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.

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Can Jim Cramer solve Tesla dilema; CramerTeslaAutos “a 0% margin dealer”

100780462-CRAMER-IN-TSLA.600x400The media narrative is predictable.  Elon Musk, the transformative latest incarnation of Thomas Edison, locking horns with the entrenched old economy model of the NJ Auto Dealers.  Musk is cool, he has a cool car, he’s a visionary.  NJ and other states surely must yield.  Right?  While I may agree with the Tesla model of new direct sales — I don’t see Tesla volume and positioning an existential threat to any dealer from AutoNation to the local mom-and-pop single point dealer.   I don’t agree with this in your face reply to the NJ dealer and politicians.  It may gin up support from those who already support Tesla, but it’s not going to work in the long run.  What if Musk turns to Jim Cramer and his hedge fund buddies for solution?

Auto dealers, while, not the most popular businessmen in perennial “trust surveys” hold significant clout in their local and state economies and political circles.  Dealer are the biggest donors in the sector, and they donate mostly on local issues.  Remember during the GM and Chrysler bailout we were reminded by the Car Tsar how the dealer networks were key employers of the million or so jobs at risk.

In addition to the “million” or so folks whose jobs are “at risk” there are the 99% of car buyers who view Tesla as an elitist brand.  Cool, but elitist.  Jim Cramer comes across as an any man, but at $100K a pop, Tesla is a rich man’s toy.  And I don’t need to remind anyone that while green is good, class warfare has been fomented to froth over the past few years.  How bad does a marginally employed tradesman feel for the hedge fund manager who can’t buy a six figure sports car?  Not!

Just a thought.  What if all these doctors, lawyers, marketing execs (one of my friends) set Back Cameraup a dealer group that sells Tesla at 0% for the company.  The meeting-of-minds with these financial titans should be able to configure a pass-through dealer model that can be funded through Tesla equity and or new Tesla product ownership derivatives.  Jim Cramer has been a major cheerleader for the group.  He can be the front.

OK, so slightly more seriously.  I am confident Tesla is working on creative relationships to transform the dealer experience at the same time as transforming the auto experience.  For those that detect a touch of sarcasm, I’m serious.  The last reform of the dealer structure was 20 years ago when Wayne Huizenga opened his first CarMax.

A hedge fund run dealer group is just one throught.  Apple?  Google?  Or maybe a viable future for JC Penny or Radio Shack. OK, sarcasm noted.

It’s Tesla, I’m just trying to think out of the box. 

Wall Street Tesla@elonmusk @jimcramer @madmoney

 

GM names Barra CEO; “bold and timid,” good luck

Luxury race to where

When I heard that the GM board had picked Mary Barra this morning, my gut reaction was different than most. It didn’t even dawn on my that they had picked a woman.  I thought about how they went with a 30+ year GM veteran.  So we have the first female head of a car company, great, now what?

gmAll morning we’ve heard the accolades and hopes.  Now that she has the reigns and the company is no longer constrained by government holdings, she has to prove herself the reformer she and her advocates say she is.  GM has a long way to go in throwing off the mantle of “government motors.”  To many insiders the moniker was as much an indictment on the bureaucracy and inefficiency of GM than the government shareholders we all knew were a losing investment.  

I liked GM’s move to ditch Chevy and focus on Opel in Europe last week.  Other moves including the relocation of International Operations out China seem more shuffling.

And don’t get me wrong, I have no issue with her being chosen over Mark Reuss, Steve Girsky or Dan Amman.  She has a strong engineering background has been through the ranks like any other vet and there’s no doubt she knows GM and the business.

The top centenders: Girsky, Amman, Barra, Reuss

The top contenders: Girsky, Amman, Barra, Reuss

Bottom line is that GM still faces some tough questions.

  • More and more competition from the same old foes like Ford and Toyota. But now they’re getting hit on the flanks from new US assaults from the likes of VW/Audi and Hyundai/Kia.
  • They still are too bureaucratic.  I love the story of her tossing the dress code, but what about streamlining sales/production and planning?  Have they overcome the real challenges bluntly laid out by industry maven Jerry Flint in 2000?  I hear conflicting reports from GM insiders and refugees.The bailout gave GM a new lease on life, I am cautious in the assumption that it gave them new DNA.
  • Finally, the real test for the industry and GM comes in the next 12-24 months as the US industry ends its run of double digit annual growth.  Crossing our fingers and hoping Europe turns is not a strategy.  It’s going to be the ultimate test of production and sales coordination.  We’ve seen huge strides in pricing power in 2013 at GM and  with most virtuous players.

But, I’m keeping an eye on building inventories, decreasing resale values and relatively low discounts;  If nothing else, she has a great environment to show her stuff.

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November US Auto Sales: the real data to watch at year-end

November U.S. auto sales are out tomorrow morning.  Get ready for hype of how many red 2-door V-6’s this automaker or that moved on Black Friday.  It’s not relevant.  I really don’t care whether the month tracked at 15.5 or 16.1 million SAAR.  We are closing on on the shift from a rapidly expanding market to a market where costs will automakers will have to control costs and command price.  

Here are three things to look at as the year ends.  More important than overall volume.

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  1. Inventories have crept up.  If December is a blow-out, +16 million, then this may adjust.  If it paces in mid 15’s.  Say 15.5-15.7, then I expect continued inventory build to be a worry.Capture
  2. Sub-prime lending is getting to aggressive.  If macro indicators are improving, Continue reading

Daimler Tesla – dating again?

c0ourtesy car & driver

courtesy car & driver

The on again, off again love affair between Daimler and Tesla seems to warming up again and Elon Musk and Tesla fans couldn’t ask for better timing.   At a press briefing in NY this week, Daimler CFO Bodo Uebber, confirmed he has urged his team to “learn more from Telsa

Early on, Daimler took a 10% equity stake in Tesla (since sold down to 4.3%), providing smart_evthe company not only with much-needed capital but two more important assets; legitimacy and orders for the SmartForTwo and B-Class.  Along with Toyota, Daimler hedged it’s entry into the electric market via Telsa with a smaller order for 2400 Rav4 E.

It strikes me as interesting that this comment comes on the heels of an announcement from Thomas Weber, Daimler’s Head of R&D that the company would deepen its relationship with Continue reading

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

Happy Birthday Mr Ackerson, I wish you GM price discipline!

GM’s Dan Ackerson turned 55 today.  For his birthday I wish him the gift of pricing silverado628optdiscipline.  He’s had a tough couple of years learning the ropes of the GM business.  Let’s hope GM has unlearned its volume for profit strategy.

Ackerson says he wants to boost the company’s North American margins bringing consolidated margins solidly into upper single digits.  He also said GM wants to raise US market share, building on the back of the new truck lineup.  So far, so good.  What’s worrisome is recent noise from GM field sales and dealers that they need more incentives on the brand new vehicles to meet those market share goals.   He needs to resist that temptation.

Yes, GM trucks are now priced higher than their Ford and Ram competitors.  Yes incentives will move volume and help them win some market share.  But the minute he puts that heroine needle back in to the vein of GM distribution, he’s well down the slippery slope of Continue reading