Tesla direct sales; the real problem is cracking the door open for others

When the rubber hits the road, what is the problem dealers have with Tesla’s direct sales?  Publicly they claim Tesla’s direct to consumer model won’t provide the dealer support we Americans have come to expect.  Looking at the competitive landscape, I don’t see it that way. Compared to other brands selling limited volumes, “dealering up” isn’t Tesla’s problem.  That is, assuming regulators let them.

Tesla CEO Elon Musk’s has a proclivity to invest in infrastructure and there is no reason the OEM can’t roll out full service dealers as they grow volume and geography.  Access to capital has not been a problem, to date.  It will be a new hit on profits that investors need to look into, but it’s a viable alternative.  In the end, this argument goes back to Ford’s experiment with “direct-dealing” in the 1990’s.  U.S. dealers don’t want Tesla to crack the door open for the likes of GM, Ford, FiatChrysler or the Asian volume makes.

Tesla currently has around 50 retail locations and service centers nationwide. Take a look at the comparison to a few other automakers.  To be fair, many of the Tesla showrooms are merely storefronts in malls or on luxury strips.  However, their hard service stores are where the sales are.  They don’t have a lot tied up in prospective service.

To match the likes of Audi, Lexus or Infiniti, each who sell in the neighborhood of 150 thousand a year, Tesla would need to open  150 additional full service dealers.  Based on traditional costs, that would be an investment of roughly $700 million to $1 billion. That’s a lot, and I think underestimated by many company watchers — add this to the questions on forward-looking R&D.  But given Elon Musk’s track record, not insurmountable.

Tesla Dealer and Service Centers May 2014

Aston Martin US Dealer locations(May 2014)

Porsche US Dealer Locations (May 2014)

Maserati dealer locations (May 2014)

 

Does a customer really car who invests to build the service center?  Arguably he current model of OEM-dealer relationship hasn’t built the most efficient or trust-inspiring sales method.  High end dealer have a bigger reputational risk in providing poor service or shifting blame to OEMs, and not surprisingly they are the most trusted in customer service surveys.  So far Tesla has not met competition head on.  The first real competition is hitting the market with the BMW i3.  I think Tesla may underestimate how much it may take to run a competitive dealer network to BMW, but they can.

Bottom line:  Last month, I wrote tongue-in-cheek that Tesla religion”ists” should offer up capital for a stand-alone, zero-profit distribution company to help out the company,  More seriously, it’s important to understand that deep down, dealers realize that Tesla selling direct is not the demon,  The sin would be cracking the door open for one of the volume makes.  Some smaller dealer groups see this as an existential battle and I don’t see it being settled nationwide shortly.  Meanwhile I am confident that Tesla has a plan B and will have a more fleshed out sales and service network, either direct or a close third-party.

In the end, the real question on Tesla is sustained demand for Model S in the short-term.  It’s been pretty flat in the US, and erratic in Europe.  As we wait for Q2 real production on Model X, Asian interest needs to translate into hard volume orders in in Q2 2014.  Production at 7,500 per quarter, fulfills the order book in 3-6 months, and de-bottlenecked production to 10,000 per quarter would leave them with too much capacity i the short-run.   Would the company hold back production t to maintain a backlog?  Bring on the Model X.

Other issues to watch include the recently raised question of R&D forecasts and as I noted above, increase in SG&A needs.

Industry Communications : Shale Energy Deniers: This Post Is Going to Really Annoy You – Businessweek

http://mobile.businessweek.com/articles/2013-10-23/shale-energy-deniers-this-post-is-going-to-really-annoy-you#r=hp-ls

Great analysis. Interesting how facts support the energy industry’s clear concise consistent message.  This is what I have in mind when I differentiate between PR and communications.  Subtle but clear.

The  US department of energy DOE acknowledges energy independence is feasible.  Soon,  desirable!   

Energy policy. Unacceptable? Boone on OPEC

Watch “Boone at SAFE Conference on OPEC Oil Embargo + 40” on YouTube

Everytime I hear a politician, pundit or business  leader say that dependence on OPEC oil is unacceptable I wonder. If  not, why are we accepting it?

Words are much easier than hard work. Boone Pickens has a financial stake in what he’s preaching.  But in this case I believe it less talking his book than putting his money where his mouth is. 

Brazil, Mexico and trading cars — FTA’s don’t always work exactly as planned

The Brazilian auto market grew ever so slightly in 2011, but imports share of the market spiked up 480 bps to 23.6%.  So, in a market up a mere 3.4% in 2011, locally produced passenger cars were down 6.6%.  That’s gotta hurt in an industry used to seeing steady double-digit growth for the past decade.  And it’s a concern for the development of the local supply base.

Where they coming from?  One might think cheaper Asia, but also look North with the recently enacted FTA with Mexico.

Imports from Mexico have tripled since 2007, and in 2011 alone, they rose by 40% to $2 billion, while Brazil exported just $372 million worth of vehicles to Mexico.  I’ve commented in the past on the “piling in” of global automakers to Brazil, but at the same time, the list of automakers

SMALL RULES: Some thoughts on the Detroit Motor Show — OK, the North American International Auto Show

It started when I picked up my rental car.  Since when was a Ford Focus a “mid-size?”  Since we had a of 55 mpg federal CAFE regulation staring us down.  This set the mood for the most important point of the Detroit Show.  Small is the new Big.

By the time I hit the floor on Monday, the Ford Fusion was the most talked about car in the show.  The focus used to be a compact car, but on Ford’s C/D segment, it’s now big enough to go head to head with the big dogs – Camry, Altima, Accord and Malibu – and after looking it over, it looks great.  Bottom line is that it will compete and with Fords attention to features and packaging, I expect they will be able to hold pricing and make the car reasonably profitable.  Also I am a big fan of the MyFord Touch® and competitive systems, I think Ford is at least one generation ahead, and GM and Toyota are hot on their heels, but that is another article.

GM showcased

Crises and the Yen: opportunity and tasks

The last time the yen dipped below 80 was in 1995, the year I started working at Nissan in NY as head of US IR.  Little did I know how closely I would follow the currency (especially for my personal finance during the five years my family lived in Japan).   As the dollar soared and exchange rate topped 140, Detroit CEO’s and US policy makers repeated the mantra that we needed a fair rate of 105¥/$ to level the playing field.  Over this time, the J3 (Toyota, Nissan and Honda) racked up record profits as FX swung wildly.  But take note, even with the collapse of the dollar over the past three years, Japan automakers weathered the global storm relatively well.  The fact that they could deliver profits

Changes? at the top? @Renault.

Tomorrow, Renault will announce a “new” management structure featuring a new and improved CEO position. According to reports in the French Press, Carlos Ghosn will take more control of corporate functions including legal, HR, public affairs and real estate.  I really don’t get the real estate function oh well —  as for the others functions, he was already ostensibly in control prior to the recent spy scandal that cost the prior COO his position but the French government has insisted on something concrete to tout.  Two names have surfaced so far regarding changes within Ghosn’s inner circle,

US Auto production didn’t hollow-out. It just went south this millennium.

The myth that US manufacturing has withered has been woefully, umm, mis-estimated. The latest UNido report on manufacturing shows the US in the top slot, making 19% of all goods globally. The big news is that China overtook Japan for #2.

The US story is a geographic and demographic shift. It’s not only retirees heading south, it’s companies looking for hospitable environments. I recently left a company that touted its move as a raise for employees – no state income tax and it wasn’t only employees enjoying better tax conditions. Also the cost and quality of life for workers has been a draw to southern states like Texas, Alabama, South Carolina.

US auto output is up nearly 40% from the 1980’s to