Comments on the strategy of Tesla

[smoothoperator]

After owning my roadster for some time now I have a couple observations about Tesla Motors. I have a couple friends who are engineers for Tesla and there seems to be a growing sentiment of engineering vs cost. In other words the bean counters are firmly in control. I have a feeling this will adversely effect future product development and they will be built to meet a certain cost rather than be engineered to push the envelope of what people think of when they think "EV." I can understand this is necessary to a certain extent when Tesla is trying to run a profitable business, but with the onslaught of EV's potentially coming into the market in the next few years, it seems like a bad idea to put out a stellar first product like the roadster and then have a bunch of lesser vehicles that will face stiff competition.

The "Company Store" model of Tesla motors cannot continue in its current iteration. Right now the boutique nature of a Tesla dealership works ok for a low volume sports car, but when the mass appeal models come out it will be impossible for Tesla to keep up with demand with its current dealership model. Tesla will have to "partner" up with higher volume dealers (as Fisker has) in order to maintain some semblance of customer service. It was a bad move in my opinion to go with this type of "Apple Store" model. When a person is looking to trade their ICE vehicle in for a Tesla Sedan how is that going to work? There is barely enough parking for 5 cars at my local Tesla Dealership with no room to expand. I really do not think these mass market Tesla EV's can be pushed through their current dealer network. Furthermore most of the customers who purchase a current Tesla Roadster have done tons of research and have pre-ordered months/years in advance. This will not be the case for the "mass market" EV's that Tesla plans to release. The store model that Tesla currently has looks to be brilliant on paper but in reality I do not see how it can be a functional "volume" dealership. Maybe Tesla will lease a bunch of warehouse space within close proximity to their dealerships, and buyers will be whisked away to these warehouses to select their car and complete the transaction.

The sales staff (at least the staff I have dealt with) really does not have much experience with car sales. I think at some point an experienced staff of sales people will have to be hired in order to sell these cars.

The more I think about it the more I feel that Fisker made the right move with regards to dealership network strategy.

Any ideas on how all this will work?

[Doug_G]

I have a couple friends who are engineers for Tesla and there seems to be a growing sentiment of engineering vs cost. In other words the bean counters are firmly in control.

Speaking as an engineer and a business owner, you have to take this sort of attitude with a grain of salt. Tesla is (rightly) hiring a lot of young and idealistic engineers, supervised by more experienced hands. Engineers tend to be perfectionists. They want to build the "ideal" and best possible machine. Rightly so, but as they gain experience they realize that there is much more to engineering than any one-dimensional goal. For example:

• There is a real, technical, and interesting engineering challenge to designing something to meet cost targets
• You'll never perfect a design, because all designs are compromises.
• In fact, all designs are a multidimensional optimization problem, including cost, reliability, manufacturability, maintainability, performance (range, speed, acceleration, maneuverability, ...), etc.
• If you try to design the perfect machine, you (a) won't succeed and (b) will probably fall far short of what you would achieve if you were more realistic
• If your company doesn't thrive, neither will you
• If your company doesn't survive, you lose your job

The "Company Store" model of Tesla motors cannot continue in its current iteration.

I don't see that. Clearly they need to scale up their operations for the Model S launch. Clearly, also, they can't do that too far ahead of launch.

What they are doing now is getting the people and facilities in place, with the existing Roadster customers as their training ground. Yes, as Model S rolls out they'll have to really ramp up their retail and maintenance operations. But it isn't time to do that -- yet. Right now they're scaled to handle the Roadster, and they can't afford to pay an army to sit on their hands and wait for the Model S to arrive.

[AnOutsider]

Not having any insiders into the company myself, I can only comment from my own observations.

