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Referrals

Discussion in 'Model S' started by AC123, Aug 6, 2015.

  1. AC123

    AC123 Banned

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    #1 AC123, Aug 6, 2015
    Last edited: Aug 6, 2015
    I was thinking this over. Referrals are nothing but a disguised way of lowering the price of Model S.
    Tesla gets $2k lesser for each referral, but they still have the cost of stores, employees, etc. etc.
    Anyone buying a Tesla today can find a random referral code by a simple google search.
    Effectively speaking, everyone is paying $1k less, or $2k less if you are in VA.

    To be precise, they get $1k lesser, and $1k as deferred losses towards the future, so it doesn't affect their Q3 results as much, but is effectively borrowed money from the future to the tune of $10 million per quarter. Additionally, due to the introduction of ModelX, and lower production numbers, it is pretty much a foregone conclusion that Q3 will suck, and Q4 profitability is also highly questionable.

    Thoughts?
     
  2. spentan

    spentan Active Member

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    I was just thinking about it,

    Doesn't it mean that they don't really need stores/galleries in the states they're not allowed to sell in? There is more interest for people to refer new buyers, and that way the only purpose of the store is to see it physically.
     
  3. AC123

    AC123 Banned

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    Well its a temporary program. If you really think word of mouth referral will replace stores, then sure!
    I really doubt that'll happen though. A lot of my friends ask me for test drives in my cars, and I tell them to arrange one with the manufacturer.
    I just don't want the a) Rough handling they'll do, and b) Insurance hassles, issues in friendship in case they damage the car.
    I'm sure many are different, but for $1k (my interest) vs. $25K (tesla's profit), I'd rather see Tesla take the headache of test drives.

    So, I don't feel the referrals are going to negate the need for stores.
     
  4. Blu Zap

    Blu Zap Grinning member

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    This is a successful program Elon had used at PayPal. He is using it here now.
     
  5. AC123

    AC123 Banned

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    Firstly, Paypal's program was, new customers got $10, existing ones got $10 for referrals. So Paypal paid $20 for every new sign up.
    Effectively speaking, for no 'purchase' on the customer's behalf, they got a free $10 for signing up.
    With Tesla, you get a discount of $1k on a $100K purchase.

    Secondly, Paypal tried marketing, and striking deals with banks. They tried referral after realizing that in that particular field (banking), given it's stoic nature, marketing and deals with established banks was far more expensive than $20 per new customer.

    I think the above two make Tesla's referral program quite different from Paypal.
    Now, Tesla's referral program may be quite succesful, as Elon said 'A demand generation tool'.

    But you have to ask, if they are production constrained, and not demand constrained, why are they throwing $10million away?
    Referrals are not going to replace stores.
     
  6. Blu Zap

    Blu Zap Grinning member

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    @AC123
    Good points. If they can't produce, why increase demand. The scale is bigger than PayPal, but the approach is the same.

    The reality is they are dumping more production resources into the Model X delivery later this year and giving up Model S volume production. They are better off bringing MX to market than meeting MS production originally quoted at the beginning of this year. We can all debate the wisdom of that position. But the fact is this will be a better long term positive effect vs. the quarter.
     
  7. danni

    danni Member

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    Sure, this will effectively reduce the price of almost every Model S sold. But if it can generate enough new sales on its own, that will offset the discount. And the more new sales, the more referrals further down the road, kind of like a snowball effect. I know Tesla owners are usually very keen on talking about their cars and showing them off, but this could take it a little bit further, maybe make people more inclined to give more test drives to friends, co-workers and even strangers who show an interest in the car, etc. It could work.
     
  8. AC123

    AC123 Banned

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    Well still, why do they need to generate more sales when they can't produce enough to meet that demand?
     
  9. Johan

    Johan Took a TSLA bear test. Came back negative.

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    They are afraid of a situation where they reveal the X, the X is great, everyone wants it, they have to ramp up so it takes time before they can build many X, due to people wanting X they stop ordering S which makes them (for a short period) demand constrained with regards to S (where production is up an running and can meet demand largely).
     
  10. brkaus

    brkaus Member

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    Potentially trying to make future decisions on how to deal with the non-friendly states? Might be significantly less expensive and show more results than lobbying. For the short/medium term anyway. Law they get more cars I. The road, I wound guess legislative solutions get less expensive (due to more public awareness).
     
  11. MacLeodMX

    MacLeodMX Member

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    Actually seems to me to be a way of sustaining model S sales through a period of time where you might see hundreds hold off on their order while waiting to see if the X is more awesome
     
  12. Andyw2100

    Andyw2100 Well-Known Member

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    I think the main point that no one has brought up yet is that this is an experiment, and during the experiment Tesla is willing to lose money in order to find out whether or not the plan is viable long-term.

    If Tesla can save some employee salaries and some costs associated with opening additional stores by shifting some of the sales burden onto its existing customers, why not do it? Musk acknowledged during the recent conference call that there were no savings while the experiment was running, but rather additional expense to having both systems operating in parallel. If the decision is made that the referral program is working, the cost savings will come in the form of employees not hired and stores not opened.
     
  13. AC123

    AC123 Banned

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    Good point Andy.
     
  14. ZachShahan

    ZachShahan Member

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    I think this is a big part of it. I haven't seen this reported well anywhere, but when I listened to the conference call, it seems very clear from Elon that the idea was to see if this program worked *as* cost-effectively as stories & such, with the $2000/car they'd supposedly spend otherwise just going straight to the Model S owners instead of sales staff & such.

    When Elon mentioned this "secret demand weapon" that would also get at dealers, I think he was clearly saying that 1) Tesla may actually need to stimulate more demand by the end of the year, and 2) this is a method that might help them deal with the crappy states of Texas, Michigan, Connecticut, W Virginia, and Arizona.

    I think it is quite logical based on Elon's previous comments that Tesla is getting to the point where it may need a demand booster. More so, I think there is a lot of uncertainty about people deferring Model S purchases while they wait to see the X, and the X cannibalizing S sales too much. So, I think this program was partially put in place as a hedge against that.

    In any case, I think it's a good test and a case of Elon thinking "outside of the box" to try to do things better. Referrals have also worked quite well in the solar space, which Elon is familiar with. (Aside from the obvious PayPal link.)

    - - - Updated - - -

    This, too.
     

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