. It cannot take care of all of its customers right now and how many of them are there at the moment? 3,000? The big boys are selling a million cars a year. It would be a great capital expenditure to set up a ranger service all throughout the world, and not to mention the headache of finding qualified people and/or training them in multiple languages and customs.
All of that is a daunting task. I think the dealership model works for the big boys. It allows them to concentrate on making the cars. It leaves all the sales details and servicing to all the dealers. Tesla can do what it is doing because it is small. And even then it is having problems. There is something to be said for the dealership model.
That's why the EU is a good idea (imho). Makes it much easier to sell in Europe. By making laws the same in all countries.
But to jump back to the "build to order" model for cars in Europe.
We are not used to lots full of cars waiting for a new owner. That is really capitalism and a waste of resources. So Imho Tesla should *never* go that way, since they are an ECO-friendly company. Having a big number of cars in stock just waiting for an owner is stupid.
The way of thinking about that should change. You might get lucky at some point that a car might be in stock due to a misconfiguration by somebody. But keeping cars in stock is a waste of resources and money. It's also very dangerous to have that on your companies balance.
Do I think that this way for Tesla is feasible? Yes! There is more then the US. Europe alone has 800 million inhabitants. When the first cars start rolling out here and the name Tesla starts to make traction then I think this can really work.
With eco-zones in big cities like Berlin and London you can sell your electric car inside an ECO-zone where most other cars aren't allowed to come. How cool is that?
No, dealers just add to the overhead. Might be hard for them middle-man who made his money this way, but hey, the world is changing.
Not talking about Tesla:
I'm not suggesting that the big boys do home delivery. I'm suggesting that the cars come from the factory to the factory store to be picked up by the customer at the store.
I'm not suggesting that they don't have brick and mortar - instead of GM having ~7000 dealerships, I suggest that they would have a few thousand factory stores. They would all be smaller because they would hold much less inventory.
The factory stores would have demo cars, sales staff and service staff. ( Sone of the ) employees that today work for dealerships would work for the parent company instead ( or be contractors ).
There is no reason to believe that dealerships are required for the big boys. Why do all the hard work of building the cars and then throw away a huge chunk of the profits? The ridiculous inefficiency of thousands of stores, tens of billions in inventory and massive dealer profits shows where the waste and lost profit ( to the manufacturer ) is in the industry.
Concentrating on investing huge amounts of capital to make product and then giving it to a ridiculously inefficient sales force is not what I would do. Having the dealers spreads some of the risk, but far too much of the reward.
Back to Tesla:
Tesla is understaffed. 3 months ago they hadn't generated significant revenue versus a massive outlay over several years. They are hanging on by the skin of their teeth. In the last 3 months they've probably generated more revenue from selling cars than they did for the entire rest of their existence. Another few months like that and they should be able to hire many more delivery specialists, service people and open more stores. To survive, they need early adopters to perservere through their growing pains.
kevincwelch
Active Member
I personally don't have any issues with the ordering process or the idea of the delivery process. After one admits that delivering a car is a little different from delivering a package or envelope (from Amazon, etc.), the concept of how they send cars to customers is not a bad one. I think the logistics of sending out vehicles across the country at increasing rates will present some challenges, but not ones that can't be overcome.
I see Tesla's two biggest problems at present being the service infrastructure, which is woefully inadequate right now, and compensating for a rushed batch of cars, which are beginning to reveal very functional problems. I'm not talking about problems affecting sunroof function or how to properly close the frunk, but problems that prevent the car from actually being a car. Early adopters may be able to put up with that a few times (once? twice? How many times before it starts to negatively impact social, occupational or personal functioning?).
Hiring competent Tesla staff isn't an overnight process, and it will take a few months before these new hires are up to speed and can accommodate the demand. But Tesla needs to simultaneously ensure that a better product is delivered. It won't matter how many service staff they have if that isn't fixed.
Interesting discussion. Let's think about it this way: what particular value does a local dealer bring to the transaction that the OEM doesn't?