--Watching costs: I'm not sure I share your sentiment here (well, I 100% don't, but maybe I misunderstand). To me, it would seem the cost-watching is more related to keeping the cost of the vehicle down so that pricing can remain competitive (after all, if this thing starts reaching Karma #'s on pricing, then it's going to make little splash when it arrives). As it stands, I already think Tesla has pushed the envelope on what an EV is with the S -there are no other EVs on the market, or near horizon that match it IMO. The leaf is weird, and short-ranged, coda is nearing vaporware and looks like a horrible econobox, Aptera is on unsure grounds, and isn't helping the image of EVs (IMO), and while the volt and karma are attractive cars, neither are EVs.

--Not sure judging how Tesla has things set up right now for a small-volume sports car and comparing it to how things will be when a true mass market offering comes out of their factories (bluestar?) is an apples to apples comparison. I think they may be able to scale, but even if not, they already have partnerships with toyota and daimler. Plus, let's face it: Apple's model works. They blew up as a tech company seemingly overnight and still maintain the same kind of quirky stores (admittedly, I always hate going into them, but that's another issue). Their stores have obviously grown too. I think it would have been dumb for them to start building huge stores off the bat when their mass market cars were years away. They can always expand, why incur such costs at the beginning?

In the end though, customer service is key, and the current dealer model isn't really renowned for always doing that well, so heck, why not try something new?

--Sales staff: from my own visits, and reports from others, people seem to really like the Tesla buying experience, so I'm not sure what you mean here. They don't have experience with car sales? Have you talked to your average salesman? The tesla folk all seem to know not only a lot about the model they currently sell, but about the tech and "green" aspect behind it as well. They seem to not only be able to talk shop, but talk beyond that into so much more. Why do you want to push them aside for oily tire kickers?

[benji4]

Excellent points, mostly true I think. The bean counters are clearly in control now at Tesla, but this is an unfortunate reality of being a publicly traded company, and also of being a company that we all hope will survive. You can only bleed so much red ink before somebody needs to actually think about turning a profit. The Roadster is a very special car and really not the type of vehicle that could ever make money. Its whole purpose was to build brand, and it's been a stunning success as evidenced by the tie-ups with Toyota and Daimler. As far as the Apple Store concept is concerned, indeed most of the current stores do seem a too small to really support any volume type of business. 5 parking spaces, wow, that's a lot -- I think there are 2 in Tokyo. Only 2 display vehicles can fit inside the store (3 if they crammed another one in), and the service shop is located miles away in some as yet unknown location.

What I really believe is that there could be a lot more money to be made in the battery and drive train business than trying to build, sell, and market the whole vehicle. The Roadster, Model S, and other upcoming vehicles act are the perfect medium for Tesla to further develop and refine its technology. We'll have to stay tuned for the next several years to find out where all this leads, but it may turn out that deals like the Rav4 EV, are what makes or breaks Tesla. I think that as smoothoperator talks about, it is just too complex for new companies to come onto the scene and do everything successful. Tesla's own models and the beautiful but small dealerships really may just turn out to be marketing tools for Tesla's amazing technology to other car makers. Think IBM-Microsoft and the PC market -- who came out ahead on that one? As far as Fisker is concerned it would be nice to see them first of all put a car on the road. I doubt that even when Fisker does finally release a product that other companies would ever be interested in licensing their technology.

[smoothoperator]

I don't see that. Clearly they need to scale up their operations for the Model S launch. Clearly, also, they can't do that too far ahead of launch.

What they are doing now is getting the people and facilities in place, with the existing Roadster customers as their training ground. Yes, as Model S rolls out they'll have to really ramp up their retail and maintenance operations. But it isn't time to do that -- yet. Right now they're scaled to handle the Roadster, and they can't afford to pay an army to sit on their hands and wait for the Model S to arrive.

I feel that if they had partnered with existing dealerships then the capital expenditure of acquiring, fixturizing, leasing space would be greatly diminished thus preserving capital. Many of the markets where Tesla has dealerships will probably have to be multi-dealer markets if Tesla decides to continue with this type of dealership concept. Is this not a much more expensive proposition than partnering with existing luxury car dealerships who can easily scale based on product/demand?

