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chk999 (99.98)

Tesla May Be Doing Something Smart

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September 25, 2012 – Comments (6) | RELATED TICKERS: TSLA , TM

I still think that TSLA the stock is ultimately worthless because I think the company goes bankrupt as they find out they can't get enough scale to be profitable, but that's not what I'm interested in today.

The smart thing that Tesla is doing is cutting out the dealership network altogether. They have no dealers, only showrooms. To buy a vehicle, you have to buy it directly from the factory. And I think this is smart. Why?

The dealership networks grew up around the automakers somewhat randomly. The body of custom and law largely favors the dealers over the customers and is a large part of what makes buying a car really annoying. It also induces a lot of friction costs (mostly in time and aggravation) that other industries manage to avoid. (Suppose you had to go haggle for hours just to buy a freaking laptop?)

 Now as I've mentioned before, a change in distribution channel oftens heralds a shakeup in the structure of an industry and can help or hurt players in that industry. The travel agent industry got decimated by the internet. But it made Amazon one heck of a player in the book and drygoods business.Could something similar happen in the auto industry?

Musk is a smart guy and I wish that he'd concentrated on Spacex and ignored this electric car nonsense. But this may be an innovation that one of the bigger manufacturers starts using and that could change the industry. And change can be profitable.  

6 Comments – Post Your Own

#1) On September 25, 2012 at 1:21 PM, EnigmaDude (96.53) wrote:

I think the company goes bankrupt as they find out they can't get enough scale to be profitable

Isn't that what people said about Apple in the early days?

Interesting perspective though.  Thanks for posting!

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#2) On September 25, 2012 at 3:56 PM, chk999 (99.98) wrote:

Apple required a loan from Microsoft to stay in business at one point. Microsoft only did the loan to keep the anti-trust people at bay.

I don't think the market for $40k electric cars is big enough to allow Tesla to order in big enough quantities to be profitable. The Chevy Volt and Nissan Leaf have both had disappointing sales. I think Tesla will have disappointing sales once the initial cool factor wears off.  

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#3) On September 27, 2012 at 1:05 PM, iamvoltron (24.59) wrote:

But the next (Gen III) model is coming in 2015. This is only the beginning, they are at stage 2 at the moment with Model S and Model X cars.

 Their problem is "only" execution at the moment, theyhave over 10k pre-orders for Model S.

Their strategy has been fairly consistent since 2006:

"So, in short, the master plan is:

1Build sports car
2Use that money to build an affordable car
3Use that money to build an even more affordable car
4While doing above, also provide zero emission electric power generation options"


Source: http://www.teslamotors.com/blog/secret-tesla-motors-master-plan-just-between-you-and-me

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#4) On September 27, 2012 at 6:29 PM, PainterPoker (21.33) wrote:

Thanks for the info iamvoltron.

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#5) On September 28, 2012 at 2:15 PM, chk999 (99.98) wrote:

iamvoltron - the problem is that car manufacturing is a business with really high fixed costs and a lot of competition. So you have to run your factory at pretty close to capacity to amortize the fixed costs among as many units as possible. But your competitors are looking to do the same and globally there is a glut of car manufacturing capacity. So manufacturers cut prices to keep sales up. This means that Tesla has a lot of competitors who will take very thin profit margins to stay in business. Once Tesla burns through the people who will pay way up for an electric, they may find it hard to move enough units for them to stay in business.

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#6) On September 28, 2012 at 10:53 PM, usmilitiadude (32.97) wrote:

Who will repair them, especially under warranty?

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