If more on-hand stock is needed to show cars in different colors or configurations, local dealers are no better at providing this than Tesla. That's just a business judgment that someone has to make. Local dealer probably have a higher cost of capital to buy and hold this inventory, so it is probably more efficient for Tesla to retain ownership.
If more staff need to be hired and trained to deliver and service vehicles, local dealerships might have a bit of an edge in how to recruit local talent, but Tesla has better scope in being able to shift staff across regions and promote internally. Tesla can also plan ahead with better accuracy than 100 local dealers, and it can spread unitary FTEs with particular skills across many geographies, achieving an economy of scope that local dealerships lack.
In terms of advertising, in theory I would grant that local businessmen may have a better sense of what sells in their market. In practice, all locally sourced car ads I've ever seen are only a half-step above the early-morning TV ads for never-dulling knives and Medicare-funded mobility devices.
In short, I can't think of any element of the sales process where a local dealer has a comparative advantage over the OEM. The dealer has higher cost of capital, less management expertise, limited economies of scope or scale, and objectives (own profits, employment for neer-do-well family members) that is only loosely aligned with the OEM's objectives.
If more on-hand stock is needed to show cars in different colors or configurations, local dealers are no better at providing this than Tesla. That's just a business judgment that someone has to make. Local dealer probably have a higher cost of capital to buy and hold this inventory, so it is probably more efficient for Tesla to retain ownership.
If more staff need to be hired and trained to deliver and service vehicles, local dealerships might have a bit of an edge in how to recruit local talent, but Tesla has better scope in being able to shift staff across regions and promote internally. Tesla can also plan ahead with better accuracy than 100 local dealers, and it can spread unitary FTEs with particular skills across many geographies, achieving an economy of scope that local dealerships lack.
In terms of advertising, in theory I would grant that local businessmen may have a better sense of what sells in their market. In practice, all locally sourced car ads I've ever seen are only a half-step above the early-morning TV ads for never-dulling knives and Medicare-funded mobility devices.
In short, I can't think of any element of the sales process where a local dealer has a comparative advantage over the OEM. The dealer has higher cost of capital, less management expertise, limited economies of scope or scale, and objectives (own profits, employment for neer-do-well family members) that is only loosely aligned with the OEM's objectives.
The dealer brings their own capital and their own risk to the table. I'm going to toss off a guess and imagine it costs at least $5M to start up a dealership. You need land, a building, a hundred cars, staff, advertising, all that. I'm probably way lowballing.
If you want to build 250 sales points in the next year (5 per state), it would cost $1.25B. That's a huge sum of capital outlay for a company in a year. It would be impossible for Tesla. But there are probably 250 people with $5M in cash/credit with local banks who might put that money up for a franchise. If they fail, the manufacturer doesn't lose any money, the risk was all on the franchisee. If they succeed, the manufacturer gains sales. That's what franchised dealerships have to offer.
Now, this isn't what Tesla needs. They cannot possibly make the 25,000 vehicles it would take to stock 250 conventional dealerships while selling on to customers as well. They are purely supply limited at the moment, and so they don't need to take any particular steps to boost sales. Also, dealerships will do two fatal things to the business model:
1) Cut into the profit margin that is keeping the company alive
2) Put the customer relationship in the hands of someone else who might not have any loyalty to the company/customer experience.
If the dealer thinks "I can screw this customer for an extra $5k to me" they might do it. Who will feel the customer's anger? Tesla.
If the dealer thinks "I can sell this customer a Mercedes for $2k less and make extra margin" the customer might love their M-B, but Tesla lost the sale.*
So I don't think franchisees will help Tesla now, and by the time production is high enough to offer the surplus needed, they'll have the cash or credit to build that expansion internally.
*You could forbid franchisees from owning any other brand of dealership, but then either no one would buy in or only people who don't know how to run a dealership would buy in, and they'd screw other aspects of the business up.