I guess my question is how do you propose Tesla scale their existing dealerships for future sales of their mass market EV's? I have only been to two dealers and both have difficult access and cannot be expanded due to space constraints. On the surface it seems that it would be much more expensive to start a network from scratch, especially with regards to the high end markets (low turnover/vacancy) Tesla is targeting?

[vfx]

Two years is a long way away.

In that last video of Elon, he clearly said they need to step up the store part of the operation.

They could start now. Can anyone name a car that costs over 20K that does not give you a rental car while being serviced at a dealer?

[smoothoperator]

Excellent points, mostly true I think. The bean counters are clearly in control now at Tesla, but this is an unfortunate reality of being a publicly traded company, and also of being a company that we all hope will survive. You can only bleed so much red ink before somebody needs to actually think about turning a profit. The Roadster is a very special car and really not the type of vehicle that could ever make money. Its whole purpose was to build brand, and it's been a stunning success as evidenced by the tie-ups with Toyota and Daimler. As far as the Apple Store concept is concerned, indeed most of the current stores do seem a too small to really support any volume type of business. 5 parking spaces, wow, that's a lot -- I think there are 2 in Tokyo. Only 2 display vehicles can fit inside the store (3 if they crammed another one in), and the service shop is located miles away in some as yet unknown location.

What I really believe is that there could be a lot more money to be made in the battery and drive train business than trying to build, sell, and market the whole vehicle. The Roadster, Model S, and other upcoming vehicles act are the perfect medium for Tesla to further develop and refine its technology. We'll have to stay tuned for the next several years to find out where all this leads, but it may turn out that deals like the Rav4 EV, are what makes or breaks Tesla. I think that as smoothoperator talks about, it is just too complex for new companies to come onto the scene and do everything successful. Tesla's own models and the beautiful but small dealerships really may just turn out to be marketing tools for Tesla's amazing technology to other car makers. Think IBM-Microsoft and the PC market -- who came out ahead on that one? As far as Fisker is concerned it would be nice to see them first of all put a car on the road. I doubt that even when Fisker does finally release a product that other companies would ever be interested in licensing their technology.

I think Fisker's take on this, is that they see their technology as appealing to the masses, where as Tesla will always be a niche market.

The powertrain manufacturing thing is a great idea, but Tesla just spent a lot of money on the Fremont plant, which is overkill if they planned on just producing powertrain/batteries. There is definitely more money in being a supplier of EV parts than having to build the whole vehicle. I don't think Elon would be too happy about being a powertrain company though as that would mean that he technically "failed."

[Cobos]

Smoothoperator on the dealer side, keep in mind this is a very US-centric view. In Norway (and many places in Europe) you can't walk into a dealer a drive off with a car. You drive to the dealer, talk with the sales staff about a car, take a testdrive and then leave. Then you usually testdrive a few other cars with other dealers. Finally you decide on what you want and you go to the dealer. You pick the trim level, model, color, options etc and you sign a contract. 2-4 months later you get your car, "custombuilt" to your specifications. This more or less exactly matches Tesla's dealer model, though Tesla is usually in a better part of town, and has smaller stores.

Cobos

[stopcrazypp]

On the dealer model thing, the off-site storage is a workable idea. That was what a recent Toyota dealer I visited kind of had (had a smaller showroom in a prime area with expensive rent, and more cars in another location that had cheaper rent).

As for the overhead of running stores vs giving the difference in msrp and invoice to the dealer, I'm not too sure which is better. On the scalability though, I do agree that the traditional dealer model is probably easier (for one you don't have to build new stores).

[Eberhard]

I Think, Tesla is doing right, even an output of 20.000 Model S a year i still low. The stores offer a high exclusivity and with the low maintenance need, load of dealers makes no sense. First approach for a aale goes even better through the Internet or a phone-contact with the sales-agent. Its no longer buying a car, its going to be an event to buy something different. BMW or Daimler none of them offer homes-ervice, that makes Tesla real unique.