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

tesla serivceWhen 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. Takechart 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

Tesla Dealer and Service Centers May 2014

Aston Martin US Dealer Map (May 2014)

Aston Martin US Dealer locations(May 2014)

Porsche US Dealer Locations (May 2014)

Porsche US Dealer Locations (May 2014)

Maserati 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 jdptrust-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.

Fiat’s UK-style revival plan faces Italian hurdles

Fiat’s UK-style revival plan faces Italian hurdles.

With Fiat’s global volume around 4 million, and Alpha selling about 125 thousand average over past decade, am I missing something?  So you fix Apha an get it back above 200 thousand annual production, if everything goes well.  Not sure how this improves Fiat brand position with the balance of 3.5 – 4 million incremental cars.

Someone needs to communicate what this Alpha led revival is meant to be.  Sooner or later, we need to get beyond the “deal.”

PSA, an existential outlook. UG or not UG

psa

Will PSA be here as a company in 5 years.  Sure it will, as a brand, company and equity.  But in what way shape or form seems to shift each day.  Six months ago the market was pretty hedged on that question, a couple of weeks ago they seemed to have a plan.  After Philippe Varin’s comments this week on “alliances” fear is creeping back.  So, is there an existential threat to PSA at least as an invest-able vehicle?

Worries over the partnership with GM dying out are overblown.  The real cost savings PSA-RADD2012-EN_01_img_58have always been closer to 2017-2018.  At the same time, Opel and PSA do have a number of areas where they can cooperate. Mr. Varin made it clear that while the B platform is “under review” the B- and C-MPV projects are Continue reading

2012 US SAAR – Strong year, decent behavior, I was wrong

Early in 2012 I went out on a limb with a low-ball forecast for the US market of 13.5 million, I was way low.  2012 sales hit 14,49 million, 1 million higher than I saw coming.  Great news for automakers and particularly dealers — maybe some tough news for buyers looking for a deal.

Main underestimation:

  • Easier access to credit with all major OEM’s reaching back into sub-prime.
  • Increased consumer confidence with a steady increase in SAAR rate including a strong push at year-end.
  • Continued deals as GM and Ford fought to keep the volume if not the market share they gained in 2011 when the Japanese were hamstrung. Continue reading

Euro Auto Capacity Reduction: a snapshot and thoughts

Ford’s announcement today that the company will cut it’s Euro capacity by 15% or 350,000 units shows that Alan Mulally has shown the same courage he used to save Ford from the US auto bailout to his Euro operations.  Rather than prolonging the agony of Euro restructuring like so many other players, Ford has taken a decisive step.

Despite almost two years of bluster from continental players, no other make has closed more than one plant.  Even PSA, in its dire straights  Continue reading

Europe outlook: worry about 2013 not 2012

After spending the past 2 days talking with auto execs and investors in NY, it struck me as odd that the question of the day was “What’s your full year Europe outlook?” The real question is, what’s in store for 2013 in Europe.  It’s clear that the industry is in sync with a market down 6% for 2012, with more conservative companies looking closer to the 9-10% drop.

Clearly the drop is fueled by the Latin collapse in Italy, Spain and France and given July and August  — where France turned in a weak -11% performance — I think a negative 6-8% will remain the outlook, even through the Paris Auto Show at the end of this month. The real issue is not 2012.  I am hearing more and more concerns over continuing decline in Continue reading

Q2 2012 Global Auto Earnings: four not so obvious thoughts

While everyone is laser focused on the imploding European auto industry and we ponder the sustainability of the US volume recovery, there are a few things to keep an eye on that may not be top-of-mind:

1) Latin America: The meteoric growth of the Brazilian market has slowed to standstill and surrounding markets have stalled as well.  While the industry has expected the flattening market, a steep rise in  low-cost imports has created pricing pressure.  Companies like Fiat, GM and VW who had been enjoying the tailwinds of strong double-digit margins over the past decade will feel Continue reading