If you want to build 250 sales points in the next year (5 per state), it would cost $1.25B. That's a huge sum of capital outlay for a company in a year. It would be impossible for Tesla. But there are probably 250 people with $5M in cash/credit with local banks who might put that money up for a franchise. If they fail, the manufacturer doesn't lose any money, the risk was all on the franchisee. If they succeed, the manufacturer gains sales. That's what franchised dealerships have to offer.
Now, this isn't what Tesla needs. They cannot possibly make the 25,000 vehicles it would take to stock 250 conventional dealerships while selling on to customers as well. They are purely supply limited at the moment, and so they don't need to take any particular steps to boost sales. Also, dealerships will do two fatal things to the business model:
1) Cut into the profit margin that is keeping the company alive
2) Put the customer relationship in the hands of someone else who might not have any loyalty to the company/customer experience.
If the dealer thinks "I can screw this customer for an extra $5k to me" they might do it. Who will feel the customer's anger? Tesla.
If the dealer thinks "I can sell this customer a Mercedes for $2k less and make extra margin" the customer might love their M-B, but Tesla lost the sale.*
So I don't think franchisees will help Tesla now, and by the time production is high enough to offer the surplus needed, they'll have the cash or credit to build that expansion internally.
*You could forbid franchisees from owning any other brand of dealership, but then either no one would buy in or only people who don't know how to run a dealership would buy in, and they'd screw other aspects of the business up.
The whole stocking thing comes up again.
Is that really required? Do we want to see a lot full of Model S not being used just waiting for an owner? Do you actually want that with an EV due to battery degradation?
Does Tesla want that? Like said earlier it's a waste of resources (raw materials) and capital of just having cars waiting for a new owner.
Maybe Tesla also wants to change that way of thinking in the US? You can't wake up on Saturday morning and think: "I'm going to buy a Model S today!" and have a Model S 6 hours later.
At volume, the wait period may not even be a couple of months. You can get you allocation spot and go from there. Telsa will just need to build the pipeline based on forecast and not actual orders. i've ordered Mercedes, Audi and Ford. If a car in production can fit my needs (not too far along to have the options I want added), I get that car. I've had that take less than 3 weeks from order to deliver. Otherwise, I just get an allocation and wait a month or two at most.
Mindsets will change. I order my computers direct from the factory online. Why pay for a Best Buy?
Mindsets will change. I order my computers direct from the factory online. Why pay for a Best Buy?
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Great point. There would have to be power available for every parking spot. Given the way dealerships are always moving cars around you pretty much would want a plug always available.
Gives pause to see those pictures of 100 Model S' outside the Tesla factory. You have to know they are very aware of the old vampire load issues.
... but they're also used to overnight and two-day delivery instant and semi-instant gratification.
And given how the dealers have ruined many Prius 12V batteries by either keeping them hooked up to a trickle charger and cooking them or letting them go flat and then just giving them a quick charger before they sell the car (and the battery dies shortly thereafter). I'm not confident that a Tesla delivered by a dealer won't have problems (more problems than a Tesla delivered by Tesla, that is).
But that would be possible without going the dealership route. All you need is some regional stockpiles of pre-built cars that can be delivered to the customer in two days if they wish. I think something like that is a much more likely possibility than traditional dealerships.
Exactly -- if Tesla maintained a small inventory of popular variants at a handful of regional centers, it could offer impatient buyers a quick delivery with a modest restocking fee, or a lower cost for people willing to wait for a custom-built car.
stopcrazypp
Well-Known Member
I think servicing is a bigger concern than delivery in terms of logistics. As far as the model, as long as there are enough people who accept the online shopping model vs. immediately buying a car at a location that's not going to be an issue.
And I think the amount of people who are used to online shopping will only grow. There's a reason why CompUSA, CircuitCity stores closed and BestBuy isn't doing too well (people are using the stores only to test out products and then buy online for cheaper).
And I think the amount of people who are used to online shopping will only grow. There's a reason why CompUSA, CircuitCity stores closed and BestBuy isn't doing too well (people are using the stores only to test out products and then buy online for cheaper